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

Medicare coverage gaps are a problem. However, before looking at the solution, here's the underlying issue. Your entire working life, you've paid taxes that were fed into the Medicare program. More specifically, you paid 1.45% of your earnings to Medicare, and your employer threw in another 1.45% for a total of 2.9%, at 2022 rates. These taxes go to cover Medicare benefits, including Original Medicare (which is Part A and Part B).

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

Here's an example of a gap in Medicare coverage—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 can still cost a lot of money.

When you went to the hospital and were admitted, your Part A coverage picked up a portion of the bill. As of 2022, you pay the first $1,556, and Medicare picks up the rest for up to 60 days. You then begin paying a portion of the daily bill—after 90 days, you pay a larger portion. If you go back to the hospital later that year, you may pay another $1,566. Each time you’re admitted to the hospital, it could be another $1,566.

But what about all of the tests and procedures? That’s where Part B comes in. You pay a monthly premium for Part B, then you pay your deductible, and then you pay 20% 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 pay 20% of all of it for the year. That could translate to a huge bill you may not be able to afford. To pour fuel on the financial fire, you have no out-of-pocket maximum with Original Medicare. In other words, there's no upper limit to reach, after which you'll stop paying. With that in mind, if you require a great deal of care, you could go bankrupt trying to afford it.

A single male who turns age 65 in 2025, earned average wages over their lifetime, and paid $87,000 in Medicare taxes over their career, can expect to receive $274,000 in lifetime benefits, according to the Urban-Brookings Tax Policy Center.

What Is Medigap Insurance?

Gaps in Original Medicare coverage can represent a huge financial burden to retirees. For this reason, it's a good idea to consider additional insurance that fills those gaps. There are two 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 created by 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 labeled much like Original Medicare, using A, B, C, D, F, G, K, L, M, and N for the plan names. Depending on the additional coverages you desire, and how much you are willing to pay in additional premium, these plans offer various 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.

Medigap plans K and L limit your annual out-of-pocket expenses. Plans C and F are not available if you are new to Medicare on or after Jan. 1, 2020.

How to Get Medigap

The best time to get a Medigap policy is during your Medigap initial enrollment period. This timeframe begins the first month that you're at least 65 and enrolled in Part B. This period lasts for six months. During this time, insurance companies can't charge you more for Medigap or deny Medigap coverage based on your gender, age, health, or any preexisting conditions. But once this period expires, they can.

To get a Medigap policy, you have to be enrolled in both Parts A and B. The Medicare Plan Finder can help you compare Medigap plans from different providers in your state.

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 a Medigap policy covers you, your policy is guaranteed to be 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'll need Medicare Part D to help pay for prescriptions, which comes with a separate premium. To sum it up, you're likely to be paying premiums for Original Medicare, Medigap, and Part D coverage; however, it's essential to do so if you want all aspects of your care to be covered and the gaps filled.

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

Ask for Help

Identifying the coverage gaps in Original Medicare and knowing which plans offer the best value for your medical needs gets complicated; it becomes very expensive if you don't choose the right ones. Therefore, it's always a good idea to discuss your medical needs with an insurance agent specializing in Medicare.

Article Sources

  1. Internal Revenue Service. "Topic No. 751 Social Security and Medicare Withholding Rates."

  2. Internal Revenue Service. "Self-Employment Tax (Social Security and Medicare Taxes)."

  3. Internal Revenue Service. "2022 Medicare Parts A & B Premiums and Deductibles/2022 Medicare Part D Income-Related Monthly Adjustment Amounts."

  4. Centers for Medicare & Medicaid Services. "Medicare Costs at a Glance."

  5. Centers for Medicare & Medicaid Services. "Understanding Medicare Advantage Plans," Page 6.

  6. Urban-Brookings Tax Policy Center. "Social Security & Medicare Lifetime Benefits & Taxes: 2020," Page 6.

  7. Centers for Medicare & Medicaid Services. "How Do Medicare Advantage Plans Work?"

  8. Centers for Medicare & Medicaid Services. "What's Medicare Supplement Insurance (Medigap)?"

  9. Centers for Medicare & Medicaid Services. "Medigap (Medicare Supplement Insurance) Policies," Page 17.

  10. Centers for Medicare & Medicaid Services. "How to Compare Medigap Policies."

  11. Centers for Medicare & Medicaid Services. "When Can I Buy Medigap?"