Should You Buy Supplemental Medicare Insurance?

May 7th 2016

Once you reach 65 years of age, Medicare insurance should cover most of your health-related costs. To pay for health services that Medicare does not fully cover, some people choose to purchase supplemental Medicare insurance sold by private insurance companies. Because these policies are written to extend existing Medicare benefits or offer services that Medicare overlooks, insurers call these policies Medigap insurance.

Do You Qualify for Supplemental Medicare Insurance?

Most people will qualify for Medigap coverage, but there are are a few basic criteria you must meet:

  • You must be 65 or older and already have Part A and Part B Medicare coverage. However, you cannot have a Medicare Advantage Plan for the same time period as your Medigap policy.

  • You cannot have a Medicare Medical Savings Account and apply for a Medigap policy at the same time.

  • You must be able to afford to pay the premium. Medigap policies are offered by private insurance companies and can be canceled if you miss a premium. The premium you pay for a Medigap policy is in addition to Part B premium payments.

  • You must be willing to apply for an individual insurance policy. Supplemental Medicare insurance is not offered to couples; each individual must choose their own policy.

What Types of Supplemental Medicare Insurance Policies Are Available?

Like all private insurance offerings, premiums vary depending on the coverage that the Medigap policy offers. Currently, there are 10 standardized Medigap policies, with each policy named for a different letter in the alphabet. All Medigap policies pay the individual's co-insurance portion from Medicare Part A. Medigap insurance also extends all of the Medicare benefits an additional year if the individual has exhausted their Medicare Part A and Part B coverage.

Medigap policies may or may not offer the following benefits:

  • Offers medical coverage during foreign travel

  • Sets an out-of-pocket annual limit

  • Pays Medicare Part B co-insurance, co-payments, deductibles or excess charges

  • Pays Medicare Part A hospice care co-payments or co-insurance charges

  • Pays Medicare Part A deductible

  • Covers the fees associated with blood used in transfusions

  • Pays co-insurance fees associated with required skilled nursing care

You should also know that Medigap policies no longer offer prescription drug coverage. If you want that type of coverage, you should also apply for Medicare Part D.

Medigap Premium Costs

Medigap premiums vary depending on the type of plan being offered, the insurance company providing the plan and any available discounts. Insurance companies use one of three methods to calculate premium costs for specific plans. 

  • No-age-rated plans charge the same premium to everyone in the group, regardless of age. Premiums increase due to inflation and other factors unrelated to your age. 
  • Issue-age-rated policies offer lower premiums to younger buyers. Like no-age-rated plans, premiums do not increase due to your age. 
  • Attained-age-rated policies have premiums that increase as you age. However, for younger buyers, they may offer the most cost-effective coverage.

Insurance companies may offer you discounts if you're a nonsmoker or married. Your wife, if you are married, may get a discount on her policy for being female. Some companies also offer discounts for setting up annual premium payments, purchasing multiple insurance policies from their company or paying online.

Do You Need Medigap Insurance?

Supplemental Medicare insurance isn't required by the federal government, but it can help you manage expensive medical expenses. If you have a family medical history that indicates that you may need long-term, specialized nursing care, a Medigap policy can save you thousands of dollars. If you're planning on traveling outside of the U.S. often, purchasing supplemental Medicare insurance will offer you necessary medical protection in case of an accident. Also, once you purchase a Medigap policy, it cannot be canceled as long as you pay your premiums.

Deciding to purchase any type of insurance policy is a calculated risk. If you decide to decline Medigap coverage, you could spend a large portion of your savings on medical costs. Of course, you could also purchase Medigap insurance, but rarely use the coverage it provides. Before making a decision, get quotes for a few Medigap plans. You may find that the additional peace of mind that supplemental Medicare insurance offers you is a cost you're willing to pay.

Summary:

  • You qualify for supplemental Medicare insurance if you meet the age requirements and aren't enrolled in a competing program.

  • Premiums vary depending on Medigap policy and the discounts available from your insurance company.

  • There are 10 Medigap policies; each policy offers different combinations of coverage.

Sources:

http://www.medicare.gov/supplement-other-insurance/medigap/whats-medigap.html

http://www.medicare.gov/supplement-other-insurance/compare-medigap/compare-medigap.html

http://health.usnews.com/health-news/medicare/articles/2013/09/30/medicare-and-medigap-whats-the-difference

http://www.medicare.gov/find-a-plan/staticpages/learn/how-insurance-companies-price-policies.aspx#;return%20false;

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