I. The Essential Elements of Medicare Coverage

Medicare Supplement insurance is especially difficult to understand, and many people are unsure about what these plans are and how they work. Even the name is confusing because Supplement Insurance policies are also commonly called Medigap plans. If you don’t have a clear understanding of Medicare and are on the fence about whether you should enroll in a Supplement plan, this guide may help. We’ve included a refresher on the different types of Medicare, along with information about how Supplement plans work, who’s eligible, a primer on Medigap premiums, and how to enroll in a plan.

Medicare consists of four main parts: Original Medicare, which includes Part A and B, Medicare Advantage (MA) plans that can replace Original Medicare coverage, Part D plans that provide prescription drug coverage, and Supplement or Medigap plans that help you pay various costs not covered by Part A and B. Original Medicare is administered by the Centers for Medicare and Medicaid Services (CMS), a federal agency. MA, Part D, and Medigap plans are regulated by the federal government but managed by individual private insurance companies. Here’s a broad look at the different components of Medicare, with more in-depth details on Supplement plans.

Original Medicare

The two components of Original Medicare, Parts A and B, each serve a different purpose and dovetail together to provide basic health care coverage.

Part A covers most of your costs for your first 60 days as a hospital inpatient, along with skilled nursing facility stays, hospice care, and some health care services provided at home. If you’ve worked for at least 10 years and contributed Medicare taxes, you don’t pay any premiums for Part A. However, you do face a hefty deductible for each hospitalization benefit period and related skilled nursing facility inpatient stays, as well as:

  • A daily coinsurance charge for days 61 through 90
  • Double the daily coinsurance rate for stays lasting 91 to 120 days

Part B covers medically necessary and preventive services. These include visits to doctors and specialists, diagnostic screenings, lab tests, ambulance rides, approved durable medical equipment, and a variety of other outpatient services. When you enroll in this part of Original Medicare, you must pay a monthly premium. You’re also responsible for:

  • An annual deductible
  • A 20% copayment of Medicare-approved amounts for doctor services, outpatient services, and durable medical equipment

Medicare Supplement Plans

Enrolling in a Medicare Supplement plan can help you budget for medical expenses and avoid excessive out-of-pocket costs. Unlike Medicare Advantage plans, Medigap policies don’t pay for specific services or provide extras such as home modifications, vision, dental, or hearing care. The sole purpose of these supplemental insurance plans is to minimize the costs that Medicare doesn’t pay, such as Part A deductibles, copayments, coinsurance, and excess charges. The amount you can save depends on the coverage provided by the plan you choose.

Part D Prescription Drug Plans

Part D plans can help defray your prescription drug costs if you’re enrolled in Original Medicare and some Supplement plans. There are a wide array of these stand-alone prescription plans available in each state, and while they’re overseen by the federal government, they’re only offered through private insurers. Each insurer has their own list or formulary of the medications they cover, and what’s covered can change from year to year. Most also require that you get your prescriptions filled at pharmacies within their approved network.

In addition to checking whether a plan covers the medications you take, you should also compare the cost of monthly premiums before you enroll in a particular Part D plan because they can vary between insurers. Depending on the plan you choose, you’ll pay a monthly premium, and all your prescription drug costs up to your plan’s yearly deductible amount. You’ll then pay either a flat copayment or percentage of the cost of each prescription, and the amounts can differ depending on whether you reach the coverage gap or catastrophic coverage levels during the year.

Medicare Advantage Plans

Medicare Advantage plans are alternatives to Original Medicare coverage. They’re offered through various insurance companies but regulated by the federal government. By law, MA plans must provide all the services covered by Medicare Part A and B, except for hospice care, which is still covered under Part A of Original Medicare. Many MA plans include Part D prescription drug coverage as well, and most also offer bonus benefits you don’t get with Original Medicare, such as dental, vision, and hearing care, medical appointment transportation, home-delivered meals, wellness services such as fitness classes, and certain accessibility and safety modifications to your home.

There are several types of MA plans available in each state, and while the core services are standardized with each type of plan, the extra benefits they provide can vary between insurance companies. You must be eligible for and enrolled in Medicare Part A and B before you can sign up for an MA plan. Once enrolled, you’ll pay a monthly premium to your Advantage plan provider along with your Original Medicare premium(s).

II. Medicare Supplement Plans and How They Work

As of January 1, 2020, there are eight Medigap plans or Supplement Plans available to new Medicare enrollees, which are identified by the letters A, B, D, G, K, L, M, and N.

Regardless of the state you live in or the insurance company you purchase a Medigap policy from, the coverage provided by a particular plan doesn’t vary because the scope of each one is defined by the federal government. For instance, you can expect plans A, B, D, G, M, and N to cover 100% of your costs for:

  • Part A coinsurance and hospital expenses for up to 365 additional days after your Medicare benefits are exhausted
  • Part B coinsurance or copayments
  • First 3 pints of blood for transfusion or during surgery
  • Part A hospice care coinsurance or copayments
  • Skilled nursing facility care coinsurance

Plans K and L pay 100% of your Part A coinsurance, hospital costs for an extra 365 days, and 50% or 75% of the above-listed expenses respectively, plus they pay all your out-of-pocket costs beyond a set dollar amount.

Plans B, D, G, and N cover your Part A deductible, and G pays for Part B excess charges as well.

Plans D, G, M, and N also pay 80% of your medical costs when traveling outside the country, up to the defined limit of each plan.

If you decide to sign up for Medigap coverage, you may want to look at all the options available in your area and narrow down your choices to one or two plans that best suit your needs. Doing so allows you to accurately compare cost quotes for the same level of coverage. When you’re budgeting for Medigap coverage costs, keep in mind that in addition to your Supplement plan premium, you still have to pay your current monthly premiums for Original Medicare, which may include an amount for Part B alone, or Part A and B if you didn’t qualify for premium-free Part A coverage.

III. Enrolling in Medicare Supplement Plans

To sign up for this kind of policy, you must be already enrolled in Medicare Part A and B, and you can’t qualify if you’re currently enrolled in an MA plan. Although you can enroll in a Medigap plan at any time without penalty, the most advantageous time to sign up is during your six-month-long open enrollment period (OEP), which begins the month you’re both age 65 and enrolled in Part B.

During this period, you can compare plans and sign up for the one that offers the amount of coverage you want at a monthly premium that fits your budget, without any risk of being turned down. If you put off enrolling until after your OEP ends, insurers can factor in any health problems you may have and either charge you a higher premium or refuse to offer you coverage at all.

IV. What Affects Medicare Supplement Premiums

Your cost for Medigap coverage depends on a number of factors such as your age, if you use tobacco, whether you’re married and your spouse also takes out a policy, increases in general health care costs, and inflation. Other key factors that affect the monthly premium you pay include:

  • Whether you select a plan that pays a wider range and higher percentage of various expenses or one with a lower monthly cost. Plans that offer more coverage have higher premiums, but they may end up being less expensive depending on your out-of-pocket Part A and B costs over the coverage period.
  • The insurance company you choose and your geographic location. Rates can vary a lot between insurers and from state to state for identical coverage under the same plan. For instance, what you pay for Plan G through insurer 1 in Boston may be significantly higher or lower than the rate charged for Plan G by insurer 2 in Seattle.
  • The pricing — or rating — method used by an insurer. Plans from some insurers are community-rated, which ignores the age of individual applicants and charges everyone the same premium amount. Some are issued age-rated, where the premium is based on your age when you take out a policy, so the younger you are, the lower the price you pay for coverage. Others are attained age-rated, which means the amount of your monthly premium is determined by your current age, and it increases as you get older.