What You Need to Know About Medigap Insurance

Your Original Medicare Coverage Isn't Enough

Senior woman talking to doctor in office

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Original Medicare is a great start for your retirement health insurance. However, if that's all the coverage you have, you may be in for a shock when your out-of-pocket expenses start adding up.

Along with Original Medicare, you should consider additional coverage for the coinsurance, copayments, and deductibles not covered by Original Medicare. This coverage is known as Medicare Supplement Insurance, often referred to as Medigap coverage.

Medicare Has Gaps

Before we look at the solution, let’s define the problem. All of your working life you saw money disappear from your paycheck to cover Medicare. In fact, you paid 1.45% of your earnings to cover your Medicare later in life and your employer threw in another 1.45% for a total of 2.9%.

If you were self-employed, you paid both parts and could deduct the "employer" portion from your business income.

These taxes go to cover Medicare benefits, including Original Medicare.

Let’s look at Original Medicare—that’s Part A and Part B. Let’s say that you had a heart attack. Medical science has come a long way and a heart attack isn’t as catastrophic as it once was but it costs a lot of money. In fact, you could buy a luxury car for what you and your insurance company will pay for the care you need.

When you went to the hospital and were admitted, your Part A coverage picked up a portion of the bill. As of 2021, you pay the first $1,484 and Medicare picks up the rest up to 60 days. Then you start paying a portion of the daily bill and after 90 days you pay a larger portion. If you go back to the hospital later that year, you may pay another $1,484. Each time you’re admitted, it could be another $1,484.

But what about all of the tests and procedures? That’s where Part B comes in. There’s a monthly premium for Part B but for any procedures, you pay the first $203 as your deductible and pick up 20 percent of the bill after that. If your total bill was $30,000 not counting the cost of staying in the hospital or your deductible, your portion is $6,000.

But if you have other procedures, tests, surgeries, and most other care, you’ll pick 20 percent of all of it for the year. That translates to a HUGE bill that most retirees often can’t pay. Sure, Medicare picked up 80 percent but that 20 percent hurts just as bad, right?

A single male who earned average wages over his lifetime, and who is expected to have paid $81,000 in Medicare taxes over their career, can expect to receive $240,000 in lifetime benefits.

Medigap Insurance

Those gaps in coverage represent a terrifying financial burden to retirees. That’s why you have to get additional insurance to fill those gaps in your Original Medicare. There are 2 choices: A Medicare Advantage plan—known as Part C, or Medigap Insurance.

Medicare Advantage plans typically include Original Medicare Parts A and B, and often include prescription drug coverage typical of Part D. Medicare Advantage plans are not compatible with Medigap.

Medigap insurance, also called Medicare Supplement Insurance, helps fill the gaps related to out-of-pocket expenses. As with any supplemental insurance plan, you can expect to pay an additional premium on top of the premiums you pay related to Original Medicare coverage.

Medigap insurance is designated much like Original Medicare, with its associated Plans A, B, C, D, F, G, K, L, M and N. Depending on the additional coverages you desire and how much you are willing to pay in additional premium, these plans give you a variety of options. Similarly, Medicare standardizes these plans across insurers.

For example, when you’re shopping the various private insurance providers for Medigap insurance, Plan G has the same benefits regardless of the provider. Unless you live in Massachusetts, Minnesota, or Wisconsin where plans are slightly different, all you have to compare is the price and the quality of the company.

Quick Facts About Medigap Insurance

Medigap isn’t a replacement for Original Medicare. You still need Parts A and B and must continue paying any monthly premiums that come with those. You will pay a private insurance company a separate premium for your Medigap Insurance.

Next, there’s no family plan. A Medigap policy covers a single person. You need a separate policy for your spouse.

If you get sick while covered by a Medigap policy, your policy is guaranteed renewable. You don’t have to worry about the insurance company canceling your policy because of your health issues.

Medigap policies don’t cover prescription drugs. You would need Medicare Part D coverage, which comes with a separate premium. You may end up paying multiple premiums for Original Medicare, Medigap, and Part D coverage but it's essential if you want protection from all of the coverage gaps.

Finally, Medigap insurance doesn’t cover long-term care, vision and dental care, eyeglasses, hearing aids, or some types of nursing.

How to Enroll

Since Medigap insurance is sold through private insurers, you’ll have to go shopping but Medicare makes it easy with their “Medigap Policy Search” page. Here you can enter some basic information about yourself and Medicare will give you plenty of options to compare.

Ask for Help

Identifying the coverage gaps in Original Medicare and knowing which plans offer the best value for your medical needs gets complicated and it’s something you can’t afford to get wrong. Talk to an insurance agent who specializes in Medicare for help.