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Medicare supplement

What Is Medicare Supplement?

A Medicare supplement, also known as Medigap, is a type of private health insurance that helps pay for out-of-pocket costs not covered by Original Medicare (Parts A and B). It falls under the broader financial category of health insurance, designed to provide financial protection against unexpected medical expenses. If an individual has Original Medicare and a Medigap policy, both Medicare and the Medigap policy share the responsibility of covering healthcare costs.41

Medigap policies help cover expenses such as copayments, coinsurance, and deductibles that Original Medicare does not fully cover.40 These policies are sold by private insurance companies and are standardized by federal and state laws to ensure they offer consistent benefits across different insurers.39

History and Origin

The history of Medicare supplement plans, or Medigap, dates back to the 1980s. When Medicare was initially enacted in 1965, it covered a significant portion of healthcare costs for eligible Americans, but it left "gaps" in coverage, such as deductibles and coinsurance.38

To address these out-of-pocket expenses and strengthen consumer protection, the U.S. government passed the Omnibus Reconciliation Act of 1980, which brought Medicare Supplemental Insurance under federal oversight.37 This legislation, sometimes referred to as the "Baucus Amendment," established a voluntary program allowing Medicare recipients to obtain coverage for these gaps.36 Over time, further legislation, such as the Medicare and Medicaid Patient and Program Protection Act of 1987 and the Medicare Catastrophic Coverage Act, continued to refine and standardize Medigap policies, adding consumer protections regarding preexisting conditions and out-of-pocket limits.35 The Centers for Medicare & Medicaid Services (CMS) oversees the standardization and regulation of these plans.34

Key Takeaways

  • A Medicare supplement (Medigap) policy helps cover out-of-pocket costs from Original Medicare (Parts A and B), such as copayments, coinsurance, and deductibles.33
  • Medigap policies are sold by private insurance companies but are standardized by federal and state laws.32
  • There are different standardized Medigap plans, identified by letters (A through N in most states), each offering a different set of benefits.31
  • Individuals must have Original Medicare Parts A and B to purchase a Medigap policy, and they will pay a separate monthly premium to the Medigap insurer in addition to their Medicare Part B premium.30
  • Medigap policies are generally guaranteed renewable as long as premiums are paid.29

Interpreting the Medicare Supplement

Understanding a Medicare supplement involves recognizing which specific "gaps" in Original Medicare it covers. Each standardized Medigap plan (A, B, C, D, F, G, K, L, M, N in most states) offers a predefined set of benefits. For example, some plans might cover the Medicare Part A deductible, while others might cover a percentage of foreign travel emergency care.28

When evaluating a Medicare supplement, individuals should consider their potential healthcare needs and financial situation. A plan with a higher premium typically offers more comprehensive coverage, leading to lower out-of-pocket costs for services that Original Medicare covers. Conversely, plans with lower premiums might require more cost-sharing for certain services. It's important to compare the benefits of each plan letter to determine which best aligns with an individual's expectations for medical expenses.27

Hypothetical Example

Consider Sarah, who is 68 years old and has Original Medicare Part A and Part B. In 2025, the Medicare Part A inpatient hospital deductible is $1,676 per benefit period, and the Part B annual deductible is $257.26

Sarah decides to purchase a Medigap Plan G policy. This plan covers the Medicare Part A deductible, Part A and Part B coinsurance, and Part B excess charges.25

Later that year, Sarah is hospitalized for five days. Original Medicare Part A covers a significant portion of her hospital stay, but the $1,676 deductible would typically be her responsibility. Since Sarah has Medigap Plan G, her plan covers this Part A deductible.24

A few months later, Sarah has several doctor visits and receives durable medical equipment. After she meets her Medicare Part B deductible of $257, Medigap Plan G then covers the 20% coinsurance that Original Medicare Part B would not pay.23 Additionally, if any of her doctors charge more than the Medicare-approved amount (known as an excess charge), Plan G would cover that difference.22 This example illustrates how a Medicare supplement plan can significantly reduce a beneficiary's out-of-pocket costs.

Practical Applications

Medicare supplement policies are a crucial component of financial planning for many seniors and individuals with disabilities. Their primary application is to reduce the financial burden of deductibles, copayments, and coinsurance associated with Original Medicare.21

These policies are particularly relevant for individuals who prefer the flexibility of Original Medicare, which allows them to see any doctor or hospital that accepts Medicare, without network restrictions typically found in other private plans.20 Medigap policies also play a role in managing healthcare costs for those with chronic conditions or those who anticipate frequent medical services, as they provide more predictable out-of-pocket expenses.19

Furthermore, the standardized nature of Medigap plans simplifies the comparison process for consumers, making it easier to choose a policy based primarily on price among different insurers for the same lettered plan.18 For more detailed information on comparing Medigap plans, the official Medicare website offers comprehensive resources.17

Limitations and Criticisms

While Medicare supplement policies offer substantial benefits, they also have limitations. One significant limitation is that Medigap policies generally do not cover prescription drugs; for this, individuals need a separate Medicare Part D plan.16 Additionally, Medigap policies do not cover services like long-term care, vision, dental, or hearing aids.15

Another criticism pertains to access for individuals under 65 who qualify for Medicare due to disability. While federal law does not require Medigap insurers to sell policies to this demographic, some states mandate it.14 This can lead to disparities in coverage availability and potentially higher premiums for younger beneficiaries.

Furthermore, plans C and F, which offered the most comprehensive coverage by covering the Medicare Part B deductible, are no longer available to new Medicare beneficiaries eligible on or after January 1, 2020.13 This change, mandated by the Medicare Access and CHIP Reauthorization Act (MACRA), means that newer beneficiaries will always have some Part B deductible liability.12 These changes highlight the evolving nature of regulatory frameworks in healthcare and their impact on available insurance products.

Medicare Supplement vs. Medicare Advantage

Medicare supplement (Medigap) and Medicare Advantage (Part C) are two distinct ways to receive Medicare benefits, and confusion often arises between them. Medigap policies work in conjunction with Original Medicare, paying for some of the out-of-pocket costs that Original Medicare does not cover. When an individual has a Medigap plan, they remain in Original Medicare, and the Medigap policy simply supplements those benefits. This typically means the individual can see any doctor or hospital nationwide that accepts Medicare.11

In contrast, Medicare Advantage plans are an alternative to Original Medicare. These plans are offered by private companies approved by Medicare and bundle Part A, Part B, and often Part D (prescription drug coverage) into one plan.10 Medicare Advantage plans often include additional benefits not covered by Original Medicare, such as vision, hearing, and dental care. However, they typically operate within networks of doctors and hospitals, and may require referrals to specialists.9 Individuals cannot have both a Medicare supplement policy and a Medicare Advantage plan simultaneously.8 The choice between the two depends on an individual's preference for network flexibility versus bundled benefits and potentially lower monthly premiums.

FAQs

What is Original Medicare?

Original Medicare consists of Part A (hospital insurance) and Part B (medical insurance). Part A helps cover inpatient hospital stays, skilled nursing facility care, hospice care, and some home health care.7 Part B helps cover medically necessary doctors' services, outpatient care, durable medical equipment, and some preventive services.6

When is the best time to buy a Medicare supplement policy?

The best time to buy a Medicare supplement policy is during your Medigap Open Enrollment Period. This six-month period typically begins on the first day of the month in which you turn 65 and are enrolled in Medicare Part B. During this time, insurance companies cannot use medical underwriting, meaning they cannot deny you coverage or charge you more due to health conditions.5

Can I have a Medicare supplement and a Medicare Advantage plan at the same time?

No, it is generally not permissible to have both a Medicare supplement policy and a Medicare Advantage plan at the same time. These are two different approaches to receiving Medicare benefits.4

Do Medicare supplement plans cover prescription drugs?

Medigap policies sold after 2005 do not include prescription drug coverage. If you want coverage for prescription drugs, you will need to enroll in a separate Medicare Part D plan.3

Are all Medicare supplement plans the same?

Yes, within most states, Medicare supplement plans are standardized. This means that a Plan G from one insurance company offers the exact same benefits as a Plan G from another insurance company. The only difference will typically be the premium charged.2 However, Massachusetts, Minnesota, and Wisconsin have different standardized plans.1