According to Nationwide Retirement Institute, 72% of retirees wish they understood Medicare coverage better and Cedarstone is here to help. This week, as part of our ongoing educational series on Medicare, we will discuss Medigap policies. You may recall from our previous posts (Click Here), when you enroll in Medicare you have two broad choices: Original Medicare and Medicare Advantage. Be aware that there are “gaps” in original Medicare coverage, the most significant one being the 20% coinsurance on Part B coverage for doctor services. Because of these gaps, various private insurance companies offer Medigap policies that supplement the insurance you receive from the government. Here is what you need to know about Medigap coverage. (Note: If you are more interested in Medicare Advantage, do not worry. We will discuss Medicare Advantage in our next article in this series.)
What is a Medigap policy?
Medigap is a supplemental insurance that is specifically designed to cover some of the “gaps” in Medicare coverage. It sounds like it should be a government insurance plan, but it is actually provided by private health insurance companies. However, Medigap is strictly regulated by the federal government, and as of January 2020, there are only 8 plans that can be sold to individuals. You can compare plans at the Center for Medicare and Medicaid Services’ website, medicare.gov. Not all plans are offered in each state, but all the various plans are standardized so that each plan provides exactly the same kind of coverage no matter what state you live in (except for Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans). When looking at the various Medigap policies offered in your state, price is the only difference between policies with the same letter sold by different companies, according to medicare.gov.
Every Medigap policy offers certain basic core benefits, such as coverage of certain Medicare Part A and B coinsurance and co-payments. Other plans offer additional benefits, such as coverage of Medicare Part A and B deductibles and charges that result when a provider bills more than the Medicare-approved amount for a service. When you have a Medigap policy, Medicare pays its share of the Medicare-approved amount for the covered cost and then your Medigap policy pays its share.
Do I need a Medigap policy?
If you have Original Medicare, we generally recommend that you have some type of Medigap policy. Consider the areas where you are most at financial risk with your health needs and what would happen financial if you need significant medical care. For example, one of the most significant areas of financial risk with original Medicare is the 20% coinsurance of the Medicare-approved amount for most doctor services, including expenses while you are in the hospital. If you have a long and serious hospital stay and the doctor bill is $100,000, you would be responsible for $20,000. The various Medigap policies cover all or part of these costs, thereby reducing your financial risk.
However, be aware that you would not need a Medigap policy if you have a Medicare Advantage plan or a private fee-for-service plan, if you qualify for Medicaid, if you have group coverage through your spouse, or if you are working past the age of 65 and have employer-sponsored health insurance. Additionally, if you receive employer-sponsored retiree health insurance, then you may be eligible to receive your Medigap or Medicare Advantage insurance through your employer.
When do I enroll in a Medigap plan?
The best time to get a policy is during your Medigap open enrollment period, which is the six-month period that starts the month your turn 65 and you first have both Medicare Part A and Part B. In this time window, you may buy any Medigap policy sold in your state even if you have health problems. If you do not buy a Medigap policy within your six-month window, you may be denied coverage later or charged a higher premium.
How do I pick a Medigap policy?
First, be aware that Medigap policies apply to the individual. If you and your spouse are enrolled in original Medicare, you will both have separate policies. You may, in fact, choose to have different Medigap policies depending on your individual needs and desires.
Secondly, as noted above, all plans are standardized so that regardless of which insurance company is providing it, each plan provides the exact same coverage. According to medicare.gov, the only difference between insurance companies providing a given plan type is the cost, so shop around to compare prices.
Finally, you will choose a plan offered in your state that best fits your needs depending on your health and budget. You can find a comparison at https://www.medicare.gov/medigap-supplemental-insurance-plans/#/m?lang=en&year=2020.
Once you have a plan that best fits your health needs, get a price quote from the companies offering it and do price comparison shopping. Some providers, for example, have pricing that will go up due to inflation, and others have pricing that increase as you get older.
What is NOT covered by Medigap?
They generally do not cover long term care, private-duty nursing, dental, vision, eyeglasses, or hearing aids.
May I change or drop my Medigap policy?
Yes, if you are very careful about the timing. The rules regarding drug coverage, in particular, are important to pay attention to. If you begin a new Medicare drug plan at any time, you will pay a late enrollment penalty if either one of the following applies:
1. If you go 63 days or more in a row before your new Medicare drug coverage begins.
2. If you drop your entire Medigap policy and the prescription drug coverage was not creditable. (Creditable coverage is generally drug coverage that is expected to pay, on average, at least as much as Medicare’s standard prescription drug coverage. These types of drug coverage plans are often from a former employer or union, for example. People who have this kind of coverage when they become eligible for Medicare can generally keep that coverage without paying a penalty)
Important Highlights to Know About Medigap
www.medicare.gov has more detailed information, but we want to especially highlight the following list from their website of important facts:
1. In order to have a Medigap policy, you must have Medicare.
2. A Medigap policy is different from a Medicare Advantage Plan. Those plans are ways to get Medicare benefits, while a Medigap policy only supplements your Original Medicare benefits.
3. You pay the private insurance company a monthly premium for your Medigap policy. You pay this monthly premium in addition to the monthly Part B premium that you pay to Medicare.
4. A Medigap policy only covers one person. If you and your spouse both want Medigap coverage, you will each have to buy separate policies.
5. You can buy a Medigap policy from any insurance company that is licensed in your state to sell one.
6. Any standardized Medigap policy is guaranteed renewable even if you have health problems. This means the insurance company cannot cancel your Medigap policy as long as you pay the premium.
7. Some Medigap policies sold in the past cover prescription drugs. But Medigap policies sold after January 1, 2006 are not allowed to include prescription drug coverage. If you want prescription drug coverage, you can join a Medicare Prescription Drug Plan (Part D).
8. It is illegal for anyone to sell you a Medigap policy if you have a Medicare Advantage Plan unless you are switching back to Original Medicare.
Got Questions?
At Cedarstone Advisors, we want you to be confident and comfortable with your health care in retirement. Please let us know if we can help you navigate through these significant health care decisions. We are happy to help!