Medicare Supplement

Here is a highway toward the basic understanding of Medigap Plans in 10 bullet points: 

• Medigap Plans are not the same as Medicare Advantage Plans.
• Medigap Plans were created to fill in the coverage “gaps” that exist in Original Medicare Parts A & B, such as Deductibles, Copays and Coinsurance expenses. 
• There are about 10 Plan types offered in most states, but many agents, including myself, often recommend Plan G.   
• Medigap Plans have no networks.  (Some carriers offer “Select” versions which have networks, but they are not common.)  If Original Medicare approves the claim, the Medigap carrier must cover their share according to the policy benefits. 
• Medigap Plans are purchased through private insurance carriers who charge premiums for this coverage.  
• Once you have a Medigap policy in-force, the carrier cannot drop you or discontinue your coverage unless you neglect to pay your premium. 
• Medigap premium rates will increase over time, but they do not increase based on your personal claims history.   
• Medigap Plans do not provide coverage beyond what Medicare approves. 
• If Part A or Part B does not approve the claim, the Medigap Plan will NOT cover it.  They exist only to SUPPLEMENT Medicare coverage, not to go beyond it.  Thus the synonymous term “Medicare Supplement Policy”. 
• Medigap policies only work together with Parts A & B not with Medicare Advantage Plans.  
• Carriers who offer Medigap Plans will underwrite you to see whether your health risk is worth taking on.  If you are not healthy enough to qualify, then they will deny you coverage.  HOWEVER, there are circumstances in which carriers are forced by law to accept you and issue you a policy regardless of your health condition - the Medigap Open Enrollment Period and Guaranteed Issue situations.  These are not annual; they are unique and should not be confused with the Annual Election Period that applies only to Medicare Advantage and Part D Plans. 

With all these things in mind, here is what I suggest.  Find an agent who represents quality carriers and who will not just push the lowest priced “carrier-of-the-week.”  You want to buy from a carrier who will have price stability and not one that starts with really low premiums to capture new business, only to raise your rates after 3 or 4 years.  Modest rate increases should be expected annually, but some carriers are much better at managing their rates and risks better than others.  Specifically, ask your agent to run quotes for Plan G, High-deductible Plan G and Plan N.  Then do a cost / benefit analysis.  My main caution to you about Plan N is centered around the Part B Excess Charges.  Weigh out the premium differences carefully in light of the copays and 15% Excess Charges. 

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Here is the scenic route.  There is a lot to see, but the road ahead will take a lot longer, only to end up at the same place as those who took the shortcut.  The difference will be, you may know WHY you ended up at that place and have the peace of mind that you explored the other options before making a decision.  And there’s always the possibility that you will come to a different conclusion for your own reasons.  If that’s the case, fantastic!  The purpose of this page is to equip you with knowledge. 

Let’s start with a riddle.  What insurance product has two official names, 10 or more types and is often mixed up with Medicare Advantage plans? 

Did you think, “Medigap”?  I hope so. 

At the top of this page titled: Find a Medigap policy that works for you (medicare.gov), you’ll read the words, 

“In Original Medicare, you generally pay some of the costs for approved services. Medicare Supplement Insurance (Medigap) is extra insurance you can buy from a private company that helps pay your share of costs.”  

It is a pretty straightforward paragraph, but packed with at least five important points: 

1. Medigap plans ONLY work in conjunction with ORIGINAL Medicare (Parts A & B).  In other words, Medigap plans are useless with Medicare Advantage (MA) Plans.  In fact, it is forbidden by CMS for an agent to sell a Medigap plan to someone who is enrolled in a MA Plan, unless they are disenrolling from the MA Plan and returning to Original Medicare. 
2. Original Medicare was not intended to cover 100% of all costs.  Like most health insurance plans, Original Medicare has deductibles, copays, and coinsurance Out-of-Pocket expenses. 
3. Original Medicare does not cover ALL services.  It only covers “approved services” which means there are some services not approved.  Here is a link to services not covered by Original Medicare. 
4. The terms “Medigap” and “Medicare Supplement” are synonymous.  Both terms refer to the same insurance product. 
5. Medigap plans are considered by Medicare to be “extra insurance” which cost additional premiums paid directly to a private insurance company.  It is optional coverage that pairs up with only Parts A & B to pay some or all of the Out-of-Pocket expenses. 

Decision points for selecting a Medigap Plan 

As a way to learn about Medigap Plans and how they work together with Parts A & B, I unpack this topic in context of three decisions that need to be made.  In my opinion, these questions should be answered in the following sequence. 

• First - Do I want a Medigap Plan? 
• Second - Which Plan type do I want? 
• Third - Through which Insurance Carrier do I want to purchase the Medigap Plan? 

Do I want a Medigap Plan? 

Deciding whether to purchase a Medigap plan is really not too difficult.  Assuming you have already decided to stick with Original Medicare, you now need to ask yourself a couple of questions. 

1. Can I afford to pay the Medigap premiums without having to adjust my lifestyle to do so?  The range of monthly premiums varies greatly, but in the North Texas area in 2024 for a female age 65, I found a range from around $35 (for a high-deductible version) to over $190 depending on Plan type, Insurance Carrier, applied discounts, and other variables.  If your answer to this first question is No, then you may want to consider a Medicare Advantage Plan rather than making an unaffordable purchase or being exposed to the Out-of-Pocket costs not covered by Original Medicare.   
2. “Do I prefer to pay for all the undetermined Out-of-Pockets (OoP) expenses associated with Parts A & B as I encounter them (which have no cap), or do I prefer to pay a determined premium instead of being responsible for those OoP expenses?  This second question taps into your personal philosophy about perceived risks, risk transfer, and your approach to budgets.  I used the terms “undetermined” and “determined” instead of “unpredictable” and “predictable” because future Medigap premiums are neither known nor predictable and I don’t want my contrast to imply that they are.  Also, depending on which Medigap Plan type you purchase, there may still be a small annual deductible and some copays or coinsurance expenses.   

The point of these two questions is - the Medicare Beneficiary using Original Medicare without a Medigap plan is exposed to uncapped Out-of-Pocket (OoP) expenses that are undetermined and unpredictable, because no one knows what their future healthcare needs will be.  For those comfortable with such risks, they may opt to NOT buy a Medigap plan.  Usually, this is a person who is very healthy and optimistic about their future care needs.  However, most people I have encountered are not comfortable with such risks.  They prefer to know that their OoP expenses are limited, usually to nominal amounts. 

Which Plan type do I want? 

For those who decide to purchase a Medigap Plan, the next question to be answered is – What Play type do I want? 

Plan choices differ from state to state and from Carrier to Carrier.  That said, most states offer 10 standardized Plan types. 

Caution: As you compare and contrast the Plan types, be careful not to overanalyze this; it’s a waste of time.  Remember that all insurance purchases are made in part based on math and part based on emotion and psychology.  So, can you save premiums by choosing a Medigap Plan with fewer benefits?  Definitely.  But are those savings substantial enough to be worth the potential headaches and confusion when, down the road, you try to remember what out-of-pocket responsibilities are legitimate and which might be a billing error?  Most of my clients are willing to pay a little more in premiums for the confidence that all the gaps are filled (with maybe one or two exceptions).  They want their coverage to be simple and as comprehensive as possible.  If that is how you feel too, then you can skip the rest of the analysis and choose Plan G.  Then move on to the third question, “through which Insurance Carrier do I want to purchase the Medigap Plan?”  For those who feel obliged to compare and come to a conclusion on your own, keep reading before going on to the 3rd question.  

 Page 76 Section 5 of the 2024 Medicare and You handbook has a good chart for a comparison of the Medigap Plan types and how they differ from one another.  If you rather,  Click Here for the full online version from Medicare.gov.  I encourage you to get an overview of the Medigap chart as published by Medicare, but on this site, I have taken the liberty to edit the chart for analysis purposes. 

I mean no disrespect to the Plan types A, B, K and L, but I want to make this comparison easy for you.  Below, I have edited the chart to separate the Plan types I consider to be modest (A, B, K, and L) from the Plan types I consider to be bountiful (C, D, F, G, M and N).  The reason for this is – I want you to see how similar these grouping of Plan types are to one another and focus on these distinctions.   

In both charts, the far-left column lists the Medigap Benefits and there are 9 categories.  Think of these as the “gaps” within Original Medicare that a MediGAP Plan will cover in full or not cover in full.  Any gap not covered by the Plan means you are responsible to pay it. 

Here are Plans A, B, K and L side by side:  

**Plans K & L show how much they'll pay for approved services before you meet your out-of-pocket yearly limit and Part B deductible. After you meet them, the plan will pay 100% of your costs for approved services. 

Here are Plans C, D, F, G, M and N side by side: 

***Plan N pays 100% of the costs of Part B services, except for copayments for some office visits and some emergency room visits. 

In addition to my observations within the charts, I want you to notice the following: 

• Every Plan type covers the first four categories at 100%, with three exceptions – Plans K and L have partial coverage of 50% or 75% respectively, and Plan N has asterisks which refers to a copay that is charged for some doctor visits and ER visits. 
• The fifth category, Skilled nursing facility care coinsurance, is a BIG “gap” in my opinion, but all 6 “bountiful” Plan types cover this gap at 100%. 
• There is one category that only two Plan types cover 100% and the others cover nothing in this category: Part B Excess Charges.  Understanding this one category is more important than what you might expect.   

What are Excess Charges? 

To understand what Excess Charges are, we need to know when and why they are relevant.  Another way to ask this is, what providers can bill a patient for Excess Charges?  Since these charges are only under Part B, we don’t have to worry about Excess Charges from Hospitals or any other provider that will file claims under Part A.  Only Part B billing is relevant to these Excess Charges. 

In this context there are three types of relationships that providers have with Original Medicare:  Opt-Out, Participating and Non-Participating. 

1. Opt-Out Providers who Opt-Out of Medicare cannot charge you the Part B Excess Charge.  In fact, they can’t bill Medicare at all because they have opted out of the system.  These providers do not accept any part of Medicare. 
2. Participating Providers who are “Participating” with Medicare cannot charge you the Part B Excess Charge because they have agreed to the negotiated pricing in advance.  They file claims under Part B and “get what they get and they can’t throw a fit.” 
3. Non-Participating Providers who are “Non-Participating” ARE allowed under their agreement with Medicare to charge a patient an “excess charge” up to 15% of the Medicare approved amount. 

Click here to go to the Medicare.gov page that describes the relationship between providers and Medicare. 

Let’s use two examples of how the excess charge of 15% could play out with someone who does not have a Medigap plan to cover this charge, compared to someone who has a Medigap Plan F or G which will cover the excess charge.   

Sally, who has Original Medicare and a Medigap Plan N visits a Non-Participating doctor for an out-patient procedure.  The doctor submits a claim to Medicare for $19,000.  However, for this particular procedure which was completed in that particular zip code, the Medicare approved amount is only $10,000.  Sally’s Medicare Part B then pays the provider $8,000 which is 80% of the approved amount.  The remaining 20% of the approved amount is then sent to Sally’s Medigap Plan N carrier, who pays the provider $2000.  Unfortunately for Sally, the provider wants to get more than the $10,000 Medicare approved amount for the service he provided.  Since he is a Non-Participating provider, he has the option to charge Sally $1500 which is 15% of the Medicare approved amount, and since Plan N does not cover this Excess Charge, Sally is responsible to pay it. 

Harry, who has Original Medicare and a Medigap Plan G, visits the same Non-Participating doctor for the same outpatient procedure as Sally.  The doctor submits a claim to Medicare for $19,000 just like he did for Sally. And the same process happens for Harry as did for her.  However, Harry’s Medigap Plan G not only pays the 20% that Part B didn’t cover, it also picked up the $1500 Excess Charge.  So, unlike Sally, Harry doesn’t have to pay anything out of his pocket. 

Conclusion, for those who buy a Medigap Plan which covers the Part B Excess Charge (F or G), it isn’t necessary to know if the provider is Participating or Non-Participating.  Either way, the Excess Charge is irrelevant.  Conversely, for those who buy a Medigap Plan which does NOT cover the Part B Excess Charge, I recommend always verifying the relationship each provider has with Medicare and asking in advance if an Excess Charge should be expected. 

Through which Insurance Carrier do I want to purchase the Medigap Plan?

The third decision you must make when choosing to buy a Medigap Plan is related to the insurance carriers who sell them.  Which insurance carrier should you use? 

Here are several considerations relevant to this decision: 

Premium amount – Plan G from one carrier is priced differently than Plan G from another carrier.  The benefits are the same, but the initial premiums vary and the future premiums will increase at different rates. 

Brand – Since a part of this Medigap decision is emotional, some people just feel better about working with a carrier that they have heard of or done business with before.  Sometimes, working with a well-known carrier gives the policy owner more confidence that the claims will be covered.  That said, you should know claims approved by Medicare must be covered by the Medicap carrier according to the benefits outlined in the policy, assuming the policy was in-force at the time of service.  Whether the medical provider has heard of a carrier or billed a carrier before is really irrelevant to the coverage.  So, big carrier or not, well-known, or not, all Medigap carriers must cover legitimate claims. 

Discounts – Some carriers offer discounts for various things and in by various qualifications.  For example, a common discount is a Household Discount (HHD).  Some HHDs will lower the premium by 5%, other carriers offer a HHD which lowers the premiums by 12%.  Some carriers offer the HHD to anyone applying who lives with any adult, spouse or not.  Other carriers only offer a HHD to an applicant who lives with a spouse.  Other discounts are available too, such as discounts for paying the premium annually or by automatic bank draft. 

Agent access – Not all agents will have access to all carriers.  Some carriers hire “Captive” agents who are only allowed to represent that carrier, and other carriers don’t contract with independent agents at all.   Moreover, some agents tend to concentrate most of their business with one or two carriers rather than work with several carriers; frankly, it’s easier.   So, your carrier choice may be limited by what agent you choose to work with.    

I am only speculating here, but I believe that people who choose to buy a Medigap Plan G do so based on the following pros and cons analysis: 

Pros:  

• No networks.  I can go to any doctor, provider, or hospital anywhere in the USA, so long as they accept original Medicare. 
• Only one small out-of-pocket expense – that is, the Part B deductible which is $240 in 2024.  This means, whether I am admitted in the hospital for 2 months, have 5 outpatient surgeries, or have 9 months of therapy – the only thing I need to pay other than my premiums (for Medicare approved services) is a small annual deductible.  Note: The Part B deductible is set by Congress each year, not an insurance company.    
• Reasonable premium compared to other Plan types.  With Plan G, I can get more benefits for not too much more premium compared to other Plan types. 
• Simplicity.  I don’t have to mess with claim paperwork or reimbursements or keep track of Maximum Out-of-Pocket expense levels. 

Cons: 

• An additional card to keep track of and another Insurance policy to file away. 
• An additional premium to pay besides what I pay for Medicare Part B and Part D.  This premium amount increases over time, possibly each year. 

Additional thoughts and facts about Medigap 

Insurance Carriers are not created equal, and they don’t run their businesses in the same way.  However, before any carrier can raise rates based on claims, they must seek approval from the Departments of Insurance in each state they want an increase.  The carriers must prove to the DOI that rate increases are necessary to maintain solvency. 

Medigap policies are replaceable when lower premiums can be found for the exact same coverage from a different carrier.  However, health underwriting is usually required.  At some point in one’s life before death, usually a line of UN-insurability is crossed.  This is the point where insurance carriers no longer want your money because the risk of claims is too high. Rest assured, that so long as you pay your premiums, the carrier cannot drop you or deny your claims, but replacing your current coverage for a cheaper policy in not likely to happen once you are uninsurable.   

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