Medicare Supplement Insurance: What It Is, How It Works

Anthony Battle is a CERTIFIED FINANCIAL PLANNER™ professional. He earned the Chartered Financial Consultant® designation for advanced financial planning, the Chartered Life Underwriter® designation for advanced insurance specialization, the Accredited Financial Counselor® for Financial Counseling and both the Retirement Income Certified Professional®, and Certified Retirement Counselor designations for advance retirement planning.

Regine Parrish is a finance professional with over a decade of experience in tech, finance, and telecom. She is a former financial analyst for a major telecommunications company and currently fact-checks reviews of financial products and services.

What Is Medicare Supplement Insurance?

Medicare Supplement Insurance, or Medigap, is sold by private insurance companies to cover medical costs not covered by Medicare. Medigap covers out-of-pocket costs like copays, coinsurance, and deductibles.

Key Takeaways

• Medicare Supplement Insurance, or Medigap, is a type of health insurance policy sold by private insurance companies to complement Medicare policies.
• It covers gaps in Medicare’s standard insurance plans.
• Insured individuals pay monthly premiums directly to the insurance provider.
• Medigap coverage is different from Medicare Part C, also known as Medicare Advantage.

How Medicare Supplement Insurance Works

Medicare Supplement Insurance covers gaps in Medicare’s standard coverage. Applicants must be enrolled in Medicare Parts A and B. Medigap plans supplement, but do not replace, primary Medicare coverage.

The Medigap open enrollment period is six months from the first month of coverage under Medicare Part B for those 65 and older.

Medigap policyholders pay monthly premiums directly to their coverage provider. These premiums do not replace the premiums paid for Medicare Parts B and D. That means someone with Medigap will pay one premium for Part B and another for the Medigap plan offered by the private company.

There are 10 standardized Medigap plans, from Plan A to Plan N. The federal government requires Medigap providers to standardize coverage based on each plan’s requirements. This means that for each Medigap plan, policies from different companies provide comparable coverage, making it easier to find the lowest-cost provider.

All Medigap plans must cover preexisting conditions after a six-month waiting period, unless the individual had continuous creditable coverage for six months prior to enrolling in a Medigap plan.

Medigap plans sold since 2020 do not cover the annual Part B deductible. Medigap plans C and F are not available to those not eligible for Medicare prior to 2020. However, those who had such plans before 2020 may keep them and those eligible for Medicare before 2020 may still be able to purchase them after enrolling.

Special Considerations

Most Medigap providers receive Medicare Part B claims information directly from the Medicare program. Some plans submit payments to hospitals based on Medicare Part A claim information, but this is less common. Medicare requires Medigap providers to pay doctors who accept Medicare coverage directly upon request.

Medigap policies generally do not cover dental care, eyeglasses, hearing aids, or private-duty nursing. However, most Medigap plans cover emergency healthcare during the first 60 days of overseas travel, subject to coinsurance and a yearly deductible.

The Centers for Medicare and Medicaid Services (CMS) warn potential Medigap buyers to be cautious of fraud and abuse. High-pressure sales tactics and attempts to sell policies to those with incompatible coverage under Medicaid or Medicare Advantage are common. Additionally, some states regulate Medigap policies and it is illegal for private insurers to misrepresent Medigap policies as federal programs.

Medicare Supplement Insurance vs. Medicare Part C

Medigap Plan C and Medicare Part C are different and mutually exclusive. Medigap does not cover out-of-pocket costs for Medicare Part C plans, also known as Medicare Advantage. Marketing Medigap coverage to Medicare Advantage participants is illegal.

Both Medigap and Medicare Advantage plans are marketed by private providers with government approval and oversight.

Medicare Advantage plans typically have lower out-of-pocket costs than traditional Medicare coverage under parts A and B. They may also cover additional services such as routine hearing, vision, dental care, and fitness memberships. However, Medicare Advantage plans typically require care from providers within a network and prior approval for specialist care.

Medicare Advantage premiums are in addition to the Medicare Part B premium, though some plans may cover some or all of the cost of Part B premiums for members.

Medigap plans do not cover medical services above Medicare’s limits and these charges must be paid by the patient.

The Other Parts of Medicare

Part A

Medicare Part A covers inpatient care at hospitals, skilled nursing facilities, hospices, and home health services. However, it does not cover all nursing home services.

Part A is free for those who contributed to Medicare through payroll taxes for at least 10 years and their spouses. Others must pay a monthly premium for coverage, with reduced rates for those who paid payroll taxes for 30 quarters.

Part A coverage is subject to a deductible per benefit period and coinsurance charges after 60 days in a hospital.

Part B

Medicare Part B provides optional coverage for doctor visits, outpatient medical services, ambulance transport, mental healthcare, lab tests, preventive care, durable medical equipment, and home health services. Parts A and B are sometimes referred to as original Medicare.

Part B premiums and deductibles are adjusted annually. Premiums are based on income and surcharges may apply for higher earners. The annual deductible is set by Medicare.

Part D

Medicare Part D provides prescription drug benefits. The cost of coverage varies depending on the specific plan.

Part D plans are sold by private providers approved by Medicare. Medigap plans do not provide prescription drug coverage to new participants, but existing coverage can be maintained. Medigap insurers are required to remove prescription drug coverage if a beneficiary purchases a Medicare Part D plan. Medigap prescription drug coverage does not exempt beneficiaries from Medicare Part D late enrollment penalties.

Medicare sets a maximum annual deductible for Medicare Part D plans each year.

The average basic monthly premium for standard Medicare Part D coverage is determined annually.

When Can I Buy Medigap?

You can look into getting Medigap after you are signed up for Medicare Part A and Part B. The open enrollment period for Medigap starts the first month you have Medicare Part B, as long as you’re at least 65 years old. It is important to purchase Medigap during the open enrollment period to avoid unavailability or higher costs later.

What Does Medigap Cover?

Medigap fills the gaps in Medicare Part A and Part B coverage by paying copayments, coinsurance, and deductibles. However, it typically does not cover prescriptions, vision, hearing, dental, or long-term care.

Does Medigap Cover Preexisting Conditions?

Medigap will cover the costs for preexisting conditions after a six-month waiting period. Continuous creditable coverage for six months prior to purchasing Medigap insurance waives this waiting period. Guaranteed issue rights may also trigger coverage requirements.

The Bottom Line

Medicare Supplement Insurance, or Medigap, is sold by private insurance companies to cover out-of-pocket costs for Medicare participants. Medigap buyers pay premiums directly to the insurance provider. Medigap coverage is different from Medicare Part C plans, also known as Medicare Advantage.

After signing up for Medicare Part A and Part B, it is important to consider purchasing Medigap during the open enrollment period to avoid unavailability or higher costs later.