How Medicare Works With Supplementary Insurance
Medicare offers real benefits, but it is not as comprehensive as people think. Even if you've worked your whole life to get to the place where Medicare covers your health care costs, you may experience a gap. There are areas that lack coverage, plus there are deductibles and copays to consider. Supplemental insurance bridges the gaps that threaten to eat up your retirement funds.
A Little About Medicare
The Medicare system breaks down into five different sections:
Part A – Part A covers hospital and medical facility cost. Participants pay a calendar year deductible and an additional 20 percent copay. If a hospital stay costs $100,000 after the deductible, the patient is responsible for $20,000, unless he or she has supplemental insurance.
Part B – This is the portion of Medicare that covers the professional services of a doctor or practice. It is a premium-based program, so a user pays a monthly bill based on their income level plus a deductible and the 20 percent copay.
Part C – Also known as Medicare Advantage, this is a catchall system that combines Parts A and B plus prescriptions. Medicare contracts with private insurance companies to offer participants different programs with a variety of options. Users pay a premium based on their selection.
Part D – Prescription coverage that subsidizes the cost of medications for those on Parts A and B.
If you opt for Parts A and B, there are gaps in the payout that you will be responsible for unless you carry supplemental insurance.
What Is Medigap?
Medigap is an umbrella term given to private health insurance plans designed to supplement Medicare Parts A and B. Medigap is only available to those who choose Parts A and B, and it's not offered to anyone who selects Medicare Advantage, or Part C. The supplemental program provides a combination of benefits, depending on how much you choose to pay.
Coordination of Benefits
With supplemental insurance on board, one company pays the portion owed based on their rules and standards, then sends the remaining balance on to a secondary payer. This is known in the insurance circles as the coordination of benefits. What one plan fails to pay, the next one may cover. What is left goes to the insured for payment if necessary. This relieves the burden of deductibles and copays.
When there is a supplemental insurance program, the bill goes to that service first. The insurance company will pay the provider up to their limits, then forward the bill to Medicare. For example:
A hospital sends the bill to the supplemental insurance company. They pay the 20 percent offered by their program. This makes them the primary payer. The supplemental insurance company sends the bill onto Medicare, which pays what remains minus what they don’t cover. The patient is left with little or no out-of-pocket expense.
When the primary payer fails to pay on time, Medicare steps in to cover the bill. They recoup their cost from the insurance company, not the patient.
Medicare will pay for services, even if they're not covered by the plan. This alleviates the patient’s responsibility for the bill and allows the provider to get money for services in a timely manner. The insured must follow up with the Benefits Coordination and Recovery department of Medicare to ensure that they are reimbursed. For instance, a person in a car accident may have all expenses paid after a court judgment. Medicare pays the bills upfront, then takes their cut of the settlement.
How to Choose a Medicare Plan and Supplemental Insurance
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The truth is that Medicare typically won't cover all medical costs, but it does cover the bulk of them. Deciding which Medicare plan best suits your personal needs is the first step. A person with a chronic illness who sees the doctor regularly will probably find Parts A and B with a supplemental insurance plan the most cost-effective. This covers the potentially expensive deductibles and copays. Those with few health problems or those who can’t afford the supplemental insurance premium should look for a good Medicare Advantage plan in their price range instead.