When you enroll in Medicare, you will likely see ads asking if you want to sign up for extra insurance. You might wonder why you would need supplemental insurance if you already have Medicare.
Medicare covers a large share of your health care bills. However, it does not pay for everything. Extra insurance can help with the costs Medicare leaves behind. If you are considering Medicare supplement insurance, here is what to know.
Why Do I Need Supplemental Insurance If I Have Medicare?
The Medicare website explains what you may owe out of pocket for care.1 You could be responsible for deductibles, copayments, and coinsurance. These costs can add up.
For example:
- Under Medicare Part B, the government pays 80% of approved doctor services.
- You are responsible for the remaining 20%.
If you had a $100,000 surgery, you could owe $20,000. A Medicare supplement plan can help cover some or all of these remaining costs.
What Do Medicare Supplement Plans Cover?
Private insurance companies sell Medicare supplement insurance. These plans are also called Medigap policies because they help cover gaps in Medicare coverage.
In most cases:
- You pay a monthly premium to a private insurance company.
- The company agrees to pay certain deductibles, coinsurance, and other out-of-pocket costs.
- Coverage depends on the plan you choose.
Medigap policies do not cover prescription drugs. If you want drug coverage, you will need to enroll in a separate Medicare Part D plan.
How Do I Choose Medicare Supplement Insurance?
Insurance companies label Medigap plans with letters from A through N. Each letter represents a different level of coverage. For example, according to Medicare.gov, Medigap Plan F will pay for health care during foreign travel but Plan A will not.2
To make it easier for consumers, the government requires that insurance companies offer the same benefits for each type of Medigap policy. In other words, Medigap Plan G will offer identical coverage at every company. The premium could be different, but the benefits will be the same.
Each plan balances coverage and cost. For example:
- Plan K covers 50% of the Medicare Part B coinsurance and may have a lower premium.
- Plan C covers 100% of the Medicare Part B coinsurance and may have a higher premium.
You can compare plans based on how much coverage you want and how much you are willing to pay each month.
Who Is Eligible for Supplemental Insurance?
Anyone who has Medicare Part A and Part B is eligible to apply for a Medicare supplement plan. However, you need to qualify for coverage with the private insurance company. When you first turn 65 and enroll in Medicare Part B, you enter a six-month Medigap open enrollment period.3
During this period, you can enroll in any Medigap plan available in your area and the insurance companies must accept your application. They cannot deny you coverage due to preexisting conditions.
After the open enrollment period, you can still try apply for coverage, but the insurance company may ask you questions about your health for underwriting. If you have preexisting conditions, they may charge a higher premium or deny coverage based on your health.
Are There Any Other Considerations?
To keep your Medicare supplemental insurance coverage, you must continue paying monthly premiums. This adds to your retirement expenses.
If you do not use many medical services, you could end up paying more in premiums than the amount the policy pays in benefits. This is similar to other types of insurance.
Keep in mind that Medigap plans only cover certain medical costs. They do not cover:
- Prescription drugs
- Dental care
- Routine vision care
- Long-term care
You would need separate coverage or pay out of pocket for these services.
Are There Alternative Insurance Programs?
Besides Medigap, you could also cover your retirement health insurance costs through a Medicare Advantage plan. Medicare Advantage is offered by private insurance companies. Through this program, you receive your Medicare benefits through the private insurer. The government also sets up regulations so the Medicare Advantage coverage must be similar to Medicare.
Medicare Advantage policies typically have a bit more flexibility than Medigap and can include extra benefits such as dental, vision and prescription drugs. Some plans may have lower monthly premiums than Medigap policies.
The downside of Medicare Advantage is that you must review and renew your coverage during the annual enrollment period. The insurance company can change plan benefits from year to year. The co-payments and deductibles can also be higher for Medicare Advantage than for Medigap.
The Bottom Line
Health care is a major expense in retirement. Medicare helps, but it does not cover everything.
Medicare supplement insurance can help pay for deductibles, coinsurance, and other out-of-pocket costs. Medicare Advantage is another option that combines coverage under one plan.
Before making a decision, consider speaking with a financial representative. They can help you review your options and choose coverage that fits your needs.
Supplement Medicare to help cover deductibles and out-of-pocket costs. Start Your Free Plan
Sources
- Costs. https://www.medicare.gov/basics/costs/medicare-costs.
- Compare Medigap Plan Benefits. https://www.medicare.gov/health-drug-plans/medigap/basics/compare-plan-benefits.
- Get ready to buy. https://www.medicare.gov/health-drug-plans/medigap/ready-to-buy.
