Medigap Coverage: An Important Tool for Reducing Medicare Financial Risk
An Important Tool for Reducing Medicare Financial Risk
Original Medicare provides comprehensive coverage for essential health care services, but it won’t pay for everything. That’s why about one-third of all Medicare beneficiaries in 2016 owned Medigap insurance, the supplemental policies that cover co-pays, deductibles and other costs not borne by original Medicare.
Beyond reducing out-of-pocket expenses, Medigap plans play an important role in helping protect seniors from major, unexpected medical costs. Here’s how those surprise expenses can occur:
Once a beneficiary meets their deductible for Part A services (i.e. hospitalization, skilled nursing and rehabilitation) or Part B services (outpatient care, preventive services, ambulance services and durable medical equipment), Medicare will pay, in the case of Part A, a fixed amount for a specific number of inpatient days or, with Part B, 80 percent of medically necessary, approved health care expenses.
In either case, patients can face potentially catastrophic, out-of-pocket expenses if they experience a serious illness or accident that requires extended, comprehensive care. Medigap coverage will reduce or eliminate this risk, depending on the type of plan selected, while covering routine costs that would otherwise be the responsibility of the beneficiary.
Multiple plan designs
Although Medigap policies are sold by commercial insurance companies, each plan must conform to one of 10 Medicare-defined coverage templates. The standardized packages offer different levels of coverage and are designated by a letter: A, B, C, D, F, G, K, L, M and N.
Because the benefits associated with each letter plan are the same from one insurance company to another, cost comparisons between different companies are simple. And it pays to shop around, since prices can vary dramatically for exactly the same coverage. It’s also important to remember that none of the Medigap plans provide drug coverage, so people who want or need drug benefits will need to buy a separate Medicare Part D plan.
The chart below provides basic information about the benefits available through each of the various Medigap policies. Where a percentage appears, the Medigap plan covers that percentage of the benefit and the seniors must pay the rest.
* Plan F is also offered as a high-deductible plan by some insurance companies in some states. If you choose this option, this means you must pay for Medicare-covered costs (coinsurance, copayments, deductibles) up to the deductible amount of $2,300 in 2019 before your policy pays anything. **For Plans K and L, after you meet your out-of-pocket yearly limit and your yearly Part B deductible ($185 in 2019), the Medigap plan pays 100% of covered services for the rest of the calendar year. *** Plan N pays 100% of the Part B coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that don’t result in an inpatient admission.
Who can buy Medigap plans?
Medigap plans are only available to seniors who already have Medicare Part A and Part B. The best time to enroll in a Medigap insurance plan typically is during the Medigap Open Enrollment Period, which begins on the first day of the month that you’re both enrolled in Medicare Part B and aged 65 or older. This enrollment period lasts for six months.
Some states have additional Open Enrollment Periods, including options for people under 65. During open enrollment, an insurance company can’t use medical underwriting. This means a health problem. insurance companies can’t:
- Refuse to sell you any Medigap policy it offers
- Charge you more for a Medigap policy than they charge someone with no health problems
- Make you wait for coverage to start (except as explained below)
Even though the insurance company can’t make you wait for coverage to start, it may be able to impose a waiting period for a pre-existing condition. A pre-existing condition is a health problem that existed before the start date of a new insurance policy. In some cases, the Medigap insurance company can refuse to cover out-of-pocket costs for pre-existing health problems for up to six months. This is called a “pre-existing condition waiting period.”
After six months, the Medigap policy will cover the pre-existing condition. Coverage for a pre-existing condition can only be excluded if the condition was treated or diagnosed within six months before the coverage starts under the Medigap policy. This is called the “look-back period.” Remember, for Medicare‑covered services, Original Medicare will still cover the condition, even if the Medigap policy won’t, but the beneficiary will be responsible for the Medicare coinsurance or copayment.
Plan changes coming
Starting in January 2020, two traditionally popular supplement plan options – Plan F and Plan C – will no longer be available to new Medicare members or those born after January 1, 1955.
Plan F is the most comprehensive Medigap policy available, covering all deductibles, copays and coinsurance for Medicare Part A and Part B. This so-called first dollar coverage means Plan F policyholders are left with few, if any, out-of-pocket medical costs. Plan C provides similar coverage but offers slightly fewer benefits.
Fortunately, Plan G, another Medigap policy, offers the same level of coverage provided by Plan F – minus the Part B deductible – and will continue to be available after January 2020.
Here are some general facts to remember about Medigap policies from the Centers for Medicare and Medicaid Services:
- You must have Medicare Part A and Part B.
- A Medigap policy is different from a Medicare Advantage Plan. Those plans allow you to get all your Medicare benefits under one plan, while a Medigap policy only supplements your Original Medicare benefits.
- You pay the private insurance company a monthly premium for your Medigap policy. You pay this monthly premium in addition to the monthly Part B premium that you pay to Medicare.
- A Medigap policy only covers one person. If you and your spouse both want Medigap coverage, you'll each have to buy separate policies.
- You can buy a Medigap policy from any insurance company that's licensed in your state to sell one.
- Any standardized Medigap policy is guaranteed renewable even if you have health problems. This means the insurance company can't cancel your Medigap policy as long as you pay the premium.
- Some Medigap policies sold in the past cover prescription drugs. But Medigap policies sold after January 1, 2006, aren't allowed to include prescription drug coverage. If you want prescription drug coverage, you can join a Medicare Prescription Drug Plan (Part D).
- It's illegal for anyone to sell you a Medigap policy if you already have a Medicare Advantage Plan, unless you're switching back to Original Medicare.
- Medigap policies generally don't cover long-term care, vision or dental care, hearing aids, eyeglasses or private-duty nursing.
 “State of Medigap 2018: Trends in Enrollment and Demographics,” AHIP, June 2018
 “2019 Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare,” Centers for Medicare & Medicaid Services, 2019