Medicare, Medicaid, Medigap — understanding healthcare options in retirement can be as confusing as reading a medical chart if you haven’t had the right schooling. Here’s a primer on Medigap to help get you started.
What is Medigap?
Millions of Americans rely on original Medicare to help cover healthcare costs in retirement. Medicare is not costless of course: you will still be responsible for co-payments and deductibles. To help pay for these, you may want to buy a supplemental medical insurance policy known as Medigap. Medigap policies are offered by private insurance companies and are designed to cover costs not paid by Medicare. As you might guess by the name, Medigap can help you fill the gaps in your Medicare coverage.
What’s covered by a Medigap policy?
Under federal law, Medigap has 10 standardized plans: A-D, F, G and K-N. (Note that Massachusetts, Minnesota, and Wisconsin each have their own standardized plans.) Each Medigap plan offers a different set of benefits. All cover certain out-of-pocket costs, including Medicare coinsurance amounts. Some plans also cover other costs, such as:
- All or part of Medicare Part A and Part B deductibles
- Foreign-travel emergency costs
- Medicare Part B excess charges
Medigap policies don’t cover long-term care, vision, dental, or prescription drugs, among other things. To get prescription drug coverage, you can buy a Medicare Part D Prescription Drug Plan.
With 10 plans to pick from, you can choose Medigap coverage that best suits your needs. However, it’s important to note that not all plans are available in every state. Again, remember to check which coverages are available in your state.
When’s the best time to buy a Medigap policy?
The best time to buy a Medigap policy is during open enrollment. This is because you can’t be turned down or charged more if you’re in poor health. If you’re age 65 or older, your open enrollment period starts on the first day of the month you’re 65 or older and enrolled in Medicare Part B. This open enrollment period lasts for six months.1 A few states also require a limited open enrollment period for people on Medicare under age 65. Be sure to check your state’s rules.
If you don’t buy a Medigap policy during open enrollment, you may not be able to buy the policy you want later. Once open enrollment closes, insurance companies have more freedom to deny applications or charge higher premiums for health reasons. As a result, you may find yourself settling for whatever type of policy an insurance company is willing to sell you.
Are all Medigap policies created equal?
Yes and no. Although private insurance companies sell Medigap policies, the plans themselves are standardized and regulated by state and federal law. A Plan B purchased in New York will offer the same coverage as a Plan B purchased in Texas. All you have to do is decide which plan you want to buy.
Even though the plans are identical, insurance companies differ. Review each company’s reputation, financial stability, and customer-service standards. You also need to check out what you’ll pay for Medigap coverage. Medigap premiums vary widely, both from company to company and from state to state. You can find a tool on www.medicare.gov to help you compare policies offered in your area.
Does everyone need Medigap?
No. In fact, it’s illegal for an insurance company to sell you a Medigap policy that duplicates any existing coverage you have, including Medicare coverage. In general, you won’t need a Medigap policy if you:
- Take part in a Medicare managed-care plan or private fee-for-service plan (sometimes called Medicare Advantage).
- Qualify for Medicaid.
- Have group coverage through your spouse.
Also, you may not need a Medigap policy if you work past age 65 and have employer-sponsored health insurance. If you’re in this situation, you may want to enroll in Medicare Part A since it’s free. Your open enrollment period for Medigap starts when you enroll in Medicare Part B. If you don’t buy a Medigap policy within six months, you could be denied coverage later or charged a higher premium. Because of this, you may want to wait to enroll in Medicare Part B until your employer coverage ends, and reconsider Medigap at that time.
Similarly, you may not need a Medigap policy if you’re covered by an employer-sponsored health plan after you retire. (Some employers offer this as part of a retirement severance package, so be sure to check your employer’s terms). In this case, your employer’s plan may cover costs that Medicare doesn’t.
Healthcare is one of the most important considerations in retirement, so it pays to be prepared. Be sure you have as much coverage as you need, and know what your options are. A little bit of knowledge may be just what the doctor ordered to help make healthy choices for your future.