Do You Need a Medigap Plan?


February 25, 2020

Medicare alone isn’t always enough. If you’re turning 65 soon or have already enrolled in Original Medicare, you might be wondering about Medigap. You may also have had mailers, calls and even in-person visits from salespeople trying to sell you a Medigap plan. Also known as Medicare supplemental insurance, Medigap is a private plan that can help offset the costs under Original Medicare.

If you prefer Original Medicare to Medicare Advantage — a separate, private plan that covers everything under Original Medicare plus variable extras — then you’ll probably benefit from a Medigap plan. That’s because costs under Original Medicare can be quite high, and there’s no cap in place on your out-of-pocket spending.

Is Medigap right for you? Let’s break down the costs of Original Medicare and why Medigap makes sense for most (but not necessarily all) people.

Costs of Original Medicare

Along with monthly premiums for Part B (and Part A for some people), Original Medicare requires coinsurance and deductibles. Here’s a quick rundown of the costs of Part A and Part B:

Part A

Medicare Part A, which is hospital coverage, doesn’t usually have a premium. Very few Medicare enrollees have to pay for this portion of Medicare thanks to accumulated work credits.

But everyone has a deductible and copayments under Part A. The deductible, what you pay before coverage even kicks in, is $1,408 per benefit period in 2020.

Important note: You can have more than one benefit period in a single year.

Once you meet the deductible, you don’t pay anything for hospital stays for the first 60 days. After that, it’s $352 per day. And once you get to day 61, the “lifetime reserve days” benefit starts. At that point, it’s $704 per day until you use up the 30 lifetime reserve days. If you’re at day 91 (and beyond) and still need hospital coverage, it’ll cost you full price.

If all those numbers ran together for you, you’re not alone. Medicare math can be tricky. That’s just for hospital coverage, too. Medicare Part A also covers care from a skilled nursing facility, with its own set of deductibles and coinsurance.

Part B

Medicare Part B covers your general medical care, like trips to the doctor, outpatient services and surgery.

In 2020, the standard premium for Part B is $144.60 a month. Part B has an annual deductible, which means it only needs to be met once for the year (unlike Part A). The Part B deductible is $198 in 2020.

These are relatively low costs compared to private, non-Medicare insurance. And it’s good coverage. Despite some obvious gaps in Original Medicare — like prescription drugs, dental and vision, and hearing aids — the coverage is pretty good and affordable for many seniors.

Where Part B gets expensive is its 20% coinsurance rate. After you’ve met the deductible for the year, you’re responsible for 20% of your costs — and there’s no limit in place to cap those out-of-pocket costs.

This isn’t a problem if all you’re doing is seeing your doctor a few times a year for run-of-the-mill issues, like a sore throat. But if you need surgery, that 20% can get expensive quickly. And if you have a chronic health issue, like diabetes or COPD, then that seemingly small coinsurance rate suddenly becomes a big problem.

Medicare Advantage has a cap in place on out-of-pocket costs for the year. Original Medicare does not.

Medigap Basics

Medigap can help you cover some or nearly all of the out-of-pocket costs under Original Medicare. There are 10 Medigap plan types: A, B, C, D, F, G, K, L, M and N. Each plan of the same letter type covers the same set of benefits.

It doesn’t matter which company you choose or (for the most part) where you live. In every state but three — Massachusetts, Minnesota and Wisconsin — Medigap plans are standardized. That means every Plan G looks the same as every other Plan G, whether you buy it from UnitedHealthcare or Aetna and whether you live in Florida or Connecticut.

Plans vary in what they cover, but every Medigap plan covers the following benefits:

  • Part A coinsurance & hospital costs up to 365 days after Medicare benefits are used up
  • The Part A hospice care coinsurance or copayments
  • The Part B coinsurance
  • Blood up to the first three pints

Plans K and L limit coverage to 50% and 75%, respectively, but every Medigap plan covers these four basic benefits. Beyond that, plans cover different things. Coverage may include:

  • The coinsurance for skilled nursing facility care
  • The Part A deductible
  • The Part B deductible
  • Part B excess charges
  • Foreign travel medical emergencies

Starting January 1, 2020, Plans C and F are no longer available to new Medicare customers. The federal government eliminated plans that cover the Part B deductible.

If you were eligible for Medicare and Medigap before then but haven’t signed up yet, you may be able to enroll in one of these plans. If you’re newly eligible in 2020, you won’t be able to buy Plan C or Plan F.

Availability for Medigap plans varies based on where you live, particularly by county and zip code. That’s why it’s important to use your own zip code when you’re shopping for Medigap plans in your state. It’s the best way to get an accurate idea of the costs.

Is Medigap Necessary?

Do you have to have a Medigap supplemental plan? In a word, no. You don’t have to do anything you don’t want to. But that’s a “technical” no. You don’t have to, but we recommend considering it if you’re sticking with Original Medicare. Here’s an example using Medigap Plan G.

Medigap Plan G

Before this year (2020), Medigap Plan F was the gold standard of Medigap policies because it covered all of the benefits available under Medicare supplement plans. But since Plan F isn’t available to new customers anymore, the best option is now Plan G if you want the full array of Medigap benefits. Plan G covers:

  • Part A coinsurance & hospital costs up to 365 days after Medicare benefits are used up
  • The Part A hospice care coinsurance or copayments
  • The Part B coinsurance
  • Blood up to the first three pints
  • The coinsurance for skilled nursing facility care
  • The Part A deductible
  • Part B excess charges
  • Foreign travel medical emergencies

In short, Medigap Plan G covers everything but the Part B deductible, which is $198 in 2020. That means that once you meet that deductible, your Medigap plan will take care of pretty much every other covered cost under Original Medicare.

You might think that a plan that covers so much will cost a lot. That depends on where you live and who you buy the plan from. Remember that Medigap plans look the same across state lines and across companies, but cost does vary.

Just as an example, let’s look at Plan G from Humana in Kentucky. Using a zip code from Hardin County, we found the following options:

  • Medigap Plan G: $44.57 a month
  • Medigap Plan G with a high deductible ($2,430): $114.17 a month

The only difference between these two plans is that high-deductible Plan G includes a high deductible that you have to meet before benefits kick in. In this case, that’s $2,430 for the year. Standard Plan G doesn’t have this deductible. You’ll only be responsible for the regular Part B deductible of $198.

The difference in cost per month is pretty steep, though. Our example 65-year-old enrollee would pay $70 more a month for standard Plan G. Multiply that by 12 months and it’s $840. It still doesn’t come close to the cost of the deductible for the high-deductible plan G.

That’s why it’s very important to do the math when it comes to buying Medicare supplemental plans — and any Medicare policy. You might be wooed by a lower premium price, like the $45 a month for this Plan G in Hardin County. But that lower premium masks a higher out-of-pocket cost in the form of a high deductible.

In this case, you’re better off paying more up front because the benefits start sooner. You’ll pay less out of your own pocket, in other words.

Medigap Makes Sense for Most People — But Maybe Not All

Medigap usually makes sense for most people. It’s a relatively low-cost way to make sure you don’t face high out-of-pocket costs under Original Medicare. Here’s when it might not make sense for you:

  • You don’t see a doctor often enough to worry about the Part B coinsurance rate
  • The Medigap plans in your area cost too much to offset the cost of medical care

If you’re in good shape and only see a doctor for yearly checkups, paying an extra premium for Medigap might not be worth it. We would still argue that having a Medicare supplemental plan in place makes sense even if you don’t see a doctor often — because you can’t predict pricey hospital stays. But that’s the risk you take with any insurance plan.

A more valid argument against Medigap is that you might not find an affordable plan where you live. If your monthly Medigap premium is $300, for example, it may not pay for itself in savings. Again, that’s why it’s important to spend some time crunching the numbers. Add up your typical healthcare costs for the year and get an accurate quote for coverage based on where you live. Make sure you’re saving money by tacking on another premium before you commit to a plan.