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Understanding Medicare Supplements

Most Americans who are over the age of 65 rely on Medicare to cover their healthcare expenses. Unfortunately, the basic Medicare components (Parts A and B) are full of holes, and there are many different services that are not covered at anywhere close to 100%. This can leave seniors with huge out-of-pocket expenses for various types of medical treatment, and this is where Medicare supplements come in.

Medicare supplements, also known as “Medigap” plans, were created to help close the gaps in coverage left by basic Medicare. These are plans that are available through private insurance companies to help cover the out-of-pocket costs of Medicare-approved services. This may include costs such as co-payments, coinsurance, deductibles, hospital expenses, and skilled nursing facility costs. After Medicare pays its share, the supplement kicks in to pay its share.

Here is an example of how this might work. If you go in for a doctor visit, Medicare will most likely only pay a maximum of 80% of the cost of the visit. You are responsible for the remaining 20%, which is known as coinsurance. Depending on which plan you choose, your Medigap plan could pay the 20% coinsurance for you, or some plans may pay most of it but require you to make a small co-payment.

Breaking Down the Parts of Medicare

Medicare is divided into four parts:

  • Part A: This is essentially hospital insurance; it provides coverage for stays in the hospital, hospice care, and skilled nursing facility care. Part A is free for most Americans, as long as you or your spouse has worked for a minimum of 10 years in the US.
  • Part B: This section of Medicare helps cover visits to the doctor, outpatient care, diagnostic tests, surgeries and other procedures, lab work, medical equipment, and some preventative services. The cost for Medicare Part B starts at a base rate that is adjusted annually. In 2020, the base rate is $144.60. Those in higher income brackets will pay a rate that is adjusted higher based on their income. Please note: You must have both Medicare Part A and Part B in order to purchase a Medicare supplement.
  • Part C: This section is optional and includes “Medicare Advantage (MA)”, which provides additional coverage for the things covered by Part A and Part B, and “Medicare Advantage Drug Coverage (MAPD)”, which provides additional coverage for prescription drugs. MA and MAPD coverages are provided through private health insurance companies. Medicare Advantage plans are similar to Medicare supplements, and costs will vary depending on which plan you choose.
  • Part D: This optional section is called “Medicare Prescription Drug Plan (PDP)”, providing prescription drug coverage through private health insurance companies. Seniors must sign up for Part D when they first become eligible, otherwise, they have to pay a penalty to sign up later. There are several different Part D plans to choose from, depending on your state, and premiums will vary depending on the specific plan.

Medicare Supplements vs. Medicare Advantage

As mentioned earlier, Medicare Advantage (which is part of Medicare Part C) has private health plans that are similar to Medicare supplement (Medigap) plans, and both options are worth considering in order to help fill the holes left by basic Medicare. Medigap plans are divided into 10 standardized categories based on the level of coverage that is offered and other government requirements. These are grouped by the following letters: A, B, C, D, F, G, K, L, M, and N.

It is important to note that plans C and F, which are among the most expensive and provide some of the most comprehensive coverage, are being phased out and they are not open to new applicants as of 2020. However, those who already have one of these plans are grand parented in and allowed to keep them.

Medicare Advantage plans differ from Medigap in that they are not technically supplements. Rather, they essentially replace Medicare Parts A, B, and D with one plan that wraps in all of these coverages together. While a supplement kicks in with coverage after Medicare has paid its share, Medicare Advantage pays everything that is covered instead of Medicare. MA plans usually cost less than Medigap plans, and they may cover more services, but they could also result in higher out-of-pocket costs.

Another potential drawback with Medicare Advantage plans is that they generally limit your choice of doctors and facilities to HMOs and preferred provider (PPO) networks, and they may not provide out-of-network coverage. By contrast, Medigap plans will usually cover you if you go to any doctor or facility that accepts Medicare. Medicare Advantage plans are also not particularly attractive for frequent travelers, because their networks usually operate within a certain local region.

Which Medicare Supplement is Right for Me?

Basic Medicare, Medicare Advantage, and Medicare supplements offer a wide range of choices, and navigating all of the various options can be extremely confusing. To find the plan that works best for you, it makes sense to sit down with an expert who has access to all of the available plans in your area. Independent insurance agents can be very helpful in this regard.

An independent insurance agent can speak with you and thoroughly examine your specific circumstances. And because they are not captive to any one particular carrier, they can shop around freely and find you the Medicare Supplement or Medicare Advantage plan that best fits your needs and budget.