Like other forms of indemnity insurance, Medicare supplements, also known as Medigap plans, are a financial instrument. They were envisioned by the federal government, at the creation of the Medicare program, as a way for Medicare beneficiaries to cover the gaps in Medicare. In this article, we’ll explain how to compare Medicare supplement insurance so that you can buy the level of coverage you need.
Standardized Medigap Plans
One of the best things the federal government did when creating the Medicare program is to outline standardized coverage for additional insurance. From the outset, Medicare has been and will likely remain an 80/20 system. Through payroll tax contributions, the government covers 8 percent of all major medical costs, and the beneficiary covers the remaining 20 percent. But, as we all know, the remaining 20 percent can potentially add up to a very hefty sum of money. And, that’s where Medigap comes in.
Medigap insurance policies are sold by private insurance companies to help Medicare beneficiaries pay some of the approved costs that Medicare does not cover (i.e., the 20 percent). To make coverage as easy as possible to choose, policies are standardized by lettered plans (e.g., A, B, C, D, etc.), not to be confused with Medicare’s parts.
The standardized Medigap plans make them easy to compare and shop. A simple chart is all that’s needed to see what each lettered plan covers.
Medicare Supplement Plan Comparison Chart
How Much Medicare Supplement Coverage is Enough?
An easy way to think about Medicare supplement coverage is to compare it to automobile insurance. A good car insurance policy covers your financial risk. With your car, you have the risk of injuring other motorists, pedestrians, as well as damaging other people’s property. There’s also the risk of damage to your own vehicle.
Similarly, with Medicare, you have the risk of hospitalization, a chronic illness, and a life-threatening accident or illness that requires costly healthcare services. And, even though Medicare covers 80 percent of these costs, the 20 percent that you are responsible for can add up to tens of thousands of dollars, or more. So, understanding how much coverage you need is all about understanding your risk.
Are you in good health or poor health? This is the first and most important question you need to ask. If you are in good health and have no family history of serious health conditions, you have less risk. If you are in poor health or your family has a history of serious health problems, you have more risk.
What are Medicare’s Coverage Risks?
To understand your risk we need to talk about all of the gaps in Medicare coverage. The chart above is our guide.
Medicare Part A Deductible
Medicare Part A covers your inpatient care. But, before Medicare pays a dime, you have a deductible that must be paid. In the case of Part A services, the deductible is not an annual cost, it is a per benefit period cost.
A benefit period begins the day you’re admitted as an inpatient in a hospital or skilled nursing facility (SNF). The benefit period ends when you haven’t received inpatient hospital care (or skilled nursing care in an SNF) for 60 days in a row.
For the 2021 calendar year, you’ll pay $1,452 per benefit period. But, a benefit period only covers up to 60 days in the hospital or SNF. After you use up your 60-day benefit period, the Medicare Part A coinsurance begins.
All Medigap plans, except Plan A, cover some or all of the Part A deductible. Plan K and L cover 50 and 75 percent of the deductible, respectively.
Note: Don’t be confused by the “parts” and “plans” terminology. Medicare coverage comes in parts. Medigap policy coverage comes in plans.
Medicare Part A Coinsurance
All Medigap plans cover the greatest risk, the Medicare Part A coinsurance. This is the amount you pay per day if you are hospitalized for more than 60 days. Here is what you’ll pay after the 60th day (2021 rates):
- $363 per inpatient day, days 61-90 of the benefit period.
- $726 per inpatient day for day 91 and beyond of the benefit period (lifetime reserve days).
But, that’s not all you’ll be paying. Part A covers the cost of hospitalization, but it does not cover your medical costs. Medical services are covered by Part B.
Medicare Part B Deductible
Medicare Part B, which covers your medical costs (i.e., doctor visits, lab tests, diagnostics, etc.), also has a deductible. The Part B deductible is annual, and you pay it in full before Medicare begins paying its share. For the 2021 calendar year, the Part B deductible is $203.
Only Plan C and Plan F cover the Part B deductible. And, as of 1 January 2020, these plans are no longer available to new Medicare beneficiaries.
Medicare Part B Coinsurance or Copayments
All Medigap plans cover some or all of the Part B coinsurance or copayments. Plans K and L cover a percentage (50% and 75% respectively), and with Plan N policyholders pay a small flat fee when they see their doctor ($20) or use the emergency room ($50). With all other plans, the Part B coinsurance or copays are covered in full. This includes the medical services and medications you need when you are hospitalized.
These costs add up at a staggering rate, too. Imagine you need an MRI scan so your doctor can diagnose the severe pain you’re having in your abdominal area. That diagnostic test costs about $2,600, and you’re responsible for 20 percent of the cost. What if that pain turns out to be appendicitis? Appendectomy surgery costs about $33,000, leaving you with a $6,600 bill for the surgical procedure. Medigap plans help with some or all of these costs.
Medicare Part B Excess Charges
Part B Excess Charges are additional fees (up to 15%) that doctors may charge if they do not accept Medicare-assignment (Medicare’s standard rates). Only Plan F and Plan G cover Excess Charges.
Medicare Part A covers blood you get as a hospital inpatient. Medicare Part B covers blood you get as a hospital outpatient.
Most of the time hospitals get blood from a blood bank at no cost. When that happens, you do not have to pay for it. If the hospital has to buy blood, you must pay the hospital for the first 3 units of blood you get in a calendar year. At an average of $180 to $300 per pint, this isn’t a huge cost, but it adds up.
All Medigap plans cover some or all of the cost of the first three pints of blood.
Skilled Nursing Facility Coinsurance
Medicare Part A covers most of your costs in a skilled nursing facility. However, as with hospital inpatient care, you must pay coinsurance after your 20th day in the facility. For 2021, here are the coinsurance costs:
- Days 1–20: $0 for each benefit period.
- Days 21–100: $185.50 per day of each benefit period.
- Days 101 and beyond: all costs.
Medicare Part A Hospice Coinsurance or Copayments
It is reassuring to know that when our end is near, Medicare pays most of our healthcare costs. Hospice care covers:
- All items and services needed for pain relief and symptom management.
- Medical, nursing, and social services.
- Drugs for pain management.
- Durable medical equipment for pain relief and symptom management.
- Aide and homemaker services.
- Other covered services you need to manage your pain and other symptoms, as well as spiritual and grief counseling for you and your family.
- Medicare-certified hospice care is usually given in your home or another facility where you live, like a nursing home.
You pay nothing for hospice care. You may need to pay a copayment of no more than $5 for each prescription drug and other similar products for pain relief and symptom control while you’re at home. In the rare case that your drug isn’t covered by the hospice benefit, your hospice provider should contact your Medicare drug plan to see if it’s covered under Part D. You may need to pay 5% of the Medicare-approved amount for inpatient respite care. However, Medicare doesn’t cover room and board when you get hospice care in your home or another facility where you live (like a nursing home).
All Medigap plans, except Plan A and Plan B, cover some or all of the minor costs that Medicare does not pay in full.
Foreign Travel Emergency
Medicare itself does not cover any medical costs outside of the United States and its territories. However, Medicare does allow Medicare supplements to cover foreign travel emergencies.
Medigap Plans C, D, F, G, M, and N all cover 80 percent of your emergency healthcare when you travel outside of the United States, up to the limits of the policy. If you travel, this is a significant safety net benefit.
Which Medicare Supplement is Best for You?
Now that you better understand all of your out-of-pocket costs with Medicare, you can evaluate your needs and balance them against what each plan covers. When shopping and comparing Medicare supplement plans, the most important thing to understand is the amount of coverage you need. It is not economical to buy more or less insurance than you actually need. We have an entire article to help you choose the best Medigap insurance.
You can learn about all standardized Medigap plans here: