Do I really need supplemental insurance (Medigap) with Medicare?

ALEX ROSENBERG

NerdWallet

About 41% of Original Medicare beneficiaries had Medicare Supplement Insurance, or Medigap, in 2021, according to a February 2023 report summarizing enrollment data from AHIP, a national health insurance trade association. For the other 59%, Medicare has some "gaps" that could be costly.

"There are many gaps in Medicare that a beneficiary has to pay if they don't have a Medigap," Kelli Jo Greiner, Minnesota State Health Insurance Assistance Program director, said in an email. "This can add up to be thousands of dollars per year."

While it's not mandatory, you might want to purchase a Medigap policy to fill some of the gaps in Medicare Part A and/or Part B. (Medigap doesn't work with Medicare Advantage policies.)

DEDUCTIBLES

Medicare Part A has a deductible of $1,632 in 2024, which you owe before Medicare starts to pay for inpatient hospital care.

"Just one hospital stay, you're going to be paying that $1,632 deductible — so, really fast, your costs can add up," says Joanne Giardini-Russell, CEO of Giardini Medicare, an independent insurance agency.

Most Medigap plans cover the Part A deductible. And plans with premiums below $136 per month could put you ahead based on that benefit alone.

(New Medicare members can't buy Medigap plans that cover Part B's relatively smaller deductible of $240 in 2024, so you'd still owe that amount out of pocket.)

COINSURANCE AND COPAYS

After you've met your deductible, there are out-of-pocket costs for many Medicare services. For example, you pay a 20% coinsurance for most medically necessary outpatient services covered by Part B.

Medicare Part A copays kick in after your 60th day in the hospital. They start at $408 per day in 2024 and get more expensive for longer stays.

All Medigap policies include at least some coverage for Part A and Part B coinsurance and copays. If you use a lot of health care, that coverage could mean big out-of-pocket savings.

OUT-OF-POCKET LIMITS

Unlike many other kinds of insurance, Medicare Part A and Part B don't have maximum out-of-pocket caps. There's no limit on what you could owe as copays and coinsurance add up.

"Original Medicare without Medigap would be perilous because we need Medigap for the out-of-pocket limit," Michael Dayoub, a certified financial planner in Savannah, Georgia, said in an email.

Buying a Medigap policy is one way to put a cap on your yearly costs. Paying more upfront for premiums could pay off by limiting your future out-of-pocket spending.

IS MEDIGAP WORTH THE COST?

You can expect to pay $100-$150 per month or more for the most popular Medigap plan, Plan G, when you sign up at age 65. And premiums can go up based on plan type, age, location and sometimes health status.

That's a significant added expense — so is it worth it?

Giardini-Russell compares Medigap to car insurance, which you pay for each month, even though you hope not to need it. "It comes down a lot of times to the psychology and peace of mind," she says. "Are you willing to pay $150 per month for peace of mind?"

"We tend to hear from beneficiaries that they are very satisfied with their policy," Greiner said. Medigap is worth it if you can afford to pay the Medigap premiums along with your premiums for Medicare Part B and a Medicare Part D prescription drug plan, according to Greiner.

If Medigap isn't affordable, you might want to look into programs that can help with Medicare costs, such as Medicare Savings Programs and Extra Help subsidies.

People who can't afford Medigap premiums could also consider Medicare Advantage, according to Dayoub. Medicare Advantage plans are bundled alternatives to Original Medicare sold by private insurance companies. They have out-of-pocket limits, but there are trade-offs to consider, such as limited provider networks.

ENROLLMENT TIME LIMITS

The best and easiest time to buy a Medigap policy is right as you're turning 65. Your six-month Medigap open enrollment period starts when you're 65 and enrolled in Medicare Part B.

During this period, insurance companies can't use medical underwriting to charge you more or deny coverage based on your health or medical history. After that, it can be more expensive or even impossible to get a Medigap policy.

So if you want to buy in for peace of mind, don't miss your best chance. You can compare options on Medicare.gov, shop online or work with an agent or broker to find the best policy for you.