I often get questions from people retiring who are concerned about their budget. This is understandable because a fixed budget can put a squeeze on your finances.
Recently I got a question from a friend with Social Security disability benefits who has had her Medicare since she was in her 50s. Now turning age 65 she asked, “Do I really need supplemental insurance with Medicare? I’ve managed with just Medicare [Parts A and B] and a drug plan for all of these years.”
If you’re just now getting your Medicare benefits for the first time, you might be wondering the same thing. Are Medicare supplements worth it? Or, why do I need supplemental insurance with Medicare?
Let’s discuss it and look at your alternatives. By the end, you’ll understand how to compare Medigap plans with other coverage options. We’ll also answer these frequently asked questions:
Are Medicare supplements worth it? It might seem as if Medigap plans are expensive. But, going with Original Medicare alone is not wise. The coverage gaps in Medicare add up fast, particularly if you have an emergency. Paying 20% of all your outpatient coverage might not seem so bad, but getting slapped with a $1,400 hospital bill really smarts. And that's just for the deductible! We answer this question in more detail here.
Most retirees have a fixed budget and can't afford to pay that much out of pocket. Without a Medicare supplement, you will not be protected from catastrophic medical costs. For more on this subject, see Do I Really Need Supplemental Insurance with Medicare?
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.
Do I Really Need A Medigap Insurance Plan?
I understand why my friend asked the question. She lives in a high-cost area of California and a basic plan starts at about $100. A more comprehensive plan will start at about $165 per month. That’s a pretty big chunk of her fixed budget. But, what about out-of-pocket expenses?
Thus far my friend has been pretty lucky. She’s had a few trips to the E.R., and only one stay in the hospital. I reminded her about this and how her former husband absorbed the costs into his budget. Now she’s on her own and these are her costs. That started a whole new conversation including, “Why am I responsible for those costs?”
Unfortunately, many Americans are surprised to learn that Medicare does not cover all costs when they retire. It never has and never will. From the beginning, it was designed to be a shared-cost system with the government paying 80 percent and the beneficiary paying the other 20 percent of all major medical costs. If you are poor and can’t afford your 20 percent share, you need to explore Medicaid options.
If you’re not aware that you pay for your Medicare Part B (medical coverage) premiums in retirement, be prepared for a smaller budget than you expected. Social Security will deduct your Medicare Part B premium from your monthly payment. Your Medicare Part A (hospital coverage) is free, so long as you or your spouse worked a minimum of 40 quarters (ten years).
However, as stated, Original Medicare only pays about 80 percent of your bills. So going it on your own, without supplemental coverage, is a very big gamble. Here’s why most Medicare beneficiaries need additional coverage.
The gaps in Original Medicare are substantial. Without additional coverage, you will pay all of the expensive deductibles and 20 percent of your outpatient coverage out-of-pocket. Simply put, if you don’t have supplemental Medicare insurance or a Medicare Advantage plan, you could find yourself tens of thousands of dollars in debt due to an accident or a chronic illness.
Medicare Supplement Plans Cover the Gaps in Medicare
With all of its parts and plans, Medicare is often confusing, but Medicare supplement insurance isn’t. Because Medicare was designed with built-in coverage gaps, it also came up with a way to fill in those gaps. It’s called Medigap, what the government calls Medicare supplement insurance.
The best thing about Medigap is that there’s a plan for everyone, no matter how tight your budget is. Full coverage Medigap plans cost a bit more but leave you with few out-of-pocket costs. Lower coverage plans cost less, but you’ll share some of the costs. And, if your budget still doesn’t afford you the luxury of a Medicare supplement, Medicare Advantage plans might be the best option.
Let’s have a look at what Medigap plans cover so you can decide which plan is right for you.
Covering the Gaps in Medicare Part A
Medicare Part A is your hospital insurance. It covers your inpatient costs. And, just like your current insurance through your employer or Obamacare, Medicare Part A has deductibles, copayments, and coinsurance.
The big cost with Medicare Part A is the inpatient deductible and coinsurance. For 2020, there is a $1,408 deductible and a coinsurance of $352 per day that starts after the 60th day you’re hospitalized. The deductible is not per year, it’s per benefit period. So if you’re hospitalized more than once, it may trigger a second benefit period. And, after your 90th day of hospitalization, the coinsurance goes up to $704 per day.
Still wondering, is Medicare supplemental insurance necessary? Imagine having a serious illness or accident that puts you in inpatient care for an extended period. Could your finances handle this cost without insurance? For most of us, the answer is no.
These costs are not even the scariest part of Original Medicare. Unlike your group health insurance or Obamacare, there is no cap or limit on your 20 percent share. That’s because — surprise — the Affordable Care Act (Obamacare) did not reform Medicare as it did the rest of our healthcare system. So, if you think that high-deductible Obamacare plan you had hurt like Hell when you broke your leg, it’s nothing compare to what your 20 percent share will cost for the treatment of cancer.
Fortunately, all Medigap plans, even the lowest cost policies, cover these heavy-lift costs in your Medicare Part A coverage.
Covering the Gaps in Medicare Part B
Medicare Part B is your medical coverage. This includes seeing your doctor, specialists, lab tests, and most other healthcare services in an outpatient setting. With group health coverage or Obamacare, you’re probably accustomed to paying a modest copay with all of these services. Medicare Advantage plans work the same way.
With Original Medicare, people are often shocked by the costs. Although going to your doctor for a regular visit may only cost you $20 to $40, costs for an MRI scan will set you back between $80 and $700. That’s because these medical procedures cost anywhere from $400 to $3,500. The variable comes down to which procedure has done and which body part. And, without supplemental coverage, 20 percent of the bill is coming your way.
There are three big beneficiary costs baked into Medicare Part B:
- Medicare Part B Deductible;
- Medicare Part B Coinsurance or Copayment; and
- Medicare Part B Excess Charges.
As of 1 January 2020 there’s nothing you can do about the Part B deductible except pay it. This is because Congress no longer allows Medicare supplement insurance to cover this cost.
However, most Medigap plans do cover some or all of the copayments and/or coinsurance costs with Medicare Part B. In fact, all but two plans cover this cost completely.
The final cost, excess charges, is covered by Medicare Plan G, the best plan available as of January 2020. Excess charges are costs you pay if your doctor does not accept Medicare’s standard rates.
Here’s How a Medigap Plan Can Help
As we’ve seen, Medigap plans help fill the financial gaps in your Medicare coverage. With the right Medigap policy, you get the peace-of-mind knowing that when the unexpected happens you’ll be covered. Put bluntly, seniors with Medigap insurance policies don’t have their credit ruined due to unpaid medical bills.
When you buy the right Medicare supplement for your personal needs, the headaches of worrying about deductibles, coinsurance, and copays go away. Some plans even cover you while you travel outside of the United States. And all plans cover you anywhere you go in the United States or its territories.
There are 10 standardized Medicare supplements (A, B, C, D, F, G, K, L, M, and N) and a high-deductible option. And most plans are guaranteed renewable for life. That simply means that if you pay your premiums, and don’t make any false statements, you’ll remain covered and can’t be denied coverage due to your age or health. For most people, that’s comforting.
Here’s more good news. Medicare and Medigap work together in lockstep. Once Medicare pays its share it sends the rest of the bill directly to your Medigap plan. For the part your Medigap plan does not cover, Medicare sends a bill to you. There are no claims forms to fill out, making the whole process as easy as possible.
NOTE: It’s easy to confuse Medicare supplement letter plans with Medicare parts. Medicare Part D, for example, is for your prescription drug coverage, and Part C is another name for Medicare Advantage. Here’s an easy way to keep them straight. Medicare has “parts” and supplemental insurance coverage has “plans”.
What’s the Best Medicare Supplement Plan?
The best Medigap plan is the plan with the most coverage that you can comfortably afford. Currently, Medicare Plan G is the plan with the most coverage that’s available to new beneficiaries. For people that can’t afford Plan G, Medicare Plan N is another popular option. No matter what your personal situation is, your agent can help you find the right plan.
Also See: Is Medicare Plan G Better Than Plan F?
Here are all of the various costs that Medicare supplement insurance can cover:
- Medicare Part A coinsurance hospital costs after your initial Medicare coverage is exhausted
- Medicare Part B copayments (including preventative care)
- Blood (first 3 pints are free)
- Skilled nursing facility care (SNF) coinsurance
- Hospice care (coinsurance or co-payment)
- Part A Deductibles
- Foreign travel emergencies
- Part B excess charges
I didn’t list the Part B annual deductible, because this cost is no longer coverable. People with this coverage are grandfathered in, but no new policies can be issued. For the most part, this isn’t a big loss because the lower premiums than Plan G and Plan N offer more than make up for the convenience of having the Medigap plan pay the cost.
When Should I Apply for Medigap Coverage?
As soon as you turn age 65 you can enroll in Medicare Part A and Part B. At the same time, you are also eligible to get Medicare supplement insurance without going through medical underwriting. That is an important benefit that you don’t want to miss out on. Here’s why.
You only have one chance to get a Medigap plan with no questions asked about your health This is your personal open enrollment period to enroll in any Medigap plan you want with guaranteed issue rights. But your open enrollment period only lasts for six months and it starts on the first day of your Medicare Part B eligibility.
During your open enrollment period, you can buy any supplemental Medicare policy you want and you are guaranteed coverage. In other words, the insurance company you choose can’t turn you down because you have a pre-existing medical condition.
You Might Also Like: Can I Change Medicare Supplement Plans Anytime?
After your open enrollment is over, insurance companies can and will ask you questions about your health questions, and you can be turned down or they can ask you to pay more or accept a policy with less coverage.
Please don’t confuse your open enrollment period for Medigap coverage with the Medicare Annual Election Period (AEP). They are not the same.
If you wait for Medicare AEP to buy a Medigap policy you may be out of luck. AEP is only for Medicare Advantage and Medicare prescription drug plans (Part D) and runs from October 15th through December 7th every year. AEP is not a time when you can apply for Medigap and get approved without answering health questions. There’s no annual open enrollment for Medigap. Your one and only period to do that is when you are first eligible for Medicare, as mentioned above.
In a few states, including California and Oregon, there is an annual 30-day period when you can enroll in a Medigap plan without health questions. However, this only applies to people that already have a Medigap plan and want to switch to a plan with equal or lesser benefits. It is not available for people in a Medicare Advantage plan or those with no additional coverage.
What is the Average Cost of Supplemental Insurance for Medicare?
I wish there was an easy answer to this common question, but there isn’t. That’s because, unlike Medigap plan benefits, premiums are not regulated or standardized. Medigap insurance companies set their own rates and the method they use to determine rate increases.
What this means is that, once you’ve decided on the level of coverage you need, you can go rate shopping. However, you’ll want to take a quick look at a carrier’s rates. Look at their rate increase history and their financial rating, too.
To do this ask your agent to provide rate increate history and A.M. Best or Standard and Poor’s rating scores with your quotes. If you don’t already have an agent, call 1-855-266-4865. A licensed HealthPlanOne agent will be happy to assist you.
What About Medicare Advantage Plans?
If you have evaluated Medicare supplement insurance and find that it does not fit within your budget, a Medicare Advantage (MA) plan might be a good alternative. In fact, MA plans were created in 2003 as an alternative to Original Medicare and Medigap insurance. You do not need supplemental insurance with Medicare Advantage.
Medicare Advantage, Part C of Medicare, is so-called because the program allows plans to offer benefits not covered by Original Medicare. The most popular additional coverage that most plans include is prescription drug coverage.
When you join a Medicare Advantage plan, the plan pays for all of your healthcare costs, not Medicare. What actually happens behind the scene is that Medicare pays the plan a set amount per month to provide your care.
If the MA plan can’t offer all of the benefits in the plan for the amount Medicare pays, they charge you an additional monthly premium. This is why you see some plans with a zero-dollar premium. That simply means that all costs are covered by what Medicare pays them for you to be in the plan. Also, joining a Medicare Advantage plan does not do away with your Medicare Part B premium. You are still responsible for paying for it.
How Does Medicare Advantage Coverage Differ from Original Medicare + Medigap?
The two big differences between Medicare Advantage and Original Medicare plus Medigap are;
- Healthcare provider networks; and
- When you pay the bulk of your costs.
With Medicare Advantage HMO and PPO plans (most plans are an HMO or PPO), you are required to use the plan’s provider network. If you go outside of the network, except in the case of an emergency, you are responsible for all costs. In some areas, you can find a private fee for service (PFFS) plan that does not have networks, but they are not the norm. Also, a growing number of states have Medical Savings Account options that don’t force you to use networks.
Networks can be both good and bad. The good part is that you will always find a doctor to serve your healthcare needs. The bad part is that your primary care doctor will act as a gatekeeper. So, if you want to see a specialist, you must get your doctor’s approval first. This is simply how managed care systems work. It’s their way of managing costs.
Also, with MA plans you pay the bulk of all costs when you receive services. This is why the monthly premiums on basic plans are low (or cost nothing). It’s also where a lot of people get into trouble with Medicare Advantage. If you’re not a healthy person, a basic MA plan can end up costing a lot more than a Medicare supplement. The only saving grace is that all Medicare Advantage plans have a maximum out-of-pocket (MOOP) limit of $6,700. So, once you’ve spent the MOOP on copays for healthcare service, which does not include your premiums or prescriptions, then the plan pays 100 percent for the rest of the year.
That’s a heavy lift for most people, and it hits unexpectedly. There’s no good way to plan for it. One day you’re healthy and the next day you’re not. To add insult to injury, here’s a whopping healthcare bill you must pay for your hospital stays.
That’s why Medigap offers peace-of-mind. Yes, it’s true, you pay more upfront, even when you don’t need it, but it’s there when you do need it. With Medigap, you don’t worry about major medical bills when you get sick or injured, because your plan covers those big expenses.
The Unfair Advantage of No Health Questions
One of the unfair advantages of Medicare Advantage plans is that they ask only one health question. This is to find people who suffer from End-Stage Renal Disease. These people are covered 100 percent by Medicare, so they are not eligible for Medicare Advantage.
As with Medigap, you can enroll in a Medicare Advantage plan when you’re first eligible for Medicare. Other than that, you must wait for the Medicare Annual Election Period (AEP) in the Fall. This keeps people from waiting until they get sick to apply for coverage.
If you miss your individual enrollment period when you turn age 65, you can enroll during AEP, which runs from October 15th through December 7th. There’s no consequence for waiting if you are healthy. However, if you’re not healthy or you get sick, that’s a different story.
Let’s assume your birthday is in February and you don’t join a Medicare Advantage plan or get Medigap coverage. In this case, you won’t be able to join a Medicare Advantage plan until the following January and you can be turned down for Medigap coverage (the guaranteed issue is only 6 months). In this case, if you get sick or hurt you could be on the hook for a ton of healthcare costs, and no amount of begging Medicare for assistance will help you.
But are Medicare Supplement plans worth it?
Yes. I can’t stress enough the importance of additional coverage and how beneficial it is to have your hospital costs covered.
Medicare Advantage does not fully cover hospital costs. All MA plans have different levels of copays when you’re an inpatient. Be sure to look at these costs in the plan’s summary of benefits.
Most Medigap plans cover all of your Medicare Part A coinsurance (Plans K and L cover part). Most Medigap plans cover your Medicare Part A deductible (partially covered by Plans K, L, and M). All Medigap plans cover all or part of your skilled nursing facility coinsurance. And all Medigap plans cover all or part of your blood (first 3 pints). These are the inpatient costs that crush people when they need care.
If you don’t want to pay, or can’t afford to pay these costs out-of-pocket, Medicare supplement insurance is the answer. If you can’t afford Medigap, Medicare Advantage is the next best option. Either way, you will have protection from catastrophic medical costs.
No matter what your health and financial situation are, there’s a plan that will take care of you and your needs. We have certified agents available to help guide you through the process of evaluating your best coverage options.
Call 1-855-266-4865 and a licensed HealthPlanOne insurance agent will be happy to assist you. Or, visit Medicare.gov for more information.
Citations & References:
- How to compare Medigap policies | Medicare
- Medicare costs at a glance | Medicare
- Medicare Supplemental Policies: Do You Need One? | HuffPost Life
- Top 10 Reasons People Go Bankrupt | HuffPost
- FastStats – Hospital Utilization
- NCHS Pressroom – 2008 Press Release – Ambulatory Medical Care Utilization Est…
- Health Insurance Marketplaces by State | healthinsurance.org
- Is pediatric dental coverage included in exchange plans? | healthinsurance.org
- What is the Affordable Care Act (ACA)? | healthinsurance.org
- Sources of Supplemental Coverage Among Medicare Beneficiaries in 2016 | KFF
- An Overview of Medicare | KFF
- Medicare Advantage 2020 Spotlight: First Look | KFF
This article was written by David Bynon and was last updated on .