When you’re first eligible for Medicare (Parts A and B), you also have a one-time opportunity to apply for Medicare supplement insurance without having to go through medical underwriting. This benefit, called guaranteed issue rights, is only available once, and the window of opportunity is only six months. It’s your only chance to get coverage, regardless of any preexisting conditions.
In this article we’re going to answer an important question that many seniors ask when they first qualify for their benefits, are Medicare supplement plans worth it? Asked another way, is supplemental Medicare insurance a waste of money?
In a word, the answer is yes, but you have multiple options available to you. We’re going to explain what your options are and how to make the best choice for your personal situation.
We’ll cover these frequently asked questions, as well:
The answer varies based on your health. For super healthy seniors, Plan N offers great coverage and good savings. For people with one or more chronic health conditions, Plans F and G are more cost effective.
Going with just Original Medicare and no supplemental coverage is financially unwise. The coverage gaps in Medicare are considerable, leaving you to pay the expensive deductibles and 20 percent of all your outpatient coverage out-of-pocket. Is Medicare supplement insurance worth the cost? Yes, it's worth every penny. For more information, read Are Medicare Supplement Plans Worth It?
A Medicare Advantage plan may be a better choice if you are exceptionally healthy or if you can get an employer-sponsored plan. The reason is that Medicare Advantage plans have an out-of-pocket maximum that protects you from serious medical bills. Healthy people rarely have large medical bills, so they get to take advantage of low premiums. People with an employer-sponsored plan generally get help with their copays.
If you're not in great health and don't have access to an employer-sponsored plan, Original Medicare plus a Medigap plan offers better coverage and generally allows you more choice in where you receive your care. To compare plans, visit this page and enter your zip code.
There are 10 different standardized Medicare supplement plans, each with a different level of coverage. Three Medicare plans — Plan F, Plan G, and Plan N — are the most popular and account for more than 80 percent of all Medigap plans sold. To get rates on these plans where you live, enter your zip code on this page.
Is Medigap Worth It?
Medicare supplement plans, sometimes called a Medigap plan, are supplemental Medicare policies that help pay some of the shared healthcare costs baked into the Medicare system. Oftentimes people look at the monthly premiums for a Medigap plan and want to know if the extra coverage is really necessary? And more importantly, are Medigap plans worth the cost?
The first thing to understand is that Original Medicare (Part A for inpatient care and Part B for outpatient care) is an 80/20 shared cost system. Medicare pays about 80% of all major medical costs and the beneficiary pays the rest. When you realize that a simple visit to the emergency room can cost hundreds of dollars, and a short stay in the hospital runs into the thousands, you quickly come to the conclusion that not having some additional coverage for major medical costs is very risky.
That’s where a Medicare supplement insurance plan comes in.
There are 10 lettered Medicap plans (A through N). Each lettered plan represents a standardized insurance policy and covers the nine gaps in Medicare. These include:
- Medicare Part A Coinsurance & Hospital Costs
- Medicare Part A Skilled Nursing Facility Coinsurance
- Medicare Part A Deductible (per benefit period)
- Medicare Part A Hospice Care Coinsurance or Copayment
- Medicare Part B Deductible (annual)
- Medicare Part B Coinsurance or Copayment
- Medicare Part B Excess Charges
- Blood (first 3 pints)
- Foreign Travel Emergency
Medicare Part A is your hospital inpatient coverage and Medicare Part B is your medical coverage. Without additional coverage, you are responsible for the shared costs listed above.
This surprises many seniors getting their Medicare benefits for the first time. And that’s why it’s so important to understand one basic fact. Healthcare in the United States is very expensive, and most people simply can’t afford to pay their share of hospital costs out-of-pocket. Medicare Parts A and B pay about 80 percent of your major medical costs. The beneficiary pays the other 20 percent out of pocket or through additional insurance.
IMPORTANT NOTE: Medicare supplements only cover the gaps in Original Medicare. So, if Medicare Part A and Medicare Part B do not cover a specific benefit, private insurance companies can’t cover it with a Medigap policy. This includes a prescription drug plan. Prescription drug coverage is available through stand-alone Medicare Part D plans.
Why Are Medicare Supplemental Insurance Worth It?
Medicare, as originally designed, does the heavy lifting. It covers the bulk of all major medical costs for its beneficiaries. Medicare is the primary payor for all healthcare claims for its beneficiaries. However, from its inception, Medicare was designed to work with other coverage. If you do not buy additional coverage from a private insurer, you can expect to pay high medical bills out of pocket.
At the same time that Medicare was signed into law, the Medicaid program was enacted. This combined state and federal program offer additional coverage for seniors and disabled persons on Medicare. Similarly, our retired military has TRICARE for Life, and most veterans qualify for VA healthcare. For everyone else, there’s Medicare Advantage or Medicare supplement insurance. Those are the options available to Medicare beneficiaries.
So, why choose a Medicare supplement plan vs. Medicare Advantage (aka, Part C)? For most people, it comes down to choice and peace-of-mind (and not having to hassle with the Medicare.gov annual open enrollment).
With Original Medicare, which you keep when you have a Medigap plan, you are free to choose your doctors, hospital, and other healthcare providers. With Medicare Advantage, you lose these benefits because these plans restrict you to their network of providers. And, in most cases, they also require you to get a referral (permission) to see a specialist.
The other big difference between Medicare Advantage and supplement Medicare insurance is when you pay your healthcare costs. With Medicare Advantage, you pay most costs when you use services. With a Medigap plan, you pay most costs in advance. This causes great confusion for many people and it gets them in trouble.
Unlike Medicare Advantage, there are no Medicare supplement plans with no premiums. But, there are also no surprises. Here’s why:
- A Medigap plan pays its portion of approved expenses not covered by Medicare, including copayments, coinsurance, and deductibles.
- There is a variety of Medigap plans to meet your needs. Some plans cover all costs allowed by law.
- With a Medigap plan, there’s no network, so you can choose any doctor or hospital that accepts Original Medicare.
- A Medigap policy is guaranteed to renew each year (so long as you don’t commit fraud by lying on your application or fail to pay your premiums).
But is a Medicare Supplement Necessary?
Health insurance, like auto insurance, is a financial tool. We all buy insurance for different reasons, but most commonly we get it to protect us financially. To answer whether or not the cost is “worth it” depends on your personal financial situation. In most areas, the average cost of supplemental insurance is less than most people think.
Many people look at the best Medigap plans and get turned off by the premiums. But, there are more options than Medicare Plan G (the best you can buy today) if your budget can’t afford it.
Related Article: Is Medicare Plan G Better than Plan F?
If you are in good health and believe you’ll stay that way into your 70s, you might be a good candidate for Medicare Plan N. This policy helps healthy people save money on premiums by charging you a small copay when you see your doctor (up to $20) or use the hospital emergency room (up to $50). With Plan N you’re also responsible for excess charges if your doctor does not accept Medicare’s standard rates for services.
There are other Medigap plans that let you share some of the costs so you can get a lower rate. We suggest that you speak with your insurance agent to get more advice, or call 1-855-266-4865 and let a HealthPlanOne agent assist you. There’s no obligation.
Are Medicare Advantage Plans Bad?
Above we talked about the differences between supplemental Medicare insurance and Medicare Advantage, and that may lead you to ask if Medicare Advantage plans are bad? In a word, no, but they are not the right choice for everyone.
Many people aging into their Medicare benefits now are used to employer group health plans that look a lot like Medicare Advantage plans. That’s because group health plans and Medicare Advantage use the familiar HMO (health maintenance organization) and PPO (preferred provider organization) managed healthcare delivery models.
When you and your family were young and healthy, the HMO and PPO style of healthcare delivery saves money. But, as we age, many people discover that their out-of-pocket costs actually go up with an HMO or PPO plan. That’s because people with one or more chronic health conditions see their doctor and need emergency care more frequently, and they end up paying more copayments.
For this very reason, Medicare Advantage has a built-in safety net system, which is a maximum out-of-pocket (MOOP) limit, which is currently $7,550 per year. It can be lower, however, most plans are at the maximum allowed. But, the MOOP does not include your premiums or your cost of medications. So your actual out-of-pocket costs could be much higher.
You might be wondering if Medigap plans have a MOOP. Some do and some don’t. For example, the high-deductible versions of Plan F and Plan G have an annual deductible that must be met before the policy begins paying. This, plus the Part B deductible for Plan G, becomes the out-of-pocket maximum for these plans. Plans K and L, with their shared costs, are similar. They both have an annual maximum that must be met before the plan covers its share.
Also See: How to Choose a Medicare Supplement Plan
In MedicareWire’s opinion, Medicare Advantage plans are only a safe option if you are extremely healthy and have no family history of chronic illnesses later in life, or if you receive assistance paying the out-of-pocket costs. This is the case if your former employer or union offers retiree healthcare benefits, or if you are dual-eligible (Medicare and Medicaid), or if you qualify for a Special Needs Plan (SNP). If none of these situations apply to you, a Medicare supplement plan is the better option.
Speak with Your Agent
It’s important to have a candid conversation with your insurance agent about your health and financial situation. Don’t make this important decision alone. Ask your agent if a Medigap policy is right for you. Be specific and ask about hospital stays, long-term care, and other important insurance topics.
If you don’t have an agent, or you want a second opinion, call 1-855-266-4865 and let a HealthPlanOne agent assist you. HealthPlanOne is contracted to service plans from all major carriers in all 50 states, and there’s no additional cost to you, and no obligation, just more choices.
Citations & References:
- Medicare costs at a glance | Medicare
- How to compare Medigap policies | Medicare
- Home | State Health Insurance Assistance Programs
- Home | State Health Insurance Assistance Programs
- FastStats – Hospital Utilization
- NCHS Pressroom – 2008 Press Release – Ambulatory Medical Care Utilization Est…
- Medicare Supplemental Policies: Do You Need One? | HuffPost Life
This article was written by David Bynon and was last updated on .