Medicare Supplement Plans: Do They Make Sense and Are They Really Worth It?
People have differing opinions about Medicare supplement policies—how do you decide which one really need and if it’s even worth the investment?
Summary:
- Having Original Medicare is great, but its coverage is limited.
- You pay an extra monthly premium for this plan—on top of what you are already paying for your Original Medicare Part B coverage.
- Having a Medicare Supplement plan will help you pay for coinsurance, copayments, and deductibles.
- Medicare Supplement policies are sold through private insurance agencies, although their standard coverage is fixed according to federal guidelines.
- Some Medicare Supplement plans also cover healthcare expenses incurred when you travel outside of the U.S.
Being enrolled in a Medicare plan does not mean that you are totally free from any medical expense. In fact, while Original Medicare does cover a large chunk of your health-related costs, being a government product, it simply cannot shoulder everything. Your total bill will be reduced but you will still need to worry about the likes of copayments, deductibles, and coinsurance. This is pretty understandable given that the government’s funding sources are limited.
That said, in order to help ease the burden on its Medicare beneficiaries, the government created a set of standardized insurance policies—only these will be sold through private companies. In comes Medicare Supplement insurance, also known as Medigap.
Understanding Medicare Supplement Plans
A Medigap plan is an insurance product that is sold through private insurance companies. Designed as a supplement to Original Medicare, it covers certain healthcare services and supplies that the former cannot shoulder—or the so-called “gaps.” Note that you can only purchase a Medigap policy if you already are enrolled in Original Medicare Part A and Part B. It also comes with an additional monthly premium.
If you have both Original Medicare and Medigap and then a medical emergency happens, then Medicare will first pay for the items that are covered under its guidelines before Medigap steps in to pay for the rest (depending on the plan that you are enrolled in). There are several types of Medicare Supplement policies (letters A, B, C, D, F, G, K, L, M, N), with levels of coverage ranging from basic to comprehensive, and their corresponding monthly premiums rise alongside the expanded coverage.
Another important item to note is that because Medigap policies are government-regulated, their basic coverage will be the same no matter where you are in the United States. Although some insurance agencies have add-ons to their programs, more likely than not price will be the only difference between policies of the same letter sold by various companies. Hence, if you are shopping around for the best Medigap policy for you, it’s best if you compare the offerings of different insurers first before making a decision.
Basic Inclusions of a Medigap Plan
Regardless of the policy letter you are enrolled in, these are the minimum inclusions of a Medicare Supplement policy. The main difference between the programs is the percentage of coverage (0, 50%, 75%, 100%).
- Medicare Part A coinsurance and hospital expenses (up to an extra 365 days after the Medicare benefits are exhausted)
- Medicare Part B coinsurance/copayment
- Part A hospice care coinsurance/copayment
- Part A deductible
- Part B deductible
- First 3 pints of blood
- Skilled nursing facility care coinsurance
- Part B excess charges
- Foreign travel emergency (up to plan limits)
NOT included in any Medigap plan are: vision and dental care, long-term care (as with a nursing home), hearing eyes, eyeglasses, and private-duty nursing. If you wish to obtain coverage for these, then you will have to speak to your private insurance provider if these can be purchased as add-ons or if they have other independent policies that you can also subscribe to.
Medicare Supplement Insurance Pricing
As mentioned earlier, price is the primary difference between the Medigap plans offered by different agencies. However, while you cannot control how private companies set their monthly premium rates, you can find out HOW they price their Medicare Supplement policies so you aren’t met with surprise bills in the future. Insurance agencies determine their prices based on any of these three methods.
1. Community-rated (no-age-rated)
Monthly premiums are not based on your age and everyone who applies will be charged the same regardless of age or gender. Premiums can go up in the future due to inflation issues, but never because of age.
2. Attained-age-rated
Prices are based on your current age, so younger buyers will have an advantage of lower rates. However, the fees can go up as you get older and it could more expensive in the long run. This is a good option, however, for those who do not have enough money now to pay for a plan.
3. Issue-age-rated (entry-age-rated)
This pricing structure is based on the age you are when you purchase your Medigap plan—and this won’t change as you get older.
Other factors that can affect the pricing of Medigap premiums include your location, smoking history, health history, and if your provider thinks that you should be subjected to a medical underwriting and screening process. As of 2020, rates for Medicare Supplement plans range from $50 to $1,130.
Is Medigap Worth Your Money?
Because Medigap policies come with an additional cost, it’s only fair that you ask whether it’s truly worth the investment. In making this decision, you can start by considering your current typical out-of-pocket health-related expenses.
If you are relatively healthy, have a good prognosis, and are not subject to any maintenance meds or procedures, then you might want to start with the lowest-cost Medigap plan or maybe delay purchasing it. However, if you need recurring care for a chronic illness or are concerned that an emergency might happen in the near future, then it’s wise to enroll in a comprehensive plan. Otherwise, all the money you had saved up for retirement will only go towards your medical expenses.
That said, shouldn’t you be using your retirement funds to actually relax and enjoy? Such considered, having a Medigap plan can definitely be a worthy investment.
Medicare Advantage vs Medigap
A Medicare Advantage Plan (also popularly known as a PPO or HMO) is different from Medigap policy. If you currently have a Medicare Advantage plan but want to return to Original Medicare, then you may apply for Medigap insurance shortly before your HMO coverage ends. As long as you have the intention of leaving your Advantage plan, you can start applying for Medicare Supplement coverage. [Note: it is illegal for an insurance provider to sell you a Medigap plan unless you are definitely switching back to Medicare.]
That said, to ensure that enjoy continuous coverage and there are no empty gaps during the transition, you can ask your insurance provider to have your Medigap policy begin when your Medicare Advantage ends.
Note that most Medicare Advantage policies cover prescription drugs, which Original Medicare does not. Some also even shoulder the cost of eyeglasses and hearing aids. If these are important to you and you’re not leaving your HMO provider (employer) anytime soon, then it would be wise to stay.
Conversely, if you are in a Medigap plan and want to switch to Advantage, then you will need to cancel your policy first before you can proceed. Further, if you find that you don’t like Medicare Advantage after enrolling, federal law gives you the right to return to Original Medicare within 12 months from purchasing.
When to Buy a Medicare Supplement Plan
The best time to buy any of the Medigap plans is during your six-month Open Enrollment Period. This is the half-year window when you turn 65 years old wherein you can purchase any Medicare Supplement plan available in your location and not be rejected for any reason (even if you have a pre-existing health condition). This period begins on the first day of the month that you turn 65.
If you do nothing during this time and forego enrollment, you run the risk of getting rejected for a plan or being asked to pay a higher monthly fee than the standard rate. You might also be required to undergo medical underwriting. Check the guidelines governing OEP in your state, as some locations may have additional conditions and privileges.
To know more about which Medicare Supplement plan is the best option for you and how you can find the right insurance provider that will cater to your needs (and budget), you may get in touch with our team of Medicare experts who will gladly guide you through the entire evaluation and selection process.
Still unsure if Medigap is worth your money? Give us a call at 800-354-1078 so we can provide the information you need to make a sound decision. Understanding the ins and out of the Medicare and Medigap world can be quite confusing, especially if this is your first time hearing about this or feel overwhelmed with information. We are here to help you with your next steps.
