Your Medicare insurance plan covers most of your health care expenses, but it doesn’t cover all of them.
Even with Medicare’s coverage, you are still going to be responsible for a variety of copayments and deductibles, which, when lumped together, can quickly add up to a major expense—hundreds of thousands of dollars in some cases.
Unfortunately, if all you have is Original Medicare coverage, you’ll need to find a way to pay these costs yourself. There is a solution, however.
With Medicare Supplement plans—also known as Medigap coverage—you can cover the “gaps” in your insurance coverage.
There are two primary categories of private health insurance coverage on the market:
- Medicare Supplement plans, and
- Medicare Advantage plans
These programs provide similar health care benefits, but they also have some differences that you will need to consider before making a final decision on which coverage plan you will choose.
First off, let’s take a quick overview at Medicare.
In the United States, Medicare is a national social insurance program. Medicare has been administered by the U.S. Federal Government since 1966 and it is currently using about 30 private insurance companies across the United States.
Medicare provides health insurance to roughly 50 million people:
- People 65 or older who have worked and paid into the system,
- People under 65 with certain disabilities,
- People of any age with End-Stage Renal Disease (ESRD), a permanent kidney failure requiring dialysis or a kidney transplant.
There are four different parts of Medicare that help to cover specific services:
Medicare Part A (Hospital Insurance) helps cover:
- Inpatient care in hospitals.
- Skilled nursing facility, hospice, and home health care.
Medicare Part B (Medical Insurance) helps cover:
- Services from doctors and other health care providers, hospital outpatient care, durable medical equipment, and home health care.
- Preventive services to help maintain your health and to keep certain illnesses from getting worse.
Medicare Part C (Medicare Advantage):
- Includes all the benefits and services covered under Part A and Part B.
- It’s run by Medicare and approved by private insurance companies.
- It usually includes Medicare prescription drug coverage (Part D) as part of the plan.
- It may include extra benefits and services for an extra cost.
Medicare Part D (Medicare Prescription Drug Coverage):
- Helps to cover the cost of outpatient prescription drugs.
- It’s run by Medicare and approved by private insurance companies.
- It may help to lower your prescription drug costs and help protect against higher costs in the future.
Medicare covers about half of the health care fees for those who are enrolled in its program. The insured must then pay the remaining charges with supplemental insurance coverage or with another form of out-of-pocket coverage.
Medicare Supplemental Insurance
A Medicare Supplemental Insurance policy, or Medigap as it is often referred to, is private health insurance that helps to supplement Original Medicare. This means it helps to pay for some of the health care costs that Original Medicare doesn’t cover—like copayments, coinsurance, and deductibles.
These are the “gaps” that were mentioned earlier in Original Medicare coverage—hence the name.
The financial responsibility of each is pretty straightforward. If you have Original Medicare with a Medigap policy, Medicare will pay its share of the Medicare-approved amounts for covered health care costs. Then your Medigap policy will pay its share.
Medicare doesn’t pay any of your costs for a Medigap policy.
All Medigap policies must follow the federal and state laws that are designed to protect you, and the policies must be clearly identified as “Medicare Supplement Insurance.”
In most states, Medigap insurance companies can only sell you a “standardized” Medigap policy. As of 2015, the 10 policies are identified by the letters A, B, C, D, F, G, K, L, M, or N. Each standardized Medigap policy must offer the same basic benefits, no matter what insurance company is selling it. That means you’ll get the same benefits buying Plan A from one company as you will from another. The only difference will be the amount you pay each month for premiums—varying, of course, with what insurance company you choose.
The chart below shows basic information about the different benefits that Medigap policies cover. If a percentage appears, the Medigap plan covers that percentage of the benefit and you must pay the rest.
Remember, these plans only cover the copayments and deductibles from Medicare. And if you don’t already have prescription drug coverage, you’ll need to purchase a separate Prescription Drug Plan (Medicare Part D) to cover the costs of your medications.
Also, Medicare Supplement plans don’t offer extra health care benefits such as dental, vision, or hearing coverage beyond the basics already provided by your Original Medicare coverage.
If you live in Massachusetts, Minnesota, or Wisconsin, Medigap policies are standardized in a different way. Also, in some states, you may be able to buy another type of Medigap policy called Medicare SELECT. Medicare SELECT plans are also standardized plans, but they may require you to see certain providers. They may also cost less than other plans.
Contact your State Insurance Department if you have questions about the Medigap policies sold in your area or any insurance-related problems.
How is Medicare Advantage Different From Medicare Supplements?
Now let’s compare Medicare Supplement Plans with a Medicare Advantage Plan.
A Medicare Supplement policy is different from a Medicare Advantage Plan (like an HMO or PPO). A Medicare Advantage Plan is a way to get Medicare benefits, while a Medigap policy only supplements the costs of your Original Medicare benefits.
The programs are designed differently.
As we discussed, when you purchase a Medicare Supplement plan, you are still enrolled in Original Medicare. Medicare will pay the majority of your healthcare bills while Medigap covers the extra copayments and deductibles.
On the other hand, when you enroll in a Medicare Advantage plan, you are purchasing a private health insurance plan. A Medicare Advantage plan is a type of Medicare health plan offered by a private company that contracts with Medicare to provide you with all your Part A and Part B health care benefits. If you’re enrolled in a Medicare Advantage Plan, most Medicare services are covered through the plan and aren’t paid for under Original Medicare.
Most Medicare Advantage Plans offer prescription drug coverage.This means that your insurance provider will cover all your health care bills, providing the same level of coverage as Original Medicare with their Medicare Advantage plans. The exception would be hospice care.
Private insurance companies have more flexibility in designing Medicare Advantage plans, so you’ll find more differences between them. That means you will need to be more careful in comparing your options.
For instance, many of these plans include the Part D prescription drug coverage as part of your plan, which means that you will not need to buy an additional Part D insurance policy.
There are also plans that offer extra vision, hearing, and dental coverage.
The final result of these programs is about the same, they just go through a different setup process.
What’s the Right Plan For You?
Now that you know what the differences are between Medicare Supplements and Medicare Advantage plan, how do you take the next step?
Medicare Supplement plans are accepted by any medical provider that accepts Medicare. Medicare Advantage plans, on the other hand, tend to have networks with more restrictions.
Some Medicare Advantage plans use an HMO network, so you can only see providers within your insurance company’s network. Other plans may use a PPO network, which means you can see out-of-network providers, but only if you pay an extra fee. Not all Medicare Advantage Plans work the same way, so before you join, take the time to find and compare Medicare health plans in your area.
To make the best decision for your particular situation, you should consider both your Medicare Supplement and Medicare Advantage insurance options to find the program that best fits your needs.