Original Medicare (Parts A and Part B) pays for a majority (80%) of the cost of your medical services, but some services aren’t covered (receiving blood, for example). Medicare Supplemental Insurance, also called Medigap policies, “fills in the gaps” by covering the 20% coinsurance as well as some of the other medical costs Original Medicare doesn’t cover. Medigap plans are provided by private insurance companies. If your preferences align with Original Medicare, many professionals feel it is critical to enroll in a private Medigap/Supplemental plan to provide truly comprehensive coverage. Without a Medigap/Supplemental plan, your out-of-pocket expenses are uncapped, meaning there is no upper limit to what you may pay.
When to Enroll
When you’ve enrolled in Medicare Parts A and B and received your red, white, and blue Medicare card, you may choose a Medigap plan that best suits you. During this six-month Medigap Open Enrollment Period, you may buy any Medigap policy sold in your state regardless of your health status. You cannot be denied coverage for any reason, including pre-existing conditions. These policies are guaranteed to renew each year. The insurance company can't cancel your policy as long as you pay the premium.
Medigap Payment
When you select a Medigap policy you’ll pay a monthly premium to the insurer for that policy in addition to the Part B premium you pay to Medicare. Medigap policies are labeled in most states by letters (MN, WI, and MA have different plan designations). Each lettered plan is standardized and provides the same benefits regardless of the insurance company. Generally, the only difference between Medigap policies sold by different insurance companies is the cost of the monthly premium. Each insurer charges their premiums based on the number of people in that state they cover and their ages. Medigap plan premiums generally increase with age.
There are ten Medigap policies lettered A-N. This chart gives you an overview of what each lettered Medigap plan covers that original Medicare does not cover.
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Additional Notes:
- Plan F & Plan G also offer a high-deductible plan in some states.
- Plan K & Plan 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 these amounts, the plan will pay 100% of your costs for approved services.
- Plan N pays 100% of the costs of Part B services, except for copays for some office visits and some emergency room visits.
Finally, a crucial aspect of Medigap plans is how they are priced, which is based on three primary rating systems. They are: community-rated, issue-age-rated, and attained-age-rated.
1. Community-rated (No-Age-Rated):
Community-rated pricing, often referred to as no-age-rated, sets the same premium for all beneficiaries, regardless of age or health status. In this system, the insurer calculates the premium based on factors such as location, gender, and sometimes tobacco use. This means that everyone within a specific geographic area who purchases the same Medigap plan pays the same premium, regardless of their age when they enroll or how long they’ve been enrolled in the plan. Community-rated pricing offers stability and predictability in premiums, as they are less likely to increase solely due to aging. However, this can sometimes result in higher premiums for younger beneficiaries compared to other rating systems.
2. Issue-Age-Rated (Entry-Age-Rated):
Issue-age-rated pricing, also known as entry-age-rated, bases premiums on the age of the beneficiary at the time of purchasing the policy. In this system, younger beneficiaries typically pay lower premiums than older beneficiaries because their age at enrollment influences the initial premium rate. Once enrolled, the premium generally remains stable, with increases occurring due to factors such as inflation and healthcare cost trends rather than age-related adjustments.
3. Attained-Age-Rated:
Attained-age-rated pricing adjusts premiums annually based on the beneficiary’s current age. This means that as the beneficiary ages, the premium increases to reflect the higher risk associated with older age groups. Initially, premiums may be lower for younger enrollees compared to issue-age-rated plans, but they tend to increase over time as the beneficiary ages. This pricing method can result in a higher variation of premium changes and potentially higher overall costs, particularly for individuals who enroll at a younger age and maintain coverage long-term. However, for those who enroll later in life, the initial premiums may be higher but could remain relatively stable compared to issue-age-rated plans.
Each rating system has its advantages and disadvantages, and the most suitable option depends on factors such as age at enrollment, budget, and preferences for premium stability versus initial cost. It’s important for Medicare beneficiaries to carefully evaluate their options and consider how each pricing system may impact their long-term financial planning and healthcare needs. Additionally, consulting with Caribou can provide valuable guidance in selecting the most appropriate Medigap plan based on individual circumstances.
Learn More:
What's Medicare Supplement Insurance (Medigap)? | Medicare.gov
Medigap (Medicare Supplement Health Insurance) | CMS.gov
What is Medigap (Medicare Supplemental) insurance? | AARP.org
Last Revised February 8th, 2024