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What is Medicare Supplement Insurance (Medigap)?

For many retirees, the most important assistance program sponsored by the U.S. federal government is Medicare, a program that helps seniors obtain health insurance. Since its inception in 1966, Medicare has helped Americans aged 65 or older have access to first rate medical care.  Without this program, millions of seniors could not afford doctor visits, nursing care, hospital stays or prescription drugs.

Although Medicare is an outstanding financial assistance program, it doesn’t cover all of the costs for medical services.  In most cases, if you see a physician or visit a clinic, you must still pay out of pocket expenses like deductibles, copays, or co-insurance, as well as any expenses that you may incur if you exceed the Medicare maximum. These additional expenses can eventually grow into hefty sums, taxing the budgets of many retirees.

That is why the insurance industry developed Medicare supplement insurance, also known as Medigap.  You can obtain Medigap from private insurers, and this supplemental insurance will help pay for many of the expenses that Medicare doesn’t. A Medigap policy is not sponsored by the government, so you will probably need to make monthly premium payments to maintain it.

Why Get Medigap?

You may not feel that you need a secondary health insurance policy on top of Medicare, but you may wish to consider some other factors before you make a final decision. If you are chronically ill necessitating frequent visits to your physician or the hospital, then Medigap is usually a smart option. Under Medicare Part B, only 80 percent of your medical bills are paid by the government, leaving you with 20 percent to pay out of pocket.  Even a single hospital stay could leave you with thousands of dollars in bills under this payment scheme. However, with a Medigap policy, you may not be responsible for paying any of these expenses.

Secondly, a Medigap policy may cover any medical expenses you may incur outside of the United States.  If you plan on taking trips abroad, you can have some peace of mind that if you get hurt, you will still have some financial protection. Also, more people are engaging in medical tourism, in which Americans obtain medical services abroad at a much cheaper cost.  While Medicare will not cover foreign procedures, your Medigap insurer may pay for the bulk of such services.

Finally, another important reason to get a Medigap plan is that you have a great deal of control over it.  There are a wide variety of Medigap plans with different degrees of coverage, although those with more coverage may cost more in monthly premiums. If you find that your new policy isn’t sufficient for your needs, you have 30 days to return to your old plan or choose another.  You can choose which doctor you see—as long as they accept Medicare.  If you move anywhere in the U.S., you can usually take your Medigap policy with you, but costs may vary from region to region.

Who Can Join a Medigap Plan

Although Medigap plans are highly appealing to many Medicare enrollees, there are some limitations on who can obtain one. In order to qualify for a Medigap plan, you must first be enrolled in Medicare Parts A and B.  That means you cannot get a Medigap policy if you are enrolled in a Medicare Advantage plan (also known as Medicare Part C).  If you are currently obtaining coverage from a private insurer, you must terminate your MA plan prior to enrolling in Medigap.

Medigap policies are only available to individuals.  If both you and your spouse would like a Medigap plan, then you must get separate policies.  You should know that your policies, however are guaranteed renewable.  So, even if you develop new health conditions, your Medigap insurer cannot cancel your policies.

In most cases, you cannot get a Medigap policy that will cover the cost of prescription drugs.  If you want prescription drug coverage, then you must enroll in Medicare Part D.  If you enrolled in a Medigap plan prior to January 1, 2006 that had drug coverage, you may remain on it and utilize its drug benefits.

Medigap vs. Medicare Advantage

If you are considering a Medigap policy, you may have some concerns about terminating your Medicare Advantage plan or vice versa.  There is no clear benefit to choosing a MA plan over Medicare A & B with a Medigap supplement, so you may need to investigate all of your options or consult with your local insurance agent.

Among the advantages of a MA plan is the convenience of having only one payer, your private insurer. This may make billing slightly easier, but because most medical providers handle most payment actions, it shouldn’t be a decisive benefit.  However, if your insurer changes policy benefits, it may make it easier to understand the impact.

Another key advantage that MA plans possess is a possibly lower overall monthly cost. The premiums for Medicare Parts A, B and D plus a Medigap policy may be higher than for a MA plan.  However, premiums are often tied to the breadth of coverage, so lower costs may expose you to other costs like higher deductibles.

Finally, some Medicare Advantage plans offer additional health coverage for dental or vision. Dental and vision are not covered by Medicare Parts A and B. Similarly, most Medigap plans do not cover these health services.

The primary benefit that most Medigap plans have over MA plans is that Medigap typically pays for all out-of-pocket expenses.  Most Medicare Advantage plans will expect you to pay from $3,400 to $6,700 out of pocket each year.

It isn’t easy to choose between all of your Medicare options.  There are always tradeoffs that may hurt you more depending upon your health situation, so it is usually in your best interest to collect as much information as possible before you make a decision.  Remember, you have a six month period around your 65th birthday to consider your options before you must choose what you want.

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