7 Disadvantages of Medigap Plans (plus 12 benefits)

What is the Downside to Medigap Plans?

The downside of Medigap is the cost and the short guaranteed issue period. However, with a comprehensive policy, you will never have excessive hospital or doctor bills.

If you’re trying to decide whether it is better to have Medicare Advantage or Medigap, this article will help you answer that question.

Quick Answer to The Key Question

We found three major disadvantages to Medigap plans, but we list more below. The core disadvantages of Medigap plans are their monthly premiumsA premium is an amount that an insurance policyholder must pay for coverage. Premiums are typically paid on a monthly basis. In the federal Medicare program, there are four different types of premiums. , a limited period of guaranteed enrollment, and no additional benefits, such as coverage for prescriptions.

When compared with Medicare Advantage plansMedicare Advantage (MA), also known as Medicare Part C, are health plans from private insurance companies that are available to people eligible for Original Medicare (Medicare Part A and Medicare Part B). on the same measures, a Medicare Advantage plan looks like a better option. However, Medigap plans cover more costs. This is what makes a Medicare Supplement plan the best option for anyone concerned about coverage of their major medical costs.

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 have a look at the full list of the pros and cons commonly cited.

Medigap Pros

1. Comprehensive Coverage: Medigap plans fill the cost gaps in Original Medicare. Medicare Advantage plans don’t.
2. Standardized Coverage: There are 10 Medicare Supplement plansMedicare Supplements are additional insurance policies that Medicare beneficiaries can purchase to cover the gaps in their Original Medicare (Medicare Part A and Medicare Part B) health insurance coverage., in 47 states, that have exactly the same coverage. Medicare Advantage plans are not standardized, which makes them difficult to compare.
3. No Annual Changes: Medigap plan benefits rarely change (it generally takes an Act of Congress). Medicare Advantage plans change annually.
4. Nationwide Provider Network: Use providers nationwide who accept Medicare. With most Medicare Advantage plans you are restricted to a local network of providers.
5. No Deductibles: All plans, except Plan A, pay all or part of the Part AMedicare Part A is hospital coverage for Medicare beneficiaries. It covers inpatient care in hospitals and skilled nursing facilities. It also covers limited home healthcare services and hospice care. deductible. Some Medicare Advantage plans have deductibles, and some don’t.
6. No Coinsurance: All plans cover Part A and Part B coinsurance costs. Medicare Advantage plan coinsurance rates vary by service.
7. No Copays: All but three plans cover 100% of all copaymentsA copayment, also known as a copay, is a set dollar amount you are required to pay for a medical service.. The three plans that don’t have low copays or pay 50-75%. Medicare Advantage plan copay rates vary by service.
8. 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’re reached the maximum out-of-pocket limit (up to $7,550 in 2023).
9. Guaranteed Renewable:  Your insurance company can’t cancel your policy unless you fail to make your premiums. Every year your policy will renew without having to apply.
10. Guaranteed Issue RightsGuaranteed-issue is a right granted to Medicare beneficiaries and applies to Medicare Supplement insurance (aka, Medigap plans). All states and the federal government enforce this essential right, which protects Medicare beneficiaries from medical underwriting.: Medicare gives everyone Medigap protections at age 65 when they first enroll in Medicare.
11. Free Look Period: You have a 30-day free look period from the time your policy is approved. If you don’t like the policy, you can drop it and receive your initial premium back.
12. 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. If you are in good health and don’t have a troubled health history, the process is generally quick and easy.

Medigap Cons

1. High Monthly Premiums: For some individuals, paying for a Medigap policy may simply be too expensive. Where you live, your age, gender, and use of tobacco are all factors.
2. 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.
3. Eligibility: Medicare guarantees eligibility at age 65 when enrolled in both Part A and Part B. Some states expand eligibility to individuals under age 65 who are enrolled in Medicare. State rules are published in your Medicare & You handbook.
4. 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.
5. 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.
6. No Prescription Drug Coverage: Medigap plans are not permitted to include prescription drug coverage. In the past this was allowed, but Medicare Advantage put the kibosh on that benefit.
7. No Routine Dental, Vision, or Hearing: If Original Medicare doesn’t cover a service, a Medigap plan can’t cover it, either.

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 beneficiaryA person who has health care insurance through the Medicare or Medicaid programs. pays the remaining 20% directly to their doctors and other healthcare providers. The beneficiary’s share comes in the form of 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 Medigap 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 limits of the policy).

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, it is no longer possible to get full coverage, but Medigap Plan GIf you're turning age 65 this year, Medicare Supplement Plan G is the most comprehensive Medicare supplement you can buy. It's also the most popular. You might be thinking that Medicare Supplement Plan F is... comes darn close.

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.

The reason insurance companies can deny coverage is that 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 BMedicare Part B is medical coverage for people with Original Medicare benefits. It covers doctor visits, preventative care, tests, durable medical equipment, and supplies. Medicare Part B pays 80 percent of most medically necessary healthcare services..

During this period of time, 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.

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 over a period of a year.

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 handful of years, the average cost of Medigap insurance continues to go up. The reason for 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. But the monthly cost comes with exceptional coverage and financial protection.

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 money is to go with a larger, nationwide health insurance carrier that demonstrates 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 really nice features of Original Medicare and Medigap. Without provider networks to worry about, coast-to-coast coverage is easy and straightforward. But, what if you move?

In most cases, you can 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 if you don’t have guaranteed-issue rights, you can be rejected.

The one instance where you will lose your Medigap coverage is if you have a Medicare SELECTMedicare SELECT is a type of Medigap policy (Medicare supplement plan) that requires its members to get their primary care from a contracted provider. plan. These are specialized Medigap plans that use provider networks (primarily local hospitals). In many instances, you can 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’re interested in learning 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 that you’re a 65-year-old woman living in Tampa, Florida and you’d like a Medigap Plan G. In 2023 that policy will cost you about $180 per month. You can expect this policy to increase by around $15 to $20 per month 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 per year. However, unless you are admitted into the hospital or have serious chronic health conditions, it’s unlikely you will ever have out-of-pocket costsOut-of-Pocket Costs for Medicare are the remaining costs that are not covered by the beneficiary's health insurance plan. These costs can come from the beneficiary's monthly premiums, deductibles, coinsurance, and copayments. 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 MedicareOriginal Medicare is private fee-for-service health insurance for people on Medicare. It has two parts. Part A is hospital coverage. Part B is medical coverage. benefits and add a Medigap policy and a Part DMedicare Part D plans are an option Medicare beneficiaries can use to get prescription drug coverage. Part D plans provide cost-sharing on covered medications in four different phases: deductible, initial coverage, coverage gap, and catastrophic. Each... 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 simply 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 you need it. Be sure to ask your insurance agent if this approach is appropriate for your personal situation.

Summary

When it comes to Medicare supplements, it isn’t easy to come up with a lot of disadvantages. The biggest disadvantage is the monthly cost, but it’s also an advantage. By paying a single rate upfront each month, you know you’re covered. That’s not the case with Original Medicare alone or Medicare Advantage. With both of these options, you potentially have big inpatient careInpatient care refers to care provided in a hospital or other inpatient facility. Inpatients are admitted and stay at least one night depending on their condition. deductibles and copayments that must be paid. With a Medigap policy, you get peace of mind knowing you’re covered.

Frequently Asked Questions

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