What Is a Medigap Supplemental Plan and Who Needs One?

The overwhelming number of choices that Medicare provides can be an annual headache for 65 million beneficiaries choosing their health insurance for the upcoming year.

For the roughly 34 million beneficiaries enrolled in original Medicare, another decision to make is whether or not to add a Medicare supplement plan, also known as Medigap, to their insurance.

For consumers who may feel daunted by the complexity of their choices, there’s no need to despair, says Ari Parker, co-founder and head Medicare advisor at Chapter, a nationwide service that helps people nationwide shop for Medicare plans.

“Figuring out whether or not to get supplemental insurance for Medicare — and if so, what kind — can be complicated for someone who is dealing with these decisions for the first time,” says Parker, who is the author of the book, “It’s Not That Complicated: The Three Medicare Decisions to Protect Your Health and Money.” “Once consumers break down what’s most important to them, the choices aren’t as overwhelming.”

What Is Medigap?

Medigap plans are supplemental insurance plans sold by private insurers for those enrolled in original Medicare.

As with any other type of insurance, you pay monthly premiums. Medigap plans pay for many costs not covered by original Medicare, such as co-insurance, copays for doctor’s visits and — in some cases — deductibles.

There are 10 different types of standardized Medigap plans offered in most states that are named by letters: A to D, F, G and K to N.

Policies designated with the same letter provide the same fundamental benefits, regardless of your location or the insurance company you purchase the policy from. The only difference between plans with the same letter — sold by different insurance companies — is the price.

If you have original Medicare, it’s a good idea to seriously consider getting a Medigap plan. Original Medicare covers 80%, not 100%, of all medical costs after the deductible is met, so it may be beneficial for you to have the extra insurance to cover the gaps in Medicare coverage.

“There is no out-of-pocket cap when you have original Medicare,” says Susan Stewart, a licensed insurance broker based in Muskegon, Michigan. “Most people cannot afford the 20% cost to have outpatient surgery, go to the emergency room or have expensive tests like CT scans and MRIs. If a beneficiary chooses original Medicare, they are wise to choose a Medigap plan where out-of-pocket expenses are limited and clearly defined.”

Since original Medicare has no yearly out-of-pocket limit as to what you pay, something like an extended hospital stay could end up costing you thousands. Having a Medigap policy not only helps with the day-to-day out-of-pocket expenses that come with medical care, but also the peace of mind of knowing that you are covered from any major medical bills and the financial implications that can come with it.

The plans do not cover:

Dental care

Hearing aids

Long-term care

Prescription drugs

Private duty nursing

Vision services

“If being able to choose your health care provider is a top priority, a Medigap plan might be the right choice for you,” Parker says. “Suppose you’re being treated for cancer, and you don’t live in Texas but you want an appointment with a doctor at the University of Texas MD Anderson Cancer Center, which is consistently rated as one of the top hospitals for cancer treatment. With a Medigap plan, you would be covered. You wouldn’t have to worry about limitations of a network or geographical region.”

Before delving further into Medigap, it’s a good idea to review original Medicare and Medicare Advantage.

[READ: 7 Things You Need to Know If You’re Pregnant With Twins]

Medigap Costs

The cost of Medigap insurance plans can depend on an array of factors, including when you purchase them, your gender, location, age, health status and whether you use tobacco. Policies that provide more coverage will have higher premiums than policies that provide less coverage. You can compare what is available to you here. It is important to note that Medigap policies are sold individually, so if both you and your partner want one, you will have to sign up separately.

The costs of Medigap plans can vary widely, according to the Centers for Medicare and Medicaid Services. Overall, the average monthly premium can range from $50 to over $300, according to medigap.com. Be sure to compare a few Medigap plans with the same letter, but administered by different insurance companies, as there can be a big difference between what the insurance companies charge for the same coverage.

Medigap policies are offered through private insurance companies where you live. Like any insurance policy, these require you to pay a premium to the provider. Premiums will go up as you age.

Some Medigap policies are community-rated, which means they do not increase in cost with age but can go up in costs because of inflation or other reasons. Others are attained-age rated, which are priced based on your current age and increase as you get older.

A third classification, issue-age-rated, is based on the age you are when you purchase the policy but does not increase in cost as you age.

[READ: Medicare Mistakes to Avoid.]

When Can You Get a Medigap Plan?

If you are interested in a Medigap plan, the best time to buy one is when you’re first eligible. You have a six-month Medigap open enrollment period that begins the first month you turn 65 and have Medicare Part B.

You can enroll in any Medigap policy, and the insurance company cannot deny you coverage due to preexisting health conditions during this time. After that time, you may still apply, but depending on your health, you might be denied coverage or charged higher premiums.

Once you purchase a Medigap policy, the policy is automatically renewed every year even if you have health problems as long as you pay your premiums.

According to Medicare.gov, the Medigap insurance company can only drop you if:

— You stop paying the premiums.

— You weren’t truthful on the policy application.

— The insurance company goes bankrupt or goes out of business.

[READ: What Is a Medicare Flex Card?]

Prescription Drug Coverage

Medigap policies currently on the market don’t include prescription drug coverage. A provision of the Inflation Reduction Act, however, limits the out-of-pocket maximum Medicare Part D beneficiaries can pay. In 2024, the maximum out-of-pocket is $3,333 and in 2025 it reduces to $2,000.

“If you have original Medicare, you need to have creditable drug coverage, even if you take no or just one inexpensive medication,” Stewart says. “They require that you purchase a drug plan or face a penalty when you finally get one.”

Some Medigap plans sold to consumers before 2006 included outpatient drug benefits, according to the Centers for Medicare and Medicaid Services. Consumers who still have such a policy can keep this coverage and choose not to sign up for a Medicare Prescription Drug Plan.

Otherwise, individuals with a Medigap plan can choose to enroll in Medicare Part D for prescription coverage, which is available to consumers who are enrolled in Medicare Parts A and B.

Bottom Line

For the approximately 34 million beneficiaries enrolled in original Medicare, an important choice is deciding whether to add a Medigap plan and which one. Original Medicare covers 80% of medical costs after the deductible is met, leaving no out-of-pocket cap, which can be financially risky. Medigap plans help cover the day-to-day costs, such as coinsurance or co-pays, but they also cover the expenses of large medical bills, such as hospital stays and surgeries.

The best time to buy a Medigap plan is during the six-month open enrollment period when you turn 65 and have Medicare Part B. During this time, coverage cannot be denied based on preexisting conditions.

After this period, obtaining coverage may be more challenging or expensive.

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What Is a Medigap Supplemental Plan and Who Needs One? originally appeared on usnews.com

Update 05/23/24: This story was published at an earlier date and has been updated with new information.

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