Medicare Supplemental Insurance

Medigap insurance plans have grown substantially since they were first introduced back in 1949. According to the Census Bureau's Housing and Household Economic Statistics Division, there are an estimated 57.7 million individuals covered by the Medicare program and many of those same individuals purchase supplemental insurance (report issued in August 2019). While some people might consider Medicare benefits generous, there are some significant coverage gaps, and the expense of the standard cost-sharing arrangement for medical services can quickly add up. Working in concert with private health care insurance companies, federal and state governments developed a system to help individuals fill in these insurance gaps.

Medigap Plan Features

One of the important aspects of the Medigap plan structure is that as you move alphabetically from A to N, subsequent plans add to the previous plan's health care coverage. Therefore, Plan A is considered the core Medigap plan, since all the other plans contain at least the benefits of Plan A. At the other end of the spectrum, Plan N is the most comprehensive supplemental insurance plan offered.

Medicare SELECT and Advantage

There are exceptions to this rule, and one important exception is the Medicare SELECT policy. This plan can cost less than the standard policies mentioned above, but the plan works more like a health maintenance organization in that there is a network of doctors and hospitals. Not every state sponsors a Medicare SELECT program.

There are also competing insurance offers to these plans, for example there is Medicare Part C, formerly known as "Medicare+Choice," and now known as "Medicare Advantage." Individuals entitled to Medicare Part A, and enrolled in Medicare Part B, are eligible to switch to a Medicare Advantage plan, provided they reside in the plan's service area. Another feature of these policies is they are standardized across the United States (Massachusetts, Minnesota and Wisconsin are exceptions). This means it's possible to make a direct comparison between insurance companies regardless of where the purchaser lives. In theory, this means the only difference between company plans is the cost of the policy.

In general, when purchasing a Medigap policy there are at least two components to a policy, Medicare Part A (Hospital Insurance) and Medicare Part B (Medical Insurance). Even if a policy is purchased, a monthly premium for Medicare Part B is owed to Medicare.

Coverage Provided by All Medigap Policies

The following is a list of the basic benefits that all supplemental plans offer:

• Medicare Part A: all plans cover the costs for days 61 through 150 of any hospital stay in a benefit period. Once all of the 150 days of Medicare hospital benefits are consumed, all plans provide for 365 more days over the policyholder's lifetime.

• Medicare Part B: all policies cover the copayments (20% for doctors and 50% of mental health services) that are considered reasonable charges.

• Blood: all plans cover the first three pints of blood needed that are not covered under Medicare (which picks up the pints beyond three).

2010 Changes

There were several significant changes to coverage offered by the Medigap program in 2010, including:

• Legacy Plans: Plans E, H, I and J are no longer available after May 31, 2010. Anyone that purchased one of these plans before June 1, 2010, can keep their plan.

• Modified Benefit: Plans D and G purchased after June 1, 2010 will have slightly different benefits than those sold before that date. Anyone that purchased one of these plans before June 1, 2010 can keep their plan and the benefits will remain the same.

• New Plans: Plans M and N are now available and offer additional choices to Medicare recipients.

• Basic Benefit: Hospice Part A coinsurance will be covered as part of the basic benefit starting with policies effective June 1, 2010. Plan K will cover 50% of these costs, while Plan L will cover 75%.

• Part B Coinsurance: premiums will be reduced in Plans K, L, and N since they will now require participants to pay a portion of Part B coinsurance and copayments. All other Medigap plans pay 100% of Part B coinsurance and copayments.

Additional Benefits

As mentioned earlier, as you progress from Medigap Plan A through Plan N, both higher premiums and additional medical benefits are offered by each insurance plan. The following list explains some of the additional benefits offered by these Medigap plans (policies purchased before June 1, 2016):

• Medicare Part A: Plans B, C, D, F, G and N cover the hospital deductible in each benefit period. Plans K (50%), L (75%) and M (50%) provide partial coverage.

• Medicare Part B: Plans C, and F pay the deductible each year for doctor fees and other medical services. Medigap Plans F and G pay 100% of the excess charges that occur when a doctor doesn't "accept assignment."

• Skilled Nursing Home Care: Medicare pays for skilled nursing home costs for the first 20 days of a benefit period. Medigap Plans C through G, M and N pays the bill for day 21 through day 100. Plans K (50%) and L (75%) provide partial coverage.

• Preventative Care: Plans E and G offer preventative care benefits such as routine physicals.

• Travel Care: Medicare normally does not cover any health care services received while traveling outside the United States. Medigap Plans C through G, M and N will cover some emergency health care costs outside the United States.

• Hospice: Plans C through G, M and N provide 100% of hospice care coinsurance or copayments. Plans K (50%) and L (75%) provide partial coverage.

• Out-of-Pocket Limits: Plans K and L have an out-of-pocket limit of $5,880 (Plan K) and $2,940 (Plan L) in 2020. After meeting the out-of-pocket annual limit and the annual Part B deductible, the plan pays 100% of covered services for the rest of the calendar year.

Coverage Not Provided

The list of medical and health care benefits that none of the plans cover is relatively small and includes:

• Hearing aids, vision, and dental benefits.

• Private Nurses or other providers of long-term care that provide services such as bathing, dressing, and feeding.

The cost of Medicare supplemental insurance policies can vary widely. Although the coverage is standardized, there can be a large difference in the cost that each health care insurance company will charge for the same coverage. For example, some companies may base the insurance cost on the applicant's age upon enrollment. Other companies may change premiums annually as the plan participant ages. In addition, while the exact cost sharing relationships are different for each plan, they all include the following components:

• Co-payments: small fees paid at the time medical services are rendered.

• Co-insurance payments: a sharing of medical expenses (usually stated on a percentage basis).

• Plan deductibles: dollar values that must be satisfied before medical benefits begin.

As the benefits of each of these payment types become more attractive to the consumer, the monthly premiums will increase. In practice, participants may also decide they value other features of an insurance company, such as their customer service reputation. Everything else being equal, cost is the only difference worth evaluating.

The best time to enroll in a Medigap plan is during the open enrollment period. Open enrollment lasts for six months, and starts on the first day of the month in which an individual turns age 65 or older and is enrolled in Medicare Part B. Once the six-month Medigap open enrollment period starts, it can't be changed. Finally, the advantages of purchasing this insurance during the open enrollment period include:

• An insurance company cannot deny an applicant coverage.

• The insurance company cannot place conditions on a policy.

• The insurance company cannot charge more for a policy because of past or present health problems.

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