When people talk about Medicare, they often think that is a single entity that provides all their health insurance coverage once they turn 65. But Medicare is not a single thing. It's a big, broad, complicated system that takes a long time and a lot of work to unpack. One of the most important things to know is that basic coverage, known as Original Medicare, is often not enough. As Andrew Shea, senior vice president of eHealth Medicare Marketing, puts it, "Original Medicare is good coverage, but it's not complete coverage."
Original Medicare includes Part A, which covers hospital-based care, and Part B, which covers other medical care from your doctors. But, like private insurance, these two parts don't cover everything. There are copays, deductibles and coinsurance costs that the subscriber is accountable for. These are known as "gaps" in your Medicare plan.
A Medicare supplement insurance plan, also known as Medigap, helps fill in many of those gaps. And those gaps can be enormous. "Those who have only Part A and Part B with no other insurance, such as a retiree plan, need some additional coverage to help pay those out-of-pocket costs that can break the bank, such as the 20% coinsurance after meeting the Part B deducible," says Diane Omdahl, president and founder of 65Incorporated, a Medicare consulting firm.
[Read: What Medicare Does Not Cover.]
You Pay the Premium
Medigap policies are separate insurance policies offered by private insurance companies, and you the purchaser have to pay the premium, as with private insurance. Premiums are typically $100 or more each month, and "the older you get, the higher the amount," Shea says. Medigap plans, which are given different letter names like Plan A or Plan G depending on what they do and don't cover, are regulated at the state level. "In most states, the plans have standardized coverage, meaning the benefits in a Missouri Plan A would be the exact same as a California Plan A," Shea says.
Some Medigap policies also cover services that Medicare doesn't cover, like medical care received outside the U.S. But these plans do not cover everything. Medigap policies generally do not cover dental care, vision care, long-term care, private nurses or some medical equipment like hearing aids and eyeglasses.
According to Medicare.gov, the official U.S. government website for all things Medicare, here is what happens if you have Original Medicare and you buy a Medigap policy:
-- Medicare will pay its share of the approved amount for covered health care costs.
-- Then your Medigap policy pays its share.
"In most Medigap policies, the Medigap insurance company will get your Part B claim information directly from Medicare. Then, they pay the doctor directly. Some Medigap insurance companies also provide this service for Part A claims," Omdahl says.
[Read: Your Guide to Medicare Coverage.]
Things to Know About Medigap
Medicare.gov says there are several important things you should know about Medigap policies.
-- You must have Medicare parts A and B.
-- A Medigap policy is not the same thing as a Medicare Advantage Plan, which is a way to get the benefits of Original Medicare, plus some supplemental coverage. A Medigap policy only supplements your Original Medicare benefits.
-- You are responsible for the monthly premium, which you pay to the insurance company underwriting your Medigap policy.
-- Each Medigap policy covers only one person, not you and your spouse. He or she will need a separate Medigap policy.
-- A Medigap policy is available from any state-licensed insurance company.
-- Standardized Medigap policies are guaranteed renewable, even if you have health problems. The insurance company can't cancel your Medigap policy as long as you remain current with the premium.
-- It is against the law for anyone to sell you a Medigap policy if you have a Medicare Advantage Plan, unless you want to switch from an Advantage plan back to Original Medicare.
When to Buy a Medigap Plan
The best time to buy a Medigap plan is when you're first eligible, during your six-month Medigap open enrollment period. "This period automatically starts the month you're 65 and enrolled in Medicare Part B, and it can't be changed or repeated," Omdahl says. "You generally will get better prices and more choices among policies" during this period, she says. After this enrollment period, you may not be able to buy a Medigap policy. Even if you are able to buy one outside of open enrollment, "it may cost more due to past or present health problems," she says.
As with all things involving the government, Medicare and Medigap plans are constantly changing, sometimes in maddeningly complex ways. For example, as of Jan. 1, 2020, new Medigap plans aren't allowed to cover the Part B deductible. As Medicare.gov confusingly states, "Because of this, Plans C and F are no longer available to people new to Medicare. If you already have either of these two plans (or the high deductible version of Plan F) or are covered by one of these plans before January 1, 2020, you'll be able to keep your plan. If you were eligible for Medicare before January 1, 2020, but not yet enrolled, you may be able to buy one of these plans."
Does your head hurt yet? Maybe this will do it. "The typical county has an almost staggering number of Medicare supplement plans because there are several insurance companies, each offering several different plans," Shea says.
How does one figure all this out? "Smart seniors will work with an independent licensed insurance broker who can present plans from many different insurance companies, and who can help you understand the trade-offs of any decision you might make," he says. To find a quality insurance broker, ask friends and family for recommendations, contact your employer benefits manager or reach out to your state insurance department.