Medigap as a Medicare Supplement

With over 45 million Americans qualifying to receive Medicare coverage solely on the basis of having attained the age of 65, the Medicare program requires large amounts of funding to continue the program each year. As a result, there are limits placed on the amount of coverage that is provided to covered individuals who receive medical care. These limits cause a gap between the costs billed to Medicare by a medical provider and the amount of reimbursement that Medicare is willing to provide. Usually, these costs are the sole responsibility of the patient. However, Medigap insurance bridges the gap left by Medicare funding and saves patients from potentially high medical bills with each test, visit, or procedure.

Medigap insurance is organized and structured by the Centers for Medicare and Medicaid Services, which is the same agency responsible for overseeing the Medicare and Medicaid programs. However, Medigap is a private insurance program administered by insurance companies, rather than the federal government. This collaboration between public regulation and private ownership creates a complex web of rules that guide how Medigap programs generally function, although as with Medicaid, states have significant influence in how these programs operate and function.

Within six months of qualifying for Medicare at the age of 65 and enrolling in both parts A and B of Medicare, covering both doctor’s visits and hospital care, seniors are granted an open enrollment period for the Medigap programs operating in their state. This period of time guarantees their ability to enroll in the Medigap program of their choice without being subjected to intrusive medical exams or any other potential barriers to access. This open enrollment period assures seniors that they can obtain the coverage that they need to afford medical expenses as they arrive.

Outside of the open enrollment period, the free market determines eligibility and premiums for Medigap coverage, as prospective Medigap subscribers are at the mercy of individual insurance companies. Because the program acts as a supplement to existing Medicare insurance, rather than a standalone insurance policy, it lacks the same entitlement provisions that are attributed to programs such as Social Security and Medicare. If a senior citizen chooses to enroll in a Medigap policy after their personal open enrollment period, they may be denied coverage or forced into a more expensive and less comprehensive coverage based on health factors, thus limiting their options and reducing the effectiveness of the policy.

With the standardization of Medigap coverage by the Centers for Medicare and Medicaid Services, there are 12 offerings of plans for clients to choose from, each offering a different balance of cost and benefits coverage. As plans have changed over time, some pre-existing customers may be enrolled in plans that no longer enroll new patients. Also due to the rising costs of care for their aging coverage pool, actuarial tables have gone up in cost. Particularly, seniors who purchased plans prior to the standardization in 1992 suffer from the closure of those plans to new patients. In addition, enrolled members who suffer from age-related and pre-existing chronic conditions face struggle due to continually rising costs of care.

One major recent change to Medigap has come with the advent of Part D Medicare coverage, which provides coverage for prescription drugs related to medical conditions for individuals covered by Medicare. This has precluded the necessity of prescription drug coverage in Medigap plans; such that prescription coverage can no longer be included in Medigap plans. Seniors have the option of transitioning to plans without prescription coverage or, over time, dropping the prescription drug coverage in their plans, potentially saving money on premiums to avoid redundant coverage. Before Part D coverage from Medicare, Medigap was an ideal solution for seniors needing ongoing medication.

According to the standardized plan guidelines, the benefit of Medigap coverage lies in the competition between the private insurers offering Medigap coverage. Plans are equivalent between insurers according to the type of plan. The standardized plans are labeled from “A” to “L,” with plans with the same letter name having the same benefits and coverage profile. Although not all insurers offer the same plans, because each insurer offers their plans to a slightly different demographic and coverage pool, costs in the form of premiums will differ between insurers. This is particularly true outside of the open enrollment period, as insurers can then include medical data about the person being covered. For this reason, prospective Medigap customers are highly encouraged to compare plans across the companies available in their state who offer their preferred plan. Because plans are standardized, consumers can search directly for the lowest price.

Just as Medicare coverage is provided to spouses individually, Medigap customers must purchase individual plans for each spouse. Medigap provides coverage only to the covered individual, not to any other person, even if they are a dependent or household resident. Medigap always requires enrollment in Medicare Part B and continuance of premium payments for Medicare Part B each year, as determined by the beneficiary’s particular policy plan. One benefit of the federalized nature of Medigap is that seniors, who continue to pay the Medigap premium each year and who keeps the policy active, are guaranteed the right to renew their Medigap coverage each year. The only potential exception to this rule is any Medigap coverage purchased prior to 1992.

Medigap offers a sense of stability and peace of mind for seniors who risk falling into the “gap” between their Medicare reimbursement rates and the cost of care from their chosen medical provider for medical services that they need to remain healthy. By pooling coverage, insurance companies spread the cost of this gap care across the pool of healthy and infirm seniors, providing a high quality of coverage for a lower cost than out of pocket payment.