2023 | Medicare Supplemental Plans (Medigap) Explained
November 3, 2023
Despite popular belief, Original Medicare doesn’t cover 100% of beneficiaries' needs. Original Medicare is made up of Parts A and B, which cover 80% of the costs for most medical services. This means that beneficiaries are responsible for the remaining 20%. If the beneficiary needs medical treatment, they’ll be responsible for 20% of the cost. If they need medical treatment or a medical device not covered by Medicare Part A or B, such as hearing aids, the beneficiary would be responsible for 100% of the cost. In both cases, this is where Medicare Supplemental plans, also known as Medigap, come in. Below, I’ll go over the ins and outs of Medigap so that you, a financial advisor, can confidently help clients through the Medicare process.
How much do Medigap Plans cover?
Medigap plans are meant to “fill in the gaps” by covering the 20% coinsurance as well as some of the other medical costs Original Medicare doesn’t cover. For example:
- Medigap Plans C, D, F, G, M, and N cover skilled nursing facilities.
- Medigap Plan K covers 50% of skilled nursing facilities and Plan L covers 75%.
- Medigap Plans A and B do not cover skilled nursing facilities.
How much does a Medigap plan cost?
When your client selects a Medigap policy they’ll pay a monthly premium to the insurer for that policy in addition to the Part B premium they pay to Medicare. Medigap policies are labeled in most states by letters (Minnesota, Wisconsin, and Massachusetts have different plan designations). Each lettered plan is standardized and provides the same benefits regardless of the insurance company. Generally, the only difference between Medigap policies sold by different insurance companies is the cost of the monthly premium. However, some insurance companies offer “extra” versions of Medigap policies that cost more but have extra benefits such as hearing, vision, and over-the-counter medication coverage. Each insurer charges their premiums based on the number of people in that state they cover and their ages, or the size of the community if it’s a community-rated Medigap plan. Medigap plan premiums generally increase with age if they aren’t a community-rated plan.
There are ten Medigap policies lettered A through N. The chart below is an overview of what each lettered Medigap plan covers that Original Medicare does not cover.
Are Medigap plans offered through Medicare?
Although Medicare Parts A and B are offered by Medicare, Medigap plans are provided by private insurance companies. If a beneficiary’s preferences align with Original Medicare over Medicare Advantage, it’s advisable to enroll in a private Medigap/Supplemental plan to provide truly comprehensive coverage. Without a Medigap/Supplemental plan, your client’s out-of-pocket expenses are uncapped, meaning there is no limit to what they might pay.
When is enrollment for Medigap plans?
Medigap plans don’t have a specific enrollment timeline like Original Medicare or Medicare Advantage, but there is an ideal time to choose a Medigap plan. The six-month period that starts the first day of the month your client enrolls in Medicare Part B is the ideal time to choose a Medigap plan. During this time, insurers must offer your client all the Medigap policies available in their area at the best rates for their age. They also have several guaranteed issue rights, which means that they can buy a Medigap policy regardless of their health and under specific situations. These policies are guaranteed to renew each year, and the insurance company can't cancel the policy as long as the enrollee pays the premium.
If your client chooses to enroll in Original Medicare, they’ll need to also enroll in a Medigap policy to ensure they have truly comprehensive health insurance. To help clients choose a Medigap policy, a good starting place is to discuss their healthcare needs. For example, if your client plans to travel internationally, Medigap Plans A, B, K, and L are likely not good options for them.
Another important consideration is the cost of the Medigap policy, which will vary by location. As you can see in the example HealthPlanning Analyses below, two clients with similar demographics and health needs (64, male, living with health conditions) living in two different states (Arkansas and Washington) have different premiums for the same Medigap policies. The Arkansas man’s ideal Medigap policy is Plan G, which will cost $116.33 a month, and the Washington man’s ideal Medigap policy is also a Plan G, but it will cost him $164.05 a month*.
The chart and the information in this blog, plus the many resources available in Caribou’s Open Enrollment Resource Center, can help you to confidently guide clients through the Medicare Open Enrollment process. But, if you really want to make healthcare planning a seamless experience for clients and yourself, schedule a call with me to learn how Caribou’s healthcare planning software supports financial goals and makes you the ultimate comprehensive financial planner.