Basics of Medicare and Medigap Supplemental Plans

Medicare is health Insurance for people 65 & older as well as some under 65 with certain disabilities.  You can sign up for Medicare and your Medigap Supplemental plan while you are 64 and coverage will begin the first of the month of your 65th birthday.

It is VERY IMPORTANT to make an informed decision when first signing up for Medicare as it will affect the rest of your life. 

Medical Insurance in Retirement

It is good to get your Medicare insurance in place so there is no gap with your coverage.  When you sign up within 6 months of your 65th birthday (6 months before or after turning 65), you can not be turned down due to pre-existing conditions.  If you want to switch policies later, you will have to go through an underwriting process and could be declined.  Many people get started about 6 months before their 65th birthday so that everything is in place and any issues are addressed early on.

1. Medicare Part A (Hospital Inpatient Insurance)

There are 4 parts of the Medicare alphabet.  Medicare Part A is the inpatient hospital insurance part.  This has been paid for over the years with your Medicare payroll deductions and you will not have to pay a premium if you worked long enough.  If you have been receiving Social Security, you will be automatically enrolled in Medicare Part A when you turn 65 and you will be notified that this is done.  Otherwise, you need to contact your Social Security office to make sure this has been completed. 

Medicare Part A will not cover all your needs.  It only covers part of your hospital expenses and does not cover hospital co-pays, physicians, prescriptions, etc.  For example, there is a deductible for most hospitalizations ($1,100).  It is possible to pay the hospital deductible multiple times in a year depending on how often and why you are re-hospitalized.

You need to supplement Medicare Part A with other insurance. This is where Medicare Part B and the Medigap Supplemental Plans come in. 

2. Medicare Part B (Outpatient Services - Physicians, Ambulance, etc.)

Medicare Part B is designed to help pay for most physician services, hospital outpatient services and supplies, ambulance service and physical or speech therapy. Medicare Part B is provided through the government and you will be charged a premium.  You can enroll for this at your Social Security office.  However, Medicare Part B does not cover all of your needs and you need to consider a Medigap Supplemental Plan.  For example, Part B covers 80% of most physicians’ costs, and the government now allows doctors to charge up to 15% more than the Medicare assigned cost, resulting in a 20 to 35% copay for you.  Some Medigap Supplemental Plans will pay for this amount and some will even cover your hospital co-pay.  The Medigap Supplemental Plan F covers both, and almost everything else.

Medigap Supplemental Plans are available through insurance companies.  These plans are the same throughout the country (except MN, WI, and MA) no matter which company insures you.  The main difference is the price. 

The different Plans  are Medigap Supplemental Plans A through L.  Depending on which plan are available and which plans you choose, it may also cover your hospital deductible and the physician co-pay.   There is a premium you pay monthly for your Medigap Supplemental Plan.   With Medigap Supplemental Plan, you keep your Original Medicare Part A & B and the insurance company pays their portion of the coinsurance.  You can choose any physician throughout the country that will accept Medicare.  Many insurance companies sell the Medigap Supplemental Plans but may only sell certain ones in each state. 

More comprehensive plans cover much more and can save you lots of money over the years, especially if you develop any major medical problems which would preclude switching to a different plan.  The “F” Plan is available in most areas, and covers almost everything that traditional Medicare doesn’t cover.  The difference between the monthly premiums of the various plans is minimal, and it is usually more cost effective in the long run to get an “F” Plan.

3. Medicare Part C (Private Fee for Service - PFFS - Advantage Plans)

Medicare Part C (Advantage Plans) is an alternative to taking Medicare Part A & B and a Medigap Supplemental Plan.  You are removed from the Medicare rolls and all of your original Medicare Parts A & B benefits (except Hospice care) are assigned  to an insurance company that works like an HMO, PPO or a Private Fee for Service (PFFS) plan. You will have co-pays to pay for most things.  Be sure you know what the hospital co-pay is, and what your total out-of-pocket cost per year can be. You will still need to pay the Medicare Part B premium to the government.  This amount is usually taken directly out of your Social Security check unless you have not “retired” yet.  Then you will make other arrangements. 

You can begin coverage when you turn 65 but can only change companies during the open enrollment period at the end of every year (some exceptions).  Some of these plans offer a chance to get into their plans for no additional premium which sounds good but the co-pays and deductibles add up over the course of a year and could cost you a lot more out of pocket than a Medigap Supplemental Plan. 

4. Medicare Part D (Prescription Insurance)

Medicare Part D helps cover the cost of prescription drugs.  You can begin coverage within 3 months before or after you turn 65, but can only change companies during certain times of the year.  The plans can be very confusing but your insurance agent and/or pharmacist can help you make an informed decision based on which prescriptions you take.

This plan is independent of any Medigap Supplemental Plan and you can choose to participate or not as your needs dictate but if you do not have continuing credible coverage and wait past age 65 to sign up, you may pay a monthly penalty for late enrollment.  Because these plans are an independent part of your coverage, you can change which plan you choose annually to select the Prescription Plan that best fits your changing needs while leaving your Medigap Supplemental Plan in place.

Additional Notes:

Making informed choices on all Medicare Parts and Supplemental Insurances at this point is vital.  If you develop some medical issues, you may not be able to switch plans and if you give up your original Medicare, you may not be able to go back.  It is important to explore all your options, focusing not only on how your health is currently but what it could be later.  Carefully examine all costs of your future medical care, not just which premium seems lowest right now.