Do You Need Medigap Insurance?

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There are few experiences in life more daunting than navigating our health-insurance system — especially when multiple policies are involved in a complex mix of public and private coverage. Such is the challenge for Medicare recipients who find themselves in need of supplemental insurance. Medicare is government-administered health insurance for people 65 and over, or who are under age 65 and permanently physically disabled (or those who meet other special criteria). But Medicare doesn’t cover everything. For those holes in Medicare coverage, a Medigap policy is needed. (See also: How to Examine Your Healthcare Plan and Save)

As the name suggests, Medigap policies are designed to fill the "gaps" in health care expenses that Medicare doesn’t cover or doesn’t cover completely. Medigap plans are private, not public, and they're offered by most major insurers. Policies typically pay for the little things that can add up quickly (think co-payments, hospital stays, and deductibles). If you’re a Medicare beneficiary and have opted for a supplemental Medigap policy, Medicare will pay its share of approved expenses, and then your Medigap policy will kick in to (hopefully) cover all or most of the remaining expenses.

Medigap polices are strictly regulated by state and federal laws designed to clearly reflect the policy’s purpose and to protect Medicare consumers. There are twelve different types of Medigap policies to choose from, and each is designated by a letter A through N. For a comprehensive list of the different types of polices and a description of each, check out this Medigap policy overview.

Generally speaking, less-expensive plans have fewer benefits and higher out-of-pocket costs. More expensive plans include some extra benefits, like coverage for routine checkups, some Medicare deductibles, at-home care services, and more. For example, Medigap Plan A is the most basic policy; it covers co-payments (but not deductibles), skilled nursing care, or hospice care. Plan L, a more comprehensive policy, covers co-payments plus 75% of hospital deductibles, 75% of skilled nursing care expenses, and 75% of hospice care. Exercise caution if you decide to cancel or change your Medigap plan — if you bought the policy before 1992, changes to coverage standardization rules will make it impossible for you to get the same policy back once it has been canceled.

Regardless of what company sells it, each standardized Medigap policy is required to provide a basic level of benefits for consumers. However, insurance companies may vary in eligibility requirements, responsiveness, and customer service, so keep these things in mind when shopping for a Medigap provider.

As Congress debates entitlement cuts to lower-income individuals and retirees and as the health care debate rages on, Medigap insurance warrants a second (or third) look. Though everyone's financial picture is unique, Medigap policies are gaining in popularity as healthcare costs continue to rise and as life expectancy increases.The reality is, we don’t know what healthcare will look like in this country in five or ten years, and we don’t know what form health insurance and government-sponsored coverage will ultimately take. In the meantime, the smart money is on research, preparation, and staying healthy.