Craig Schillig: Buying supplemental health insurance: Medigap

Medicare won't cover all of your health-care costs during retirement, so you may want to buy a supplemental medical insurance policy known as Medigap. Offered by private insurance companies, Medigap policies are designed to cover costs not paid by Original Medicare (Parts A and B), helping you fill the gaps in your Medicare coverage. You'll pay the private insurance company a monthly premium in addition to the monthly Part B premium you pay to Medicare.

When's the best time to buy a Medigap policy?

The best time to buy a Medigap policy is during your 6-month Medigap open enrollment period, when you can't be turned down or charged more because you have health issues. If you are age 65 or older, your open enrollment period starts on the first day of the month in which you're both 65 or older and enrolled in Medicare Part B. A few states also require that a limited open enrollment period be offered to Medicare beneficiaries under age 65.

If you don't buy a Medigap policy during your 6-month open enrollment period, you may not be able to buy the policy that you want later. Insurers have greater freedom to deny applications or charge higher premiums for health reasons once an individual's open enrollment period closes. However, in some cases you may have special rights to purchase a Medigap policy without being charged more, even if you have current health issues. In most cases, you may have these guaranteed issue rights when certain other health coverage you have changes or ends.

Any standardized Medigap policy you buy is guaranteed renewable, even if you have health problems. The insurance company can't cancel the policy as long as you pay your premium.

And even though buying a Medigap policy during your 6-month open enrollment period has advantages, you can shop around later. You might choose to do so if your insurance carrier decides to raise your Medigap premium when you get your annual renewal notice. Medigap is standardized so your benefits won't change but your premium might.

What's covered in a Medigap policy?

Under federal law, only 8 standardized plans can be offered as Medigap plans (except in Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans).

Plans sold to individuals new to Medicare are Plans A, B, D, G, K, L, M, and N.* 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 deductibles, skilled nursing facility care coinsurance, and foreign travel emergency costs. *Two additional options, Plans C and F, may be available to you if you were eligible for Medicare before Jan. 1, 2020 but have not yet enrolled in a plan, or if you already have either of these plans. These plans cover the Medicare Part B deductible, which new plans are not allowed to do.

Medigap policies do not cover certain health-care expenses, including long-term care, vision care, dental care, or prescription drugs (to obtain prescription drug coverage you can purchase a Medicare Part D Prescription Drug Plan). You can buy the Medigap plan that best suits your needs. But it's important to note that not all Medigap plans are available in every state.

Are all Medigap policies created equal?

Generally, yes. Although Medigap policies are sold through private insurance companies, they're standardized and regulated by state and federal law. For example, a Plan B purchased through an insurance company in New York will offer the same coverage as a Plan B purchased through another insurance company in New York, or through an insurance company in Texas. All you have to do is decide which plan offered in your state you want to buy.

However, even though the plans that insurance companies offer are identical, the quality of the companies that offer the plans may be different. Look closely at each company's reputation, financial strength, and customer service standards. And check out what you'll pay for Medigap coverage. Medigap premiums vary widely, both from company to company and from state to state, even for the same plan. You can find a tool on the Medicare website, medicare.gov, that will help you compare Medigap policies offered in your area. You can also visit this website to find other important information on how Medigap policies work with Medicare.

Does everyone need Medigap?

No. In fact, it's illegal for an insurance company to sell you a Medigap policy that substantially duplicates any existing coverage you have, including Medicare coverage.

You don't need a Medigap policy if you join a Medicare Advantage plan or a private fee for service plan, or if you qualify for Medicaid or have group coverage through your spouse.

You may also not need to buy a Medigap policy if you work past age 65 and have employer-sponsored health insurance. If you find yourself in this situation, you may want to enroll in Medicare Part A, since it's free. Remember that if you enroll in Medicare Part B, your open enrollment period for Medigap starts. If you don't buy a Medigap policy within six months, you may be denied coverage later or charged a higher premium, so you may want to wait to enroll in Medicare Part B until your employer coverage ends.

In addition, you may not need to buy a Medigap policy if you are covered by an employer-sponsored health plan after you retire (e.g., as part of a retirement severance package). In this case, your employer's plan may cover costs that Medicare doesn't. If you have any questions about your coverage, talk to your employer's benefits coordinator.

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