The downside to Medigap plans is their monthly premiums. They have a short guaranteed issue period, which means changing plans after your initial policy is issued may not be possible if your health changes. Plus, Medigap plans do not offer extra benefits, including a prescription drug plan, unlike Medicare Advantage plans.
If you’re trying to decide if it is better to have Medicare Advantage or Medigap, this article will help you answer that question.
- Medigap plans cover the gaps in Medicare Part A and Medicare Part B, including deductibles, copays, coinsurance, blood, and foreign travel emergencies (up to the policy’s limits).
- Plans cannot include additional benefits like routine dental, vision, hearing, or Medicare Part D prescription drug plans.
- During a Medicare beneficiary’s guaranteed issue period, they cannot be denied coverage.
- Medigap insurance companies can ask health questions and deny coverage. Affordable Care Act (ACA) protections do not apply.
- Medigap insurance companies can raise their rates but cannot change the coverage.
- A Medigap policy covers you throughout the continental United States and its territories.
- Medigap plans can be expensive, particularly those covering excess Medicare charges. And you must continue to pay your Part B premium.
Pros and Cons of Medicare Supplement Plans
Above, we listed the top three disadvantages of Medigap plans. But that does not tell the whole story. So, let’s look at the full list of commonly cited pros and cons.
- Comprehensive Coverage: A Medigap insurance policy helps enrollees pay health care costs. Medicare Advantage plans don’t.
- Standardized Coverage: There are 10 Medicare Supplement plans in 47 states with the same coverage. Medicare Advantage plans are not standardized, which makes them difficult to compare based on healthcare needs.
- No Annual Changes: Medigap plan benefits rarely change (it generally takes an Act of Congress). Medicare Advantage plans change annually, making it challenging to maintain consistent medical care.
- Nationwide Provider Network: Use providers nationwide who accept Medicare. Every provider that accepts Medicare is in-network. With most private health plans, you are restricted to a local network of providers, or you will pay all costs (HMO) or higher costs (PPO) if you go out-of-network.
- No Referrals or Prior Authorization: You can see any provider that accepts Medicare and never need a referral or prior authorization to receive care. The private insurance companies that sell Medigap policies have no say.
- No Deductibles: All plans, except Plan A, pay all or part of the Part A deductible. Some Medicare Advantage plans have deductibles, and some don’t.
- No Coinsurance: All plans cover Part A and Part B coinsurance costs. Medicare Advantage plan coinsurance rates vary by service.
- No Copays: All but three plans cover 100% of all copayments. The three plans don’t have low copays or pay 50-75%. Medicare Advantage plan copay rates vary by service.
- Easy to Budget: Medigap makes budgeting easy. With a Plan G policy, for example, once you have paid the annual Part B deductible, you don’t have to worry about out-of-pocket expenses. It’s all covered by your monthly premium. With Medicare Advantage, you continue paying out-of-pocket until you’ve reached the maximum out-of-pocket limit (up to $8,550 in 2024).
- Guaranteed Renewable: Your insurance company can’t cancel your policy unless you fail to make your premiums. Your policy will renew annually without having to apply.
- Guaranteed Issue Rights: Medicare gives everyone Medigap protections at age 65 when they first enroll in Medicare.
- Free Look Period: You have a 30-day free look period from when your policy is approved. If you don’t like the policy, you can drop it and receive your initial premium back.
- Change Anytime: You can cancel or change your Medigap plan or insurance company any time you want. With most companies, this will require a medical underwriting process. The process is generally quick and easy if you are in good health and don’t have a troubled health history.
- High Monthly Premiums: For some individuals, paying for a Medigap insurance plan may simply be too expensive. Where you live, your age, gender, and tobacco use are all factors.
- Annual Rate Increases: Regardless of the insurance company you go with, rates will increase. In most cases, your premiums will increase a few percent each year.
- Eligibility: Medicare guarantees eligibility at age 65 when enrolled in Part A and B. You cannot be denied coverage due to a pre-existing condition. Some states expand eligibility to individuals under age 65 enrolled in Medicare. State rules are published in your Medicare & You handbook.
- Underwriting: If your Medigap protections have expired, and you have certain health conditions, you may not be able to get an application approved by an insurance company.
- Policy Fees: Many insurance companies charge a one-time policy fee to cover the cost of processing your application. The fee is paid to the insurance company, not the agent.
- No Prescription Drug Coverage: Medigap plans cannot include prescription drug coverage. In the past, this was allowed, but Medicare Advantage put the kibosh on that benefit. You can get a Medicare Part D plan for prescription coverage.
- No Routine Dental, Vision, or Hearing: If Original Medicare doesn’t cover a service, a Medigap plan can’t cover it, either. These policies cannot offer additional coverage.
- Medicaid Beneficiaries Do Not Qualify: You cannot have a Medicare Supplement if you have Medicare and Medicaid.
What Do Medigap Plans Cover?
Original Medicare (Part A and Part B) is 80/20 private fee-for-service (PFFS) health insurance. The federal government pays about 80% of all major medical costs, and the beneficiary pays the remaining 20% directly to their doctors and other healthcare providers. The beneficiary’s cost-sharing comes in deductibles, coinsurance payments, and copayments.
The best way to understand Medigap coverage is to look at a chart of the coverage offered by each of the 10 standardized Medicare Supplement Insurance Plans.
The lefthand column of the chart above shows the coverage gaps in Original Medicare. To the right, you can see how each lettered plan (A, B, C, D, F, G, K, L, M, and N) covers the gaps. There is no wiggle room. If Medicare covers and approves a medical service or supply, the Medigap policy must cover it (up to the policy’s limits).
The disadvantage is that the converse is also true. Medigap carriers cannot add benefits to their policies. Since 2003, after the Medicare Modernization Act was signed into law, supplemental Medicare coverage got shut out of the “extra benefits” game. That’s now the exclusive domain of Medicare Advantage plans.
Likewise, in 2015, the Medicare Access and CHIP Reauthorization Act mandated that, as of January 1, 2020, insurance carriers can no longer sell new Medicare beneficiaries Medigap policies that cover the Part B deductible (covered by Plan F and Plan C). As a result, getting full coverage is no longer possible, but Medigap Plan G comes close.
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Carriers Can Ask Health Questions and Deny Coverage
That’s right, you can be denied a Medicare Supplement plan. It’s one of the major downsides of Medigap insurance.
Insurance companies can deny coverage because Medicare Supplements aren’t health insurance. Medigap plans are a form of indemnity insurance, and healthcare laws don’t apply.
Medigap insurance carriers can and will turn you down for pre-existing health conditions. That’s their right.
As Medicare beneficiaries, we have guaranteed-issue rights. But that right only lasts for six months. It starts when you first enroll in Medicare Part B.
During this period, you can buy the Medigap policy of your choice without being asked probing health questions. Without your guaranteed-issue rights, your application will go through medical underwriting. Based on the underwriter’s review, you may be accepted, denied, or accepted with a coverage waiting period.
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Medigap Insurance Carriers Can Raise Their Rates
Unlike Original Medicare and a Medicare Advantage plan, Medicare Supplements do not have plan years. As a result, a rate increase can come at any time (with notification), not just at the beginning of the year. And, sometimes, rate increases can be dramatic. I have seen rates go up as much as $100 per month.
Currently, Plan F rates are going up the fastest because more unhealthy people are in this plan. It is one of the Medicare Plan G pros and cons, as well.
Unlike Medicare Advantage plans, which have seen decreasing monthly premiums over the past few years, Medigap insurance’s average cost continues to increase. This has to do with how much you pay out-of-pocket with a Medicare Supplement plan vs. a Medicare Advantage plan.
One of the biggest drawbacks is the high cost of comprehensive Medigap plans. However, the monthly cost comes with exceptional coverage and financial protection. The popularity of Plan N, which has some cost-sharing for doctor visits, has skyrocketed for this reason.
Rates have everything to do with the financial stability of the insurance company and the number of lives they insure. Smaller carriers often come into an area with super low rates but raise their rates year after year to recoup their initial losses. The safe bet is to go with a larger, nationwide health insurance carrier demonstrating gradual rate increases.
Be sure to ask your insurance agent for the Medigap rate increases by company in your area. You can also get this information from us with our free rate quoting service.
A Medigap Policy Covers You Throughout the USA
Nationwide coverage is one of the nice features of Original Medicare and Medigap. Without provider networks to worry about, coast-to-coast coverage is easy. But, what if you move?
You can usually stay with your Medigap plan even if you move out of state. You may switch to a different Medigap plan offered in your new location if you like, but you can be rejected if you don’t have guaranteed-issue rights.
The one instance where you will lose your Medigap coverage is if you have a Medicare SELECT plan. These are specialized Medigap plans that use provider networks (primarily local hospitals). You can often request a guaranteed-issue right to purchase a different Medigap plan if you move out of state or out of your Medicare SELECT plan’s service area.
Medicare Supplement Plans Can Be Expensive
On a typical day, I generate thirty or more Medicare Supplement quotes for people. So, I see exactly how much people are paying. If you are in one of the lower-cost areas, count yourself lucky, because people in Florida and the North East pay exorbitant rates.
What’s the alternative?
The obvious alternative is a Medicare Advantage plan. However, they have their own cost issues. If you want to learn more, read Medigap vs Medicare Advantage in 3 Minutes!
Another option is to self-insure and go with a High-Deductible Plan F or Plan G. Here’s how it works.
Let’s say you’re a 65-year-old woman living in Tampa, Florida, and you’d like a Medigap Plan G. In 2024, that policy will cost you about $180 per month. This policy can increase by 5 to 10% each year. So, by the time you are age 75, you’ll be paying $350 or more per month ($4,200 per year).
Many Medicare Advantage plans have an out-of-pocket maximum greater than $4,200 annually. However, unless you are admitted into the hospital or have serious chronic health conditions, it’s unlikely you will ever have out-of-pocket costs that high. Does that make Medicare Advantage a better deal?
Maybe. It all depends on what you value most. If you value control, keep your traditional Medicare benefits and add a Medigap policy and a Part D plan for your prescriptions. This is the best Medicare coverage you can get.
The same 65-year-old Tampa woman would only pay about $85 per month for a High-Deductible Plan G. That’s a first-year savings of about $1,140. If you put the amount you save, between a regular Plan G and the high-deductible version, into a savings account, your savings will pay your deductible and copayments when needed. Ask your insurance agent if this approach is appropriate for your situation.
When it comes to Medicare supplements, it isn’t easy to come up with many disadvantages. The biggest disadvantage is the monthly cost, but it’s also an advantage. You know you’re covered by paying a single rate upfront each month.
That’s not the case with Original Medicare alone or Medicare Advantage. With both options, you potentially have big inpatient care deductibles and copayments that must be paid. With a Medigap policy, you get peace of mind knowing you’re covered.
Frequently Asked Questions
Depending on your age and where you live, Medigap monthly premiums can be high. Some Medicare supplement plans also have a deductible you must meet before the plan begins covering your costs. For more information, read 7 Disadvantages of Medigap Plans.
Not necessarily. A Medigap policy offers additional coverage for individuals enrolled in Original Medicare, but they do not include extra benefits. However, Medicare Advantage plans offer the same coverage as Original Medicare, plus some additional benefits Original Medicare does not cover (such as prescription drugs, vision, dental, hearing, and other services), but out-of-pocket costs may be higher. For more information, read 7 Disadvantages of Medigap Plans.
No, not under normal circumstances. All Medigap policies issued since 1992 are guaranteed renewable. That means your insurance company can't drop you unless you stop paying your premiums or the company goes bankrupt. For more information, read 7 Disadvantages of Medigap Plans.
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Citations and References
- Medicare.gov, “What’s Medicare Supplement Insurance (Medigap)?“, Accessed April 18, 2023
- Medicare.gov, “Costs of Medigap Policies“, Accessed April 18, 2023
- KFF.org, “Medigap Enrollment and Consumer Protections Vary Across States“, Accessed April 18, 2023
- Medicare.gov, “Guaranteed issue rights“, Accessed April 18, 2023
- Medicare.gov, “Switching Medigap policies“, Accessed April 18, 2023
- Medicare.gov, “How to compare Medigap policies“, Accessed April 18, 2023