Medicare Supplement Basics
For the remainder of the summer, we will be reposting educational material about Medicare with edits and updates as appropriate. If you didn’t watch these videos, please do, and/or share the information with someone who will benefit. Please tune back in after Labor Day for new material. Thanks, and have a wonderful summer.
Today’s video, originally taped in 2021, is on Medicare Supplement policies often referred to as Medigap Plans. Medicare supplements are not a government benefit but private insurance policies sold to those on original Medicare to provide additional coverage for Part A deductibles and copayments and Part B coinsurance. Medicare supplements have nothing to do with Medicare Part D which started in 2006, 40 years after original Medicare became operational.
In addition to supplementing when Medicare Part A and Part B pay, all Medicare supplements have an extra 365 days of hospitalization coverage in them. As discussed in our Medicare Part A video, one on original Medicare can never have more than 150 days of hospital coverage at a time so this extra hospitalization is an important protection. Many supplements also have foreign travel emergency coverage with a $50,000 lifetime maximum. Because Medicare only covers people in the United States and its territories (with very few exceptions), the foreign travel emergency benefit is an important protection although we don’t feel a $50,000 lifetime maximum is adequate for those who plan to travel. It is wise for Medicare beneficiaries to purchase a separate travel policy when traveling abroad.
For the most part, however, Medicare supplements do just what their name implies – they pay a benefit in conjunction with Medicare Part A and Medicare Part B. Hence, if you receive a service not covered by Medicare, like seeing a physician who has opted out of Medicare, Medicare Part B will not pay for those services and the supplement will not pay for them either.
We feel everyone on original Medicare should have a supplement unless they are one of those who continue to have retiree medical with catastrophic hospitalization coverage. Because Medicare does not have an out-of-pocket maximum like group or individual coverage, having a supplement essentially provides one for hospital and medical expenses. Be aware that there is a six-month period beginning with one’s Part B effective date where any supplement one buys is guaranteed issue. After that period in most states, Medicare supplements are medically underwritten and insurers can deny applications. This is why the decision to choose an Advantage Plan is often more important than people realize. You can always return to original Medicare from an Advantage Plan during annual open enrollment, but you can’t always be assured you can buy a Medicare supplement.
New York, Connecticut, and Massachusetts have more consumer protections in this regard because those states never allow medical underwriting of supplements. More recently, beginning with changes in California and Oregon, some states are allowing those already on supplements to replace their current supplement during an annual open enrollment period which is either around their birthday or around the anniversary of when they originally purchased their policy. Maine allows for this change at any time. Bear in mind, one cannot move to a richer supplement during these enrollment periods without underwriting. One can only move to the same supplement type with a different carrier or a less robust supplement with any carrier. We assume this is largely designed for people who desire to move from Plan F, once the richest Plan but closed to most 65-year-olds going onto Medicare now. It also allows people to price shop and change into lower premium plans if their current carrier has passed along above average rate increases.
The federal government standardizes the benefits that are in each supplement for the 47 states that use that system. Massachusetts, Wisconsin, and Minnesota have a different approach although Massachusetts and Minnesota are fairly similar which in our opinion limits choice in a sensible way.
To our dismay, whoever devised the supplement standardization used in the 47 states chose to use letters which we believe to be unfortunate and confusing. After all, Medicare itself has Parts A, B, C, and D and yet Medicare supplements have Plans A, B, C, D and more. Plan G is the richest supplement one who is new to Medicare can buy. Like the other supplements, Plan G has the same benefits in all of the 47 states that use the standardized system. These products are also regulated by state insurance departments who determine:
- The insurance companies approved to sell supplements in their state
- The premiums the insurance companies can charge
- The rating methodologies used in establishing premiums
- Whether companies can levy a tobacco surcharge on smokers
- Whether there are additional guaranteed issue protections beyond what is provided for in federal law
- Whether Medicare Select Plans will be offered in that state. Medicare Select Supplements typically have a lower premium because their coverage is tied to a network of providers.
We have discussed many times in this series that individual coverage is typically not portable meaning it doesn’t move with you. Many Medicare supplements, however, are portable so that is a critically important issue. In our view it is foolish to buy a supplement which is not portable.
The Medicare Supplement Chart from the Medicare and You book is found below.