Medicare Supplemental Plans (Medigap) Explained
Original Medicare is comprised of Parts A and B, which cover 80% of the costs for most medical services. This means that Medicare beneficiaries are responsible for the remaining 20% of healthcare costs. If they need medical treatment or a medical device not covered by Medicare Part A or B, such as hearing aids or long-term care, the beneficiary is responsible for 100% of the cost.
In both cases, this is where Medicare Supplemental plans, also known as Medigap, come in.
Let’s go over the ins and outs of Medigap so that you, a financial advisor, can confidently help clients understand this important part of Medicare.
What do Medigap Plans cover?
Medigap plans are meant to “fill in the gaps” by covering the 20% coinsurance as well as some of the other medical costs Original Medicare doesn’t cover. For example:
- Medigap Plans C, D, F, G, M, and N cover skilled nursing facilities.
- Medigap Plan K covers 50% of skilled nursing facilities, and Plan L covers 75%.
- Medigap Plans A and B do not cover skilled nursing facilities.
How much does a Medigap plan cost?
When your client selects a Medigap policy, they’ll pay a monthly premium to the insurer for that policy in addition to the Part B premium they pay to Medicare. Medigap policies are labeled in most states by letters (Minnesota, Wisconsin, and Massachusetts have different plan designations). Each lettered plan is standardized and provides the same benefits regardless of the insurance company. Generally, the only differences between Medigap policies sold by different insurance companies are the monthly premium cost, annual rate increases, and customer service experience. Each insurer charges its premiums based on the number of people in the state it covers and the age of the beneficiary, or the size of the community if it’s a community-rated Medigap plan. Medigap plan premiums generally increase with age if they aren’t a community-rated plan.
There are ten Medigap policies, lettered A through N. The chart below is an overview of what each lettered Medigap plan covers that Original Medicare does not cover.
* Plans F and G offer a high-deductible plan in some states, and Plan F is only available to those who were Medicare-eligible prior to 2020.
** Plans K and 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.
*** Plan N pays 100% of the costs of Part B services, except for copayments for some office visits and some emergency room visits.
Are Medigap plans offered through Medicare?
Although Medicare Parts A and B are offered by Medicare, Medigap plans are provided by private insurance companies. If a beneficiary’s preferences align with Original Medicare over Medicare Advantage, it’s advisable to enroll in a private Medigap plan to provide truly comprehensive coverage. Without a Medigap plan, your client’s out-of-pocket expenses are uncapped, meaning there is no limit to what they might pay.
When is enrollment for Medigap plans?
Medigap plans don’t have a specific enrollment timeline like Original Medicare or Medicare Advantage, but there is an ideal time to choose a Medigap plan. The six-month period that starts the first day of the month your client enrolls in Medicare Part B is the ideal time to choose a Medigap plan. During this time, insurers must offer your client all the Medigap policies available in their area at the best rates for their age. They also have several guaranteed issue rights, which means that they can buy a Medigap policy regardless of their health and under specific situations. These policies are guaranteed to renew each year, and the insurance company can't cancel the policy as long as the enrollee pays the premium.
How do Medigap Plans differ from Medicare Advantage plans?
While a Medigap plan works in tandem with Original Medicare, Medicare Advantage is an all-in-one option for Medicare coverage.
Some of the pros of choosing a Medigap plan and going with Original Medicare for Medicare coverage are:
- No network restrictions (as opposed to Medicare Advantage plans, which can have network restrictions).
- See a specialist without a referral (as opposed to Medicare Advantage plans, where referral requirements vary by plan type).
- $0 or minimal copays (as opposed to Medicare Advantage plans, where copays vary).
- Travel and relocation flexibility (as opposed to Medicare Advantage plans, where travel and relocation flexibility are generally not present).
Some of the cons of choosing a Medigap plan and going with Original Medicare for Medicare coverage are:
- Monthly premiums that will likely go up annually (as opposed to Medicare Advantage plans, which often have $0 premiums).
- Separate prescription drug coverage enrollment (as opposed to Medicare Advantage plans, which bundle all the components of Medicare into one plan).
- No out-of-pocket maximum, except for plans K and L (as opposed to Medicare Advantage plans, which do have out-of-pocket maximums).
- Typically, no extra benefits like vision, dental, or hearing (as opposed to some Medicare Advantage plans that do offer additional benefits).
The pros and cons of Medigap, as well as your client’s changing needs from year to year, are why annual HealthPlanning Analyses are so crucial for picking the optimal Medicare coverage for your clients.
Final Thoughts
If your client chooses to enroll in Original Medicare, they’ll need to also enroll in a Medigap policy to ensure they have truly comprehensive health insurance. To help clients choose a Medigap policy, a good starting place is to discuss their healthcare needs. For example, if your client plans to travel internationally, Medigap Plans A, B, K, and L are likely not good options for them.
Another important consideration is the cost of the Medigap policy, which will vary by location. As you can see in the Move Health Estimator Tool examples below, two clients with similar demographics (65, male, $80k income) living in two different states (Arkansas and Washington) have different premiums for the same Medigap policies. The Arkansas man’s ideal Medigap policy is Plan G, which will cost $143.03 a month, and the Washington man’s ideal Medigap policy is also a Plan G, but it will cost him $114.80 a month*.
Arkansas
Washington
*Note: Deductible and IRMAA amounts are for plan year 2025.
The chart and the information in this blog can help you confidently guide clients through the Medicare Open Enrollment process, but if you really want to make healthcare planning a seamless experience for clients and yourself, schedule a call with the Move Health team to learn how our healthcare planning software and team of licensed agents supports financial goals and makes you the ultimate comprehensive financial advisor.
