Medicare Supplement Insurance Explained: What It Is and How It Functions

Julia Kagan is a financial and consumer journalist with extensive experience as a senior editor in personal finance at Investopedia.

Understanding Medicare Supplement Insurance

Medicare Supplement Insurance, commonly referred to as Medigap, is a private insurance product that helps cover healthcare expenses not paid by original Medicare. This includes out-of-pocket costs such as copayments, coinsurance, and deductibles.

Key Highlights

• Medigap policies are offered by private insurers to supplement Medicare coverage.
• They address the financial gaps found in Medicare’s original plans.
• Policyholders pay monthly premiums directly to the insurance company.
• Medigap differs from Medicare Part C (Medicare Advantage), which replaces original Medicare rather than supplementing it.

How Does Medicare Supplement Insurance Operate?

To qualify for Medigap, individuals must be enrolled in Medicare Parts A and B. Medigap policies work alongside original Medicare, providing additional financial protection but not replacing Medicare itself.

The open enrollment window for Medigap begins when a person turns 65 and enrolls in Medicare Part B, lasting for six months.

Medigap premiums are paid monthly to the private insurer, separate from Medicare Part B and D premiums. This means beneficiaries pay distinct premiums for Medicare and their Medigap plan.

There are 10 standardized Medigap plans labeled A through N. Notably, Plan F is only available to those eligible for Medicare before January 1, 2020. Federal regulations require that all Medigap plans offer standardized benefits, ensuring comparable coverage across different insurers and simplifying cost comparisons.

Medigap policies must cover preexisting conditions after a six-month waiting period unless the individual had continuous creditable coverage for six months prior to enrollment.

Important Note

Since 2020, Medigap plans cannot cover the Medicare Part B annual deductible. Consequently, Plans C and F are unavailable to new enrollees who became eligible after 2020, though existing enrollees may retain these plans.

Additional Insights

Most Medigap insurers receive Medicare Part B claims directly and pay healthcare providers the remaining balance after Medicare’s contribution. Some plans also handle Medicare Part A claims, though this is less common. Medicare mandates that Medigap insurers pay providers directly upon request.

Typically, Medigap does not cover dental, vision, hearing aids, or private nursing care but does often cover emergency medical care abroad for up to 60 days, subject to coinsurance and deductibles.

CMS advises caution when purchasing Medigap policies to avoid scams, high-pressure sales, and unsuitable policy offers, especially for those already covered by Medicaid or Medicare Advantage.

State regulations may also apply, and it is illegal for private insurers to misrepresent Medigap as a federal program.

Medicare Supplement Insurance vs. Medicare Part C

Although the names may cause confusion, Medigap and Medicare Part C (Medicare Advantage) are distinct and mutually exclusive. Medigap supplements original Medicare Parts A and B and does not cover costs under Medicare Advantage plans, which replace original Medicare.

Both Medigap and Medicare Advantage are offered by private companies approved by the government, but Medicare Advantage plans often include additional benefits like vision, dental, and fitness programs, typically with network restrictions and prior authorizations.

Medicare Advantage premiums are in addition to Part B premiums, though some plans may cover all or part of the Part B premium.

Important Reminder

Medigap plans do not cover medical expenses exceeding Medicare’s limits, leaving those costs to the patient.

Overview of Medicare Parts

Part A

Medicare Part A covers inpatient hospital care, skilled nursing facilities, hospice, and some home health services, but excludes custodial nursing home care. For those with sufficient payroll tax contributions, Part A is premium-free; others pay a monthly premium ($505 in 2024). Deductibles and coinsurance apply.

Part B

Part B offers outpatient services including doctor visits, ambulance, mental health, lab tests, and preventive care. The 2024 standard premium is $174.70 monthly with a $240 deductible. Higher income beneficiaries pay increased premiums based on their tax returns.

Part D

Part D provides prescription drug coverage through private plans approved by Medicare. Costs vary by plan, medications, and pharmacy choice. Medigap no longer offers drug coverage to new enrollees but existing coverage can be maintained. Medicare Part D premiums average $55.50 monthly in 2024 with a $545 deductible.

When to Purchase Medigap

Medigap enrollment should occur within the six-month open enrollment period starting with Medicare Part B enrollment at age 65 or older. Buying during this time ensures access and better pricing.

What Does Medigap Cover?

Medigap covers gaps in Medicare Parts A and B by paying for copayments, coinsurance, and some deductibles. It generally excludes prescription drugs, vision, hearing, dental, and long-term care.

Coverage of Preexisting Conditions

Medigap covers preexisting conditions after a six-month waiting period unless prior continuous coverage was maintained. Certain situations guarantee coverage without waiting.

Summary

Medicare Supplement Insurance (Medigap) is a private insurance option that helps Medicare beneficiaries manage out-of-pocket healthcare costs. It requires separate premiums and is distinct from Medicare Advantage plans.

To secure Medigap coverage, enroll during the open enrollment period that begins with Medicare Part B enrollment at age 65. Early enrollment ensures availability and cost-effectiveness.

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