What Is Medicare Supplement Insurance?

Medicare Supplement Insurance is a type of health insurance policy sold by private insurance companies to complement Medicare policies. Better known as Medigap, this type of insurance covers the cost of healthcare services that lie outside the scope of Medicare Parts A and B insurance plans. It extends to the gaps not covered by Original Medicare, including copays, coinsurance, and deductibles.

Key Takeaways

  • Medicare Supplement Insurance, or Medigap, is a type of health insurance policy sold by private insurance companies to complement Medicare policies.
  • It covers common gaps in Medicare’s standard insurance plans.
  • Insured individuals pay monthly premiums for Medigap policies directly to the insurance provider. 
  • Medigap coverage is different from Medicare Part C, which is also known as a Medicare Advantage plan. 

How Medicare Supplement Insurance Works

Medicare Supplement Insurance covers common gaps in Medicare’s standard insurance plans. People who apply for Medigap coverage must take part in Medicare Parts A and B. Medigap plans supplement, but do not replace, primary Medicare coverage. There are 10 Medigap plans, from Plan A to Plan N.

The Medigap Open Enrollment Period (OEP) is six months from the first day of an individual's 65th birthday month. These plans may also have open enrollment for six months after signing up for Part B coverage. 

Insured individuals pay monthly premiums for private Medigap policies directly to the insurance provider. These premiums exist above and beyond the premiums paid for Medicare Parts A, B, and D. That means someone with Medigap will pay one premium for Part B and another for the plan offered by the private company. Although private insurance companies offer Medigap plans, the federal government requires companies to standardize policy coverage. This standardization means that Medigap Plan C from provider Z provides the same coverage as Plan C from provider Y.

All Medigap plans must cover preexisting conditions after a six-month waiting period. However, those who have continuous medical coverage for six months before enrolling may be able to avoid this and get immediate coverage.

Special Considerations

Most Medigap policies receive Medicare Part B claim information directly from the Medicare program. The private insurer then remits the difference directly to the healthcare provider. Some plans submit payments to hospitals based upon the Medicare Part A claim information, but this is less common. Medicare requires that policies pay doctors who participate in Medicare directly if a patient requests that the insurance company do so.

The Centers for Medicare and Medicaid Services (CMS) warn prospective buyers of Medigap policies to be on the lookout for fraudulent practices. Common scams include high-pressure sales tactics, selling duplicate policies, or selling policies when insurers are aware individuals have coverage from an incompatible government program such as Medicaid or Medicare Advantage.

Some states also regulate the types of Medigap policies that are sold within their borders. Though Medigap policies are related to Medicare, they come from private insurers only. Anyone shopping for supplemental plans should bear in mind that it is illegal for private insurers to misrepresent Medigap policies as federal programs.

Medicare Supplement Insurance vs. Medicare Part C

It's possible to get confused between Medigap Plan C and Medicare Part C, but they are not the same thing. Medicare Part C is also known as a Medicare Advantage plan. As with Medigap plans, Medicare Advantage (MA) plans come from private providers. These plans include and replace Medicare Parts A, B, and usually Part D coverage, but not hospice care.  Medicare Advantage plans generally include:

  • Deductibles for Part A and Part B coverage
  • Coinsurance payments to hospitals and hospice care
  • Hospital costs for up to an additional 365 days after Original Medicare—Parts A and B—coverage is exhausted
  • Coinsurance and copays for Part B coverage
  • Coinsurance for skilled nursing facilities
  • Three pints of blood for medical procedures
  • 80% of the approved cost for foreign travel emergency coverage

Your out-of-pocket costs for a Medicare Advantage plan depend on a number of factors, including whether the plan charges a monthly premium or covers any of the Medicare Part B monthly premium. Some plans pay for both.

MA plans have one of four structures: a health maintenance organization (HMO), a preferred provider organization (PPO) plan, a private fee-for-service (PFFS) plan, or a special needs plan (SNP). The federal government forbids private insurers from selling Medigap policies to individuals enrolled in Medicare Advantage. To be eligible, an individual must live in the plan’s service area and have Medicare Parts A and B. These plans come from private providers who have government approval.

Medigap plans don't cover doctor charges above the Medicare acceptable charges, which must be paid by the patient. Supplemental insurance coverage for dental, vision and eyeglasses, hearing aids, and private-duty nursing generally varies by provider. Some providers may also offer additional benefits for long-term care and prescription drug coverages.

Doctor charges that are above Medicare acceptable charges are not covered by a Medigap plan and must be paid by the patient.

For anyone considering Medicare Part C versus a Medigap plan, it's important to carefully research the myriad available options to find the best Medicare Advantage plan possible.

The Other Parts of Medicare

Part A 

Medicare Part A coverage includes hospital care, skilled nursing facility or nursing home care, hospice care, and home health services. This plan doesn't cover all nursing home services though, such as simple custodial care if that is all the patient requires.

Part A coverage for most people is free because they contributed to Medicare through their payroll taxes. But anyone who submitted fewer than 30 quarters of Medicare taxes is required to pay an annual premium. Monthly premiums are updated annually and range from $259 to $471 in 2021, depending on an individual's quarterly coverage eligibility. Medigap plans will assist with covering these out-of-pocket expenses.

Even though premiums may be free for most Medicare enrollees, they must cover certain out-of-pocket expenses. Deductibles for inpatient hospital stays in 2021 are $1,484, which covers the first 60 days in a hospital. Coinsurance kicks in after the 61st day, after which, patients are responsible for $371 each day for the 61st to 90th day they spend in the hospital.

Part B 

Part B coupled with Part A is known as Original Medicare. Part B is optional in most cases. It helps to pay for routine medical care such as doctor visits, durable medical equipment, home health services, outpatient services, ambulance service, physical therapy, and many other medical needs. Annual premiums are based on income earned in the years before enrollment.

Like Part A coverage, Medicare adjusts premiums and deductible rates each year. The standard monthly premium for Part B for 2021 is $148.50 and the annual deductible is $203. Premiums increase for those deemed to be in a higher income bracket.

Part D

Part D coverage provides prescription drug benefits to people who are enrolled. An individual participant’s actual costs tend to vary depending on several factors including:

  • The type of plan
  • The medications they use
  • The pharmacy they select

These plans come from government-approved private providers. Anyone enrolled in Medicare Part D can't get prescription drug coverage from a Medigap plan. Medicare updates maximum deductible amounts each year.

The average monthly premium for Part D coverage in 2022 will be $33 per month, versus 31.47 in 2021. Medigap plans will assist with covering these out-of-pocket expenses.