When Do You Need a Medicare Supplemental Insurance Plan?

Posted on December 1st, 2022.

For the roughly 65 million people enrolled in Medicare, figuring out whether or not to also purchase private supplemental insurance might seem paralyzingly complicated. Fall open enrollment – when people already enrolled in Medicare can change their plan for 2023 – runs from October 15 to December 7.

You may find yourself asking questions like, what do I need to know about Medicare Part A? What is a private supplemental insurance plan? Should I get Medigap? What is Medicare Advantage?

For consumers who may feel daunted by the complexity of their choices, there’s no need to despair, says Ari Parker, co-founder and head Medicare advisor at Chapter, a nationwide service that helps people nationwide shop for Medicare plans. Chapter is free to customers but paid commissions by insurance companies.

Parker, who is also the author of the newly-released book, “It’s Not That Complicated: The Three Medicare Decisions to Protect Your Health and Money,” acknowledges that figuring whether or not to get supplemental insurance for Medicare – and if so, what kind – can be complicated for someone who’s dealing with these decisions for the first time. But he insists that, once consumers break down what's most important to them, the choices aren’t as daunting.

What Is Medigap?

For most consumers, getting either a private insurance plan to supplement original Medicare, known as a Medigap policy, or getting Medicare Advantage is a good idea, Parker says. Medigap plans are supplemental insurance plans for Medicare sold by private insurers. As with any other type of insurance, you pay monthly premiums. Medigap plans pay for many costs not covered by original Medicare, such as co-insurance, co-pays for doctor's visits and deductibles, Parker says.

Medicare Advantage, on the other hand, “is a way to receive your Medicare through a private insurer rather than directly through the federal government," says Darwin Hale, chief executive officer of Advocate Health Advisors, a firm based in Venice, Florida, that helps seniors make informed decisions about Medicare at no charge to consumers. The firm, which offers both Medicare Advantage and Medigap plans to consumers, is paid by insurance companies.

The reason it’s a good idea to seriously consider getting either a Medigap plan or Medicare Advantage is that original Medicare covers 80%, not 100%, of all medical costs, including doctor’s visits, medical treatment and diagnostic exams. The cost of an extended hospitalization can run into the hundreds of thousands, or even millions, of dollars.

“With no out-of-pocket limit, you could go bankrupt with just original Medicare," Parker says.

Hale agrees. “Even one night in the hospital is going to cost you at least $1,600,” he says, citing the amount of the yearly deductible for Medicare Part A for a hospital stay. A significant percentage of bankruptcies nationwide are caused by medical bills, he notes.

Before delving into Medigap, it’s a good idea to review original Medicare and Medicare Advantage.

What Is Medicare?

Medicare is a health insurance program provided by the federal government that is generally available to individuals who have worked for (and therefore paid into the Medicare system) for at least 10 years. Enrollment in Medicare is automatic when someone turns 65.

Medicare is available to:

Individuals age 65 or older.

People with Lou Gehrig’s disease, which is also called amyotrophic lateral sclerosis, or ALS.

Individuals with end-stage renal disease, or permanent kidney failure that requires dialysis or transplant.

Original Medicare comes in two basic parts: Part A, which covers hospitalizations and short-term skilled nursing care, and Part B, which covers medical services, like doctor’s visits and diagnostic tests. About 93% of all doctors in the U.S. accept Medicare.

There's also Part D, which is coverage for prescription drugs. Part C is simply Medicare Advantage, and you would not purchase Part C if you are already enrolled in parts A and B.

It helps to think of the health care you need coverage for as a three-legged stool, Parker says:

• One leg is hospitalization and the costs associated with hospital stays.
• Another leg is non-hospital medical costs, such as doctor visits and diagnostic tests, including MRIs, X-rays and blood work. Medical devices, like braces, blood glucose meters and apnea monitors. It also covers preventive services, like flu shots and diagnostic tests to detect health problems at an early stage, when treatment is likely to work best.
• The third leg of the stool is the cost of prescription drugs.

“You need all three legs of the stool to be stable, otherwise your health will suffer,” Parker says.

There’s a $1,600 deductible for Medicare Part A. The deductible for Medicare Part B is $226 for 2023. A deductible is the amount you have to pay before coverage kicks in.

Medicare Part B

Medicare Part B is optional, with a monthly premium this year of $164.90 per month. It's important to keep in mind that unless you work for an employer with 20 or more employees, you could owe a late enrollment penalty if you delay starting Part B when you turn 65, Parker says. Each year you could have signed up for Part B but didn't, you'll pay an extra 10%, according to medicare.gov. The penalty is added to your premiums.

Here is what Medicare Part B covers, according to medicare.gov:

• Ambulance services.
• Durable medical equipment. This includes hospital beds, pressure mattresses prostheses, orthotics and other health devices and products.
• Medically necessary services. These are services or supplies needed to diagnose or treat your medical condition, so long as they meet accepted standards of medical practice.
• Preventive services. Health care to prevent illnesses like the flu or detect illness at an early stage when treatment is likely to work best is also covered. Preventive services are fully covered if you get the services from a provider that accepts Medicare.
• Mental health services. Inpatient and outpatient care are included.

What Is Medicare Advantage?

Medicare Advantage is Medicare administered by a private insurer.

Medicare Advantage plans tend to be less expensive than Medigap plans. However, Medicare Advantage plans limit your choice of providers. On the other hand, if you want the ability to choose your healthcare providers without restrictions, Medigap will allow you to do that.

Some Medicare Advantage plans have no premiums, or modest premiums of about $30 a month.

Most Medicare Advantage plans include coverage for prescription drugs (Medicare Part D) and many offer dental and vision coverage.

In many ways, Medicare Advantage plans are similar to individual health insurance policies provided by employers or available on the individual insurance market. They have different monthly premiums, copays, provider networks and out-of-pocket limits. Some plans that have no or lower premiums might have higher copays or coinsurance, higher out-of-pocket limits and smaller networks of providers. You may also have to pay more for coverage of prescription drugs.

Simplicity and Lower Costs

Because many Medicare Advantage plans have low premiums and include dental, vision and hearing coverage, which original Medicare does not, its simplicity is attractive to many consumers. The amount of coverage for those issues varies from plan to plan, Parker says. For example, some plans will provide a benefit of $1,000 annually for dental coverage, after which the consumer will pay out of pocket.

Similarly, the amount of coverage for prescription drugs varies from plan to plan, and costs depend on the types of medication the consumer needs, and whether they take brand-name or generic drugs. There is no set prescription drug benefit amount that will require you to pay out of pocket once it’s exhausted. Keep in mind, original Medicare doesn't cover prescriptions unless you enroll in a stand-alone prescription drug plan, which is Medicare Part D.

A Medicare Advantage plan could be attractive to a consumer who is optimizing for lower costs and doesn’t mind restrictions on the doctors they can see, Parker says. In 2022, 48% of consumers eligible for Medicare Part A were enrolled in a Medicare Advantage plan, according to the Kaiser Family Foundation.

Unlimited Choice of Providers

"If being able to choose your health care provider is a top priority, a Medigap plan might be the right choice for you," Parker says. "Suppose you're being treated for cancer, and you don't live in Texas but you want an appointment with a doctor at the University of Texas MD Anderson Cancer Center, which is consistently rated as one of the top hospitals for cancer treatment. With a Medigap plan, you would be covered. You wouldn't have to worry about a network."

Under a Medigap plan, Medicare pays for 80% of your hospitalization and medical costs, and the Medigap plan picks up the rest. Unlike Medicare Advantage, though, Medigap plans do not provide dental, vison or hearing coverage.

The cost of Medigap insurance plans depends on an array of factors, including gender, your location and age, your health status and whether you use tobacco. Policies that provide more coverage will have higher premiums than policies that provide less coverage.

The costs of Medigap plans can vary widely, according to medicare.gov. Overall, the average monthly premium for a Medigap plan to supplement Medicare “can range from $50 to over $300,” according to medigap.com. Your premium for Part B is deducted from your Social Security check, or you can sign up for Medicare Easy Pay.

Medigap policies are sold separately from Medicare and are offered by private insurance companies where you live. Like any insurance policy, these require you to pay a premium to the provider. Premiums will go up as you age.

When to Get a Medigap Plan

If you are interested in a true Medigap plan, the best time to buy one is when you're first eligible, during your six-month Medigap open enrollment period. This begins the month you turn 65 and enroll in Medicare Part B. Once this period ends, you may be ineligible to buy a Medigap policy, depending on your state regulations.

Like other insurance policies, Medigap policies, which are known by different letters, such as Plan A or Plan G, cover different services. For example, some Medigap policies also cover services that original Medicare doesn't cover, like medical care received outside the U.S. But most Medigap policies don’t cover services like dental care, vision care, long-term care, private nurses or some medical equipment like hearing aids and eyeglasses.

Unlike Medicare, which is a federally regulated system, Medigap plans are state-regulated. If you have original Medicare and you buy a Medigap policy, Medicare is first in line when it comes to paying the approved amount for covered healthcare costs. After that, the Medigap policy pays its share.

Prescription Drug Coverage

Medigap policies currently on the market don't offer prescription drug coverage. However, some Medigap plans sold to consumers before 2006 included outpatient drug benefits, according to the Centers for Medicare & Medicaid Services.

Consumers who still have such a policy can keep this coverage and choose not to sign up for a Medicare Prescription Drug Plan. Otherwise, individuals with a Medigap plan can choose to enroll in Medicare Part D for prescription coverage. Medicare Part D is also available to consumers who are enrolled in Medicare parts A and B.

Source: www.health.usnews.com