What is Medigap Coverage and Why Do I Need It?

by David Bynon, last updated

Medigap helps pay Original Medicare out-of-pocket costs, including deductibles, coinsurance, and copays. Without it, beneficiaries pay these costs themselves.

What is Medigap Coverage Used for?

In this article, we will go over how Medigap coverage, also known as Medicare Supplement Insurance, can help you manage your healthcare costs and save you money in the long run.

Key Takeaways

  • Medicare is an 80/20 cost-sharing system. It does not pay all costs and it does not cover all healthcare services.
  • Medicare beneficiaries are responsible for paying their 20% share of all Medicare-approved services.
  • Medicare does not have an annual out-of-pocket limit on costs.
  • Not having additional coverage with Medicare is very risky. A simple 4-5 day hospital stay can easily cost the beneficiary thousands of dollars in deductibles and copays.
  • When no other options are available, Medigap coverage is the best way to manage healthcare costs and avoid unexpected healthcare bills.

What is the Purpose of Medigap Coverage?

Original Medicare (Part A and Part B) does not cover 100% of all of its benefits. Although Medicare Part A and Part B cover most of the medical costs for patients, the remaining costs can quickly add up and become a huge expense.

For example, if you are hospitalized, Medicare Part A requires you to pay a per-benefit-period deductible. This year, the Part A deductible is [medicare_cost value=”parta-deductible”]. However, this deductible only covers your hospitalization costs.

Part A (hospital insurance) does not cover your doctors, specialists, surgeons, blood, tests, diagnostics, supplies, durable medical equipment, or the medications given to you in the hospital. These services are covered by Medicare Part B (medical insurance). Your portion is a 20% coinsurance.

Supplemental insurance helps you pay these costs. Do you need supplemental insurance with Medicare? That all depends on how healthy you are and your ability to pay. The best way to understand is to have a look at a chart.

RELATED: What is the Average Cost of Supplemental Insurance for Medicare?

Chart of Medigap Plans and Coverage

The following chart of Medigap coverage shows the various cost of Original Medicare (left) and what each of the 10 standardized plans covers (right).

Medicare Supplement Plans Comparison Chart for 2024

Notice there is no mention of prescriptions and routine care, like dental, vision, and hearing. Original Medicare coverage does not include these services. Federal law prohibits a private insurance company from covering these benefits. As a result, a Medigap policy does not cover them, either.

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Medigap vs. Medicare Advantage

You might be wondering how Medigap coverage compares to Medicare Advantage.

They are apples and oranges. Sure, they are both health insurance, but that’s about where their similarities end.

A Medigap policy works with Medicare to cover more of your costs. Said another way, it covers the cost gaps in Medicare. This is the reason insurance experts feel Plans F and G are the best Medicare Supplement plans. They cover the most gaps.

Unlike supplements, Medicare Advantage (MA) plans completely replace your Medicare benefits with a private health plan. However, these plans do not necessarily reduce your costs. In other words, they still have cost gaps.

In some cases, MA plans have a monthly premium because they cover more services (e.g., prescriptions, dental, vision, hearing, transportation, etc.). In other instances, Medicare Advantage plans have a monthly premium because they cover more out-of-pocket costs.

But, how do you know which is which?

The Medigap chart above makes it very clear what each Medigap plan covers. Medicare Advantage plans do not work the same way:

  • They are not standardized.
  • They change annually.
  • They set their own costs, even for Medicare Part A and Part B covered services.
  • They set their own rules (i.e., referrals and pre-authorization).
  • Most plans have a high annual out-of-pocket limit.

You can compare Medicare Advantage plans in your area by putting your zip code in the search box below.

Find Plans in your area with your ZIP Code

How Does Medigap Work?

Medigap plans work in lockstep with Medicare. If a service is Medicare-approved, a Medigap policy covers the beneficiary’s share (up to the limits of the policy).

And, because Medicare does not require referrals and pre-authorization, neither does a Medigap policy. You can see any doctor or use any healthcare provider that accepts Medicare.

However, not all providers accept Medicare the same way. Some healthcare providers accept Medicare assignment. That simply means they accept Medicare’s standard rates as payment in full.

Some Medicare-approved providers do not accept assignment. These providers can add up to an additional 15% to their bill. This is known as Medicare Part B excess charges. And it is the beneficiary’s responsibility to pay.

How can a doctor charge more than Medicare allows? It comes down to being a participating provider vs. a non-participating provider. Some doctors see Medicare patients and accept Medicare reimbursement as partial payment, but they want to be paid more than Medicare’s approved amount.

The good news is that some Medigap plans cover it. The most popular plan that covers excess charges is Medicare Supplement Plan G.

All Medigap plans have a monthly premium. The more coverage you want, the more you pay. And, rates vary from area to area. Your gender, age, and use of tobacco are also factors.

Choosing or Changing a Medigap Plan

The best way to choose a Medigap plan is to compare Medicare Supplements in your area. This is the only way you will know the average cost of Medicare supplemental insurance and which private insurance companies offer plans in your state.

Get a FREE Medicare Supplement Rate Comparison

The best time to get Medicare Supplement insurance is when you first qualify for Medicare at age 65. At that time you have certain Medigap protections.

Your most important protection is a guaranteed issue right to buy a Medigap policy. At age 65, if you buy within the first 6 months, you cannot be denied coverage. Not even if you have a pre-existing condition.

If you don’t buy Medicare Supplement insurance at age 65, or if you want to change your policy later, insurance companies have the right to deny you coverage. When you apply without a guaranteed issue right, the insurance company you are applying with will send your application through a medical underwriting process.

Medical underwriting looks at your health history. If they don’t like what they see they may deny coverage, offer a policy with a 6-month waiting period, or offer you a policy with less coverage.

The good news is that you can apply, cancel, or change your Medicare Supplement policy at any time. You don’t have to wait for a specific enrollment period, as you do with a Medicare Advantage plan.

What is the Downside to Medigap Plans?

When it comes to your Medicare coverage, nothing is perfect. No matter what, you are going to balance tradeoffs.

With a Medicare Advantage plan, you can get more coverage. For example, most plans include Medicare prescription drug coverage. And, a growing number of plans offer routine dental, vision, and hearing benefits.

Here are the primary disadvantages of a Medigap plan:

  1. A Medigap policy isn’t health insurance. It’s indemnity insurance. Healthcare laws don’t apply and you can be turned down due to a pre-existing condition, age, etc.
  2. Medigap policies do not include additional benefits. In the past, some Medigap plans offered prescription drug coverage. It’s no longer allowed.
  3. Medigap policies have a monthly premium. You pay the premium month after month, even if you are healthy.
  4. Medigap premiums increase every year (in most cases). You are free to shop for better rates, but there’s no guarantee you will be issued a new policy.

Why Would I Want a Medigap Plan?

A Medigap policy is like life insurance, car insurance, or home flood insurance. It doesn’t offer you a single benefit until you need it.

But, when you need it you will be glad you have it.

Can you imagine the cost of replacing your house if it floods, or your car if it is totaled? Supplemental Medicare insurance is just like that. Because the cost of hospital bills when you are seriously ill or injured is just as catastrophic.

Find a Medigap policy you can afford that offers a level of protection that lets you sleep at night. If you are getting your Medicare benefits this year, Medicare Supplement Plan G has the most coverage you can buy. It’s also the most expensive.

If you are relatively healthy and want a less expensive plan, have a look at Medigap Plan N. It has a couple of out-of-pocket costs that Plan G covers, but it costs between 20% and 30% less.

If you need a policy that’s under $75 per month, look at Plan K and High Deductible Plan G. With these plans you will pay out of pocket until you reach the annual limit or deductible.

Plan K and High Deductible Plan G are great Medigap policies to consider if you don’t want the restrictions of a Medicare Advantage plan. And, in many areas, you can find a Medigap insurance company offering these plans starting at around $45 per month. It’s a good way to save money while making sure your health care costs are covered.

Find Plans in your area with your ZIP Code

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