Original Medicare—meaning exclusively Part A and Part B—is less than comprehensive insurance, for two reasons:
- It does not cover at least 20% of your medical costs.
- It does not cover prescriptions.
With Original Medicare, there’s no limit on your out-of-pocket expenses. In health care, the numbers get large quickly. Twenty percent of care for a chronic condition or catastrophic incident can add up to tens of thousands of dollars in health care expenses.
To offer comprehensive Medicare coverage, Congress created two different types of plans: Medicare Supplement (Medigap) and Medicare Advantage. Importantly, you can’t choose both; it’s one or the other.
What is Medigap (Medicare Supplement)?
Medigap is the oldest form of private supplemental coverage for Medicare beneficiaries. It is sometimes described as “the glue that holds Original Medicare together,” because it fills the cost gaps left by Medicare, such as deductibles, coinsurance, and copayments.
My mother’s outpatient knee replacement would have cost $8,000 out of pocket had she not secured Medigap insurance. Instead, on her Plan G, she reached the $233 Part B annual deductible and did not owe a penny more. No hidden surprises or extra costs for follow-up visits.
Medigap does not cover medical treatments not covered by Medicare, though it does extend coverage for certain covered services, such as additional hospital days beyond the Medicare benefit limit.
With a Medigap plan, you can see any doctor who accepts Original Medicare without asking your primary doctor for permission. No referral is required. Because 93% of providers accept Medicare, a Medigap plan is the most popular choice for those who value choice of doctor. If you’re a snowbird or love to travel, if you want to see specific specialists for an unusual condition, or if you want the most comprehensive medical coverage, then Medigap is for you.
To purchase Medigap, you must enroll in both Part A and Part B of Original Medicare, and you cannot enroll in an Advantage plan (Part C).
The Medigap alphabet
As Medigap has grown in popularity, Congress has added strong consumer protections. The government created 10 standardized plan letter types, from A to N, to allow for apples-to-apples comparisons.
Any plan letter type must cover the same set of medical services as any other plan within that letter type.
Each state has its own Medigap marketplace. Even though Congress has standardized Medigap plan letter types, and each plan is consistent across 47 states—the exceptions are Massachusetts, Minnesota and Wisconsin—there can be huge differences in price. For the same product. Within the same state.
How is that possible?
One reason for the difference lies in the three different rating options insurance carriers can use to set the cost of your premium. Each rate type allows carriers to raise premiums (rates) annually to account for increasing health costs as its subscribers age. Depending on the state, premiums may also vary with age, gender, smoking status and even whether you live with your spouse.
The greatest difference between the ratings options is the way premiums increase—or do not increase—over time. Let’s look at the three main options:
Community rating: Everyone who has the policy pays the same monthly premium, regardless of age. (Some insurance carriers’ Medigap products are classified as ‘community rated’ but offer age-based discounts.)
Attained age: The premium is based on your current age—the age you have attained—so your cost of insurance will go up as you get older. Premiums are relatively low when first purchasing the policy but can increase significantly over the years.
Issue-age rating: The premium is based on your age when you purchase the Medigap policy. The price can still go up based on inflation and other factors, but not due to age. Premiums are therefore relatively high at the time of initial purchase, especially compared to an attained-age-rated policy.
The best-value Medigap plan is the one that has the lowest cost of insurance over the lifetime of the policy. Insurance carriers determine a policy’s premium based on the health of the group as a whole, so the size and stability of a particular carrier’s group can be decisive when trying to find the best value.
The least expensive option for any given policy at the date of purchase may not be the least expensive option over the lifetime of the policy. This is true even when the plans otherwise seem identical. For example, two Medigap Plan Gs can have different lifetime costs.
When comparing premiums across insurance companies, consider the premiums (or expected premiums) over the lifetime of the policy. An independent advisor can help with this analysis if they have access to a platform to compare Medigap premiums.
What is Medicare Advantage?
Another way to cover the rest of your health care spending is to sign up for a Medicare Advantage plan, or Medicare Part C. A few Medicare Advantage basics:
- Medicare Advantage plans combine the benefits of Parts A, B and (in most cases) D, though you must still pay the Medicare Part B premium.
- They operate more like a preferred provider (PPOs) or health maintenance organization (HMOs) and usually have network limitations. (For an HMO, this means you must receive care from a limited network of doctors or hospitals in order to receive coverage. For a PPO, it means you must receive care from the network to access the most affordable copayment or coinsurance rates.)
- Many of the plans plug holes in Original Medicare by offering additional benefits, including drugs, dental, vision and hearing.
- Unlike Original Medicare, Advantage plans place a limit on your maximum out-of-pocket expenses.
- The plans work similarly to employer-provided coverage and typically include prescription drug coverage and additional benefits.
- Be sure to look through the Summary of Benefits carefully to determine your cost-sharing requirements.
A Medicare Advantage private plan must legally cover at least the same services as Medicare Part A and Part B, though it may require you to use its own network of health care providers. Medicare Advantage plans cannot provide less than what Original Medicare is required to cover, and the plans usually offer more.
Unlike Original Medicare, each plan must place a ceiling—an out-of-pocket maximum—on the amount an enrollee might pay in any given year for covered medical services, in addition to the premium, if any. More than half (65%) of the plans feature a $0 premium, but remember that you will continue to owe the Medicare Part B premium. In 2023, that's $164.90 per month.
Finally, the amount you pay for an Advantage plan cannot vary by gender or age. You do not need to medically qualify in order to sign up for one.
As a result of these features, the plans are popular. Nearly half of Medicare beneficiaries now belong to an Advantage plan, and the percentage continues to grow every year. Industry analysts expect that more than half of Medicare-eligible Americans will be on Medicare Advantage plans within the next couple years.
For Medicare Advantage, location matters
Advantage plans vary county-by-county across the United States.
In Florida, someone who lives in St. Johns County will have a different set of plan options from someone in Duval County. For this reason, it is very important to use your ZIP code and county when searching for coverage. The medicare.gov ‘Find Plans Now’ feature is useful for seeing which Advantage and drug plans are available to you, but it doesn’t show doctor networks, unfortunately.
Already enrolled in Part D? If you sign up for an Advantage plan, you typically cannot have stand-alone Part D coverage. If you sign up for a stand-alone Part D plan, it will likely cancel your Advantage plan, and vice versa.
The downside to Medicare Advantage is that it limits your choice of doctor and hospitals. Instead of being able to see any doctor nationwide who accepts Original Medicare, you will need to make sure that your doctor is ‘in network.’
Medicare Advantage programs tend to restrict your choice of health care providers to those in their networks. If you’re a snowbird, one of the 20 million Americans who live in a mobile home, or you love to travel, then you should carefully consider Medigap, because you can receive coverage nearly anywhere. (Some Medicare Advantage plans have limited nationwide coverage, but not all of them. Learn more about where Medicare can cover you.)
How and when do I sign up for a Medicare Advantage plan?
If you know you want to go the Medicare Advantage route, the best time to sign up is when you first start Medicare. Medicare Advantage plans, unlike Medigap, are subject to the fall Annual Enrollment Period, which gives you the opportunity to change your plan every year. There is also a Medicare Advantage Open Enrollment Period each year from Jan. 1 through March 31 that lets people aleady in Medicare Advantage plans to switch plans.
How and when do I buy a Medigap policy?
Sometimes a short-term savings can lead to long-term costs. The same is true for Medigap coverage.
The best time to buy a Medigap policy is during your six-month Medigap Open Enrollment Period because insurers cannot deny you coverage based on any existing medical conditions.
By virtue of starting Medicare Part B, you are allowed a one-time opportunity to purchase a Medigap plan for the six months after your Part B effective date by the vast majority of states (46 states) with “no questions asked” about your height and weight or health history. The carrier must cover all your preexisting health conditions. Best of all, the carrier can’t charge you more for a Medigap policy because of past or present health problems.
Put differently, only four states—Connecticut, Maine, Massachusetts, and New York—have guaranteed issue protections for all Medicare beneficiaries age 65 and older.
If you want to secure your Medigap open enrollment right and do not live in one of the four states listed above, I would suggest signing up before your Medicare Part B effective date to make sure your Medicare and Medigap coverage start together. This way you don’t have to worry about the 20% of medical expenses you would otherwise owe.
What if I am on Medicare due to a disability?
If you receive Medicare by way of disability, it would be wise to speak with an independent advisor who can help compare your options to cover the 20% that Medicare doesn’t cover. I’ve typically seen people who are not yet 65 benefit by choosing Medicare Advantage because Medigap can be much more expensive. Some states do not require insurance carriers to offer Medigap coverage to people who are not yet 65, and the ones that do typically allow insurance carriers to charge higher premiums.
When the disability recipient turns 65, they get to make a new selection, called “Initial Enrollment Period 2 (IEP2).” This is the best time to sign up for a Medigap plan using your Open Enrollment right. It’s important to track this window if you have a chronic condition, like cancer, diabetes, heart disease or obesity, because in 46 states carriers can subject you to health history questions if you miss your Open Enrollment right.
I recommend working with an independent Medicare advisor to help you stay on top of your IEP2 Open Enrollment deadline to switch from Medicare Advantage to Medigap.
Excerpted from "It's Not That Complicated" Copyright © 2022 Memoir, Inc. dba Chapter, All rights reserved. No part of this book may be reproduced without the prior written permission of the copyright owner.
