Choosing the Best Medigap Plan: A Comprehensive Guide

Making the right choice when it comes to selecting a Medigap policy is a significant decision. With a wide range of companies and options available, it is essential to ensure that you find the plan that best suits your needs. In this article, we will provide a comprehensive ranking of all the Medigap plans and assist you in determining the one that is most suitable for you.

Before we dive into the details of Medigap policies, let’s do a quick review. When you become eligible for Medicare, whether at the age of 65, or sometime in the future, you have two options for using your Medicare benefits. The first option is to remain within the confines of original Medicare (Parts A and B), where Medicare acts as the primary payer, but you bear the responsibility for any outstanding balance, commonly referred to as coverage gaps. To address these gaps, you have the option to acquire a Medigap policy. If you choose original Medicare ass your primary payer, it is important to note that you will require a distinct prescription drug plan specifically for self-administered medications. The second option is to enroll in an advantage plan, which replaces original Medicare entirely and is provided by private health insurance companies. It’s important to note that you cannot be on both original Medicare and an advantage plan simultaneously. You must choose the option that is best for your unique situation.

Understanding the Gaps in Original Medicare

To make an informed decision about Medigap plans, it’s essential to understand the gaps that exist in original Medicare. Original Medicare is divided into two parts: Part A (hospital) and Part B (medical). Part A covers hospital stays or stays in a skilled nursing facility for rehabilitation, while Part B covers outpatient services, doctor visits, and durable medical equipment.

Let’s analyze the gaps in each of these parts:

Part A

1. Days 1-60 in the hospital: During this period, you are responsible for the Part A deductible. As of 2023, the deductible is $1,600. It’s important to note that this deductible can be applied multiple times within a year, depending on how hospital stays and overlap with Medicare’s benefit periods.
2. Days 61-90 in the hospital: If your hospital stay extends beyond 60 days, you will incur a $400 daily copay for each day in the hospital during the third month.
3. Days 91-150 in the hospital: If your hospital stay extends beyond 90 days, you will face an $800 daily copay for each day in the hospital during the fourth and fifth months.
4. Skilled nursing facility: If you find yourself in a skilled nursing facility, Medicare will cover the entire cost for the first 20 days. However, if your stay continues beyond those initial 20 days, you will then be responsible for a daily copay of $200. Once you reach day 101 and beyond, the total cost of the stay will fall on your shoulders.

Part B

1. Part B deductible: Medicare requires beneficiaries to pay a deductible before the coverage begins. As of 2023, the Part B deductible is $226. Once you have met this deductible, Medicare covers 80% of the approved amount for Part B services.
2. Coinsurance: After meeting the deductible, you are responsible for the remaining 20% coinsurance for all Part B services.
3. Excess charges: Some doctors may charge more than Medicare’s approved reimbursement rates, resulting in an excess charge. If your doctor adds an excess charge, you will have to pay this amount out of pocket which can be up to 15% above Medicare’s approved amount for the service rendered.

These gaps in original Medicare can result in significant expenses that you have to pay out of your own pocket. To overcome these gaps and protect yourself from financial burden, many individuals choose to invest in a Medigap policy.

Understanding Medigap Options

Medigap plans, also known as Medicare supplemental plans, provide coverage to fill in the gaps in original Medicare. There are ten different options available, each represented by a letter (A, B, C, D, F, G, K, L, M, and N). Each letter represents a different type of policy and level of coverage. When purchasing a Medigap policy, you are essentially transferring the liability of the gaps to an insurance company. Your choice of letter determines the extent to which your liability is transferred or retained.

It’s important to note that there are eligibility restrictions for some Medigap plans. Plan F and Plan C, for example, are only available to individuals who were eligible for Medicare prior to January 1, 2020. Anyone becoming eligible for Medicare after this date cannot enroll in Plan F or Plan C. However, all other plans are available to everyone.

Understanding Medigap Features

1. Standardized by Medicare: Medigap plans are standardized by Medicare, which means that Medicare sets the rules for what bills will be paid by these plans. While insurance companies set the premiums, Medicare ensures that the coverage remains consistent across all carriers. This standardization ensures that regardless of the insurance company you choose, the coverage for each plan letter will be the same.
2. Guaranteed Issue Period: Medicare provides a guaranteed issue period during which you can obtain a Medigap policy without any underwriting. This means that insurance companies must offer you a policy during this period and cannot deny coverage based on preexisting conditions. This period typically lasts for six months. Some states may have additional guaranteed issue provisions.
3. Written for Life: Once approved, Medigap policies are written for life. The insurance company can only cancel your policy due to non-payment of premiums. As long as you continue to pay the premiums, the policy remains in effect and cannot be canceled due to age or healthcare usage. Medigap policies are also portable, meaning you can take them with you if you move to a different state.
4. Policy Follows Medicare: Medigap policies follow Medicare. If Medicare covers a particular service, the Medigap policy will also provide coverage for that service based on the letter you have chosen. This means that if Medicare pays, your supplemental plan will pay accordingly. However, if Medicare does not cover a service, the Medigap policy will not provide coverage either. The exception to this is foreign travel, which is only covered by certain Medigap plans.
5. Few Perks: Medigap policies offer limited perks compared to Medicare Advantage plans. While Advantage plans may provide additional benefits like reduced Part B premiums, over-the-counter cards, gym memberships, and dental allowances, Medigap policies focus solely on covering the gaps in original Medicare. Some Medigap plans may offer a few perks like a gym membership or dental discount plan, but generally, the perks are limited.
6. Rate Increases: Like all medical insurance, Medigap policies are subject to rate increases due to medical inflation. However, a plan’s rate stability and annual increases can vary among carriers.Before making a decision, it is crucial to carefully examine the rate history and stability of insurance carriers. Generally, larger carriers and groups tend to provide greater rate stability because they have a larger pool of policyholders.
7. No Networks: One of the significant advantages of Medigap policies is that they do not have networks. As long as a medical provider accepts Medicare, they will accept your Medigap coverage, regardless of the insurance carrier. You are not limited to specific networks or providers and can go to any doctor or hospital that accepts Medicare.
8. No Pre-Authorizations: Unlike Medicare Advantage plans, Medigap policies do not require pre-authorizations for services. With a Medigap policy, you and your doctor have the final say in your healthcare decisions. As long as Medicare covers the service, your Medigap policy will follow suit.
9. Separate Prescription Drug Plan: Medigap policies do not include prescription drug coverage. You will need to purchase a separate Medicare Part D prescription drug plan to cover your self-administered medications. This allows you to choose a drug plan that suits your specific medication needs and preferred pharmacy. It’s worth noting that Medicare and Medigap policies cover professionally administered medications received in clinical settings under Part B, but not self-administered medications.

Choosing the Best Medigap Plan

Among the most popular and comprehensive Medigap plans available, Plan F, Plan G, and Plan N are at the top.

Plan F offers the most complete coverage, addressing all six gaps in Medicare. However, it is only available to individuals who were eligible for Medicare prior to January 1, 2020. Plan G, which is currently the favored option, provides coverage for all gaps in original Medicare except for the Part B deductible. On the other hand, Plan N, although not as extensive, covers four out of the six gaps and does require copays for certain services.

When considering which Medigap plan to choose, it’s crucial to take into account the cost of the plan. In most areas in the country, the price difference between Plan F and Plan G is approximately $50 per month, adding up to $600 per year. However, it’s important to note that the only real difference between these two plans is that Plan F covers the Part B deductible, which amounts to $226 annually. Therefore, it may not be a wise financial decision to pay an extra $600 per year for a benefit that only amounts to $226. With a larger pool of policyholders, Plan G also tends to have greater rate stability compared to Plan F. This means that you are less likely to experience significant rate increases in the future, providing you with more financial security and predictability.

When comparing Plan G and Plan N, there is usually a price difference of about $30 per month, which translates to potential savings of approximately $360 per year. However, the decision to choose the N plan will depend on your comfort level with taking on additional fees and copays, as well as the potential risk of facing 15% excess charges.

Final Thoughts

Selecting the right Medigap plan requires careful consideration of your specific needs and budget. To make the best decision for your healthcare needs in retirement, it is crucial to have a deep understanding of the gaps in original Medicare, the features offered by Medigap policies, and the various options available. By carefully evaluating factors such as eligibility, coverage, and cost, you can confidently choose a plan that provides comprehensive coverage and peace of mind. This will ensure that you have the necessary protection and financial preparedness to handle any healthcare expenses that may arise during your retirement years.

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