About 41% of original Medicare beneficiaries had Medicare supplement insurance or Medigap in 2021, according to a February 2023 report summarizing enrollment data from AHIP, the national health insurance trade association. For the other 59%, there are some “gaps” in Medicare that can be costly.Thank you for reading this post, don't forget to subscribe!
“Medicare has several loopholes that a beneficiary has to pay if he or she doesn’t have Medigap,” Kelly Jo Greiner, director of the Minnesota State Health Insurance Assistance Program, said in an email. “This could add up to thousands of dollars per year.”
Although it is not mandatory, you may want to purchase a Medigap policy to cover some of the gaps in Medicare Part A and/or Part B. (Medigap does not work with Medicare Advantage policies.)
Medicare Part A has a deductible of $1,632 in 2024 that you must pay before Medicare will start paying for inpatient hospital care.
“Just for a hospital stay, you have to pay a $1,632 deductible — so, really quickly, your costs can add up,” says Joan Giardini-Russell, CEO of Giardini Medicare, an independent insurance agency.
Most Medigap plans cover the Part A deductible. And plans with premiums as low as $136 per month could put you ahead based on that benefit alone.
(New Medicare members can’t buy Medigap plans that cover Part B’s relatively small deductible of $240 in 2024, so you’ll still have to pay that amount out of pocket.)
Coinsurance and Copies
Many Medicare services have out-of-pocket costs after you meet your deductible. For example, you pay a 20% coinsurance for most medically necessary outpatient services covered under Part B.
Medicare Part A starts after your 60th day in the hospital. They start at $408 per day in 2024 and become more expensive for longer stays.
All Medigap policies include at least some coverage for Part A and Part B coinsurance and copayments. If you use a lot of health care, that coverage could mean big savings out of your pocket.
Unlike many other types of insurance, Medicare Part A and Part B do not have a maximum out-of-pocket cap. There is no limit to how much you may owe due to the total of co-payments and co-insurance.
“Original Medicare without Medigap would be dangerous because we require Medigap to have out-of-pocket limits,” Michael Dayube, a certified financial planner in Savannah, Georgia, said in an email.
Purchasing a Medigap policy is one way to curb your annual costs. Paying more upfront for the premium can pay off by limiting your future out-of-pocket expenses.
Is Medigap worth the cost?
When you sign up at age 65, you can expect to pay $100-$150 per month or more for the most popular Medigap plan, Plan G. And premiums can increase depending on the type of plan, age, location and sometimes health condition.
This is a significant additional expense – so is it worth it?
Giardini-Russell compares Medigap to car insurance, which you pay for every month even if you don’t expect to need it. “A lot of times it takes a toll on psychology and peace of mind,” she says. “Are you willing to pay $150 a month for peace of mind?”
“We hear from beneficiaries that they are very satisfied with their policies,” Greiner said. According to Greiner, Medigap is worth it if you can pay the Medigap premium along with your premiums for a Medicare Part B and Medicare Part D prescription drug plan.
If Medigap is not affordable, you may want to look into programs that can help with Medicare costs, such as the Medicare Savings Program and Extra Help subsidies.
According to Deyoub, people who can’t afford Medigap premiums may also consider Medicare Advantage. Medicare Advantage plans are bundled alternatives to Original Medicare sold by private insurance companies. They have lower out-of-pocket limits, but there are also trade-offs to consider, such as limited provider networks.
The best and easiest time to purchase a Medigap policy is when you are turning 65. Your six-month Medigap open enrollment period begins when you are 65 and enrolled in Medicare Part B.
During this period, insurance companies cannot use medical underwriting to charge you more or deny coverage based on your health or medical history. After that, it may become more expensive or even impossible to get a Medigap policy.
So if you want to buy for peace of mind, don’t miss your best chance. You can compare options at Medicare.gov, shop online, or work with an agent or broker to find the best policy for you.
This article was provided to The Associated Press by personal finance website NerdWallet. Alex Rosenberg is a writer at NerdWallet. Email: [email protected]. Twitter: @alexprosenberg.
NerdWallet: What is Medigap? What to Know About Medicare Supplement Plans https://bit.ly/nerdwallet-medigap-what-to-know
NerdWallet’s Alex Rosenberg, The Associated Press