Medigap & Medicare Supplement Insurance

Medicare is a safety-net program provided by the United States government. It is funded by your payroll taxes. You may be surprised, however, to learn that Medicare will not cover all of your medical expenses.

When you turn 65 years old, you are automatically enrolled in Medicare Part A. This is basically hospital insurance. You can voluntarily enroll in Part B, which is the medical insurance portion of Medicare but you will have to pay a premium and other fees just like any other health insurance.

There are many health care costs that will not be covered by either Medicare Part A or B. For example, if you are hospitalized you will have to pay the first three pints of blood if you need a transfusion or for any TV and food costs associated with your hospital stay. What can be especially costly is the how many days of hospitalization Medicare will pay for you. You are limited by a 190 day period. Once your stay is more than 190 days you will have to begin paying a daily premium that is upwards of $150. Unless the 190 day period is separated by a 60 day period of non-hospitalization then you will pay the premium. This 190 day period is called a “benefit period”.

This can be very costly; so many insurance companies offer two solutions: the first is Medigap Plans, or Medicare supplement insurance. The second is a Part C, or Medicare Advantage plan.  These insurance plans “cover the gaps” in Medicare to make sure the elderly are not left with giant medical bills. Let’s talk about Medigap and Medicare supplement insurances here. I discuss Part C plans elsewhere.

Here are four things you should look for in a Medigap or Medicare supplement insurance:

1. Make sure it’s a federally and state approved plan. In most states, you can only be sold “standardized plans” usually listed as A through N. All insurance companies must offer the same benefits according to these “standardized plans”.

2. Understand what Medigap covers. Each A through N plan covers a specific set of benefits. For example, a Medigap A, B, or C plan would cover 100% of Medicare Part B copays and deductibles, but a Medigap K plan would only cover 50%. Make sure you understand these benefits thoroughly. It could make a difference for your bottom line.

3. Get Medigap during the Open Enrollment Period. The open enrollment period is the six months after either a) you become 65 years old or b) you enroll in Medicare Part B. The reason that this is important is because if you get Medigap during the open enrollment you can get Medigap as if you were in good health. If you enroll in Medigap after the open enrollment period you could be forced to wait to receive benefits during a “pre-existing condition period” if you are sick. This could cost you a lot of money.

4. Know the how much your premium will be. There are three ways that insurance companies will charge you for a Medigap or Medicare supplement insurance plan: community rated (or “no-age rated"), issue-age rated (or “entry age-rated"), or attained age-rated. A community rated premium is based on inflation or other factors but not your age. An issue age-rated premium is initially based on your age but will not go up as you age. It will only go up based on inflation or other factors. Finally, an attained age-rated premium is based initially on age and can go up because of age and other factors, such as inflation.

These four facts about your Medigap or Medicare supplement insurance will affect its price and the benefits received. For an elder person on a fixed income making the right decisions about your Medigap will have a big impact onyour finances.