Choose Wisely: Navigating Medicare Supplemental Insurance via Medigap and Medicare Advantage

Healthcare-related costs are the elephant in the room for retirees, how do retirees over 65 pay for healthcare-related costs? Medicare is a part of the answer, but for most, the whole answer also includes additional coverage, most often through Medicare supplement insurance, most commonly known as Medigap. Private insurance companies sell Medigap plans to fill in where necessary for complete coverage in concert with your Medicare coverage. The other option to fill in gaps is a Medicare Advantage plan. Covering the gaps in your healthcare coverage with the appropriate supplemental plan is necessary to protect you from one of the most significant risks to your retirement.

Among the 30.6 million Medicare beneficiaries in traditional Medicare in 2021, most (89%) had some type of additional coverage, either through Medigap (41%), employer coverage (32%), Medicaid (16%), or another source (1%).

Medicare supplement options

Medicare is your primary insurance in retirement for those over the age of 65. You can opt-in or out of multiple parts within your Medicare coverage based on your needs. Our blog, Retirement Planning Checklist – 6 Ways to Make The Transition Easy, outlines the various parts of Medicare. The key is that plain old Medicare is typically never enough; you must supplement your coverage, most commonly with either a Medigap policy or a Medicare Advantage plan. You would not use both a Medigap and a Medicare Advantage plan. There are differences between the approaches; your supplement plan will depend on your health situation and needs.

Medigap 101

Medigap plans run alongside your Medicare coverage to help you with out-of-pocket costs. If you have Medicare alone, you will have some out-of-pocket costs; Medigap is the insurance solution for those who want help covering those costs; specifically the coinsurance, copayments, and deductibles. You will start with your Medicare selections and sign up for Part A (hospital insurance) and Part B (medical insurance). Then, you will select which of the ten Medigap plans is most appealing. The Medigap plans are standardized; your plan is the same coverage whether you use insurance Joe or insurance agent Betty to buy it.

The logistics of coordinating Medicare and Medigap depend on which Medigap plan you purchase. In all cases, Medicare will be the first insurance to be billed. Your Medigap policy will come into play and pay the share it is responsible for, usually directly to the medical provider. Your Medigap policy will play a role in coinsurance, copayments, and deductibles. The extent to which your Medigap policy covers these costs depends entirely on the policy. You can compare Medigap policy benefits easily using the chart provided by Medicare. Your Medigap policy will not cover routine dental, vision, or dental. 

Medigap shopping

You need to compare costs when purchasing your Medigap plan, just like any other purchase. Although the coverage is the same regardless of who you purchase it through, the costs differ. Some insurance companies offer discounts. The discounts may be based on demographics or even payment approaches, such as a discount if you pay an annual premium instead of monthly premiums. You should shop around to find the most cost-effective method for your situation.

Medigap policies are sold to individuals. If you and your partner are on Medicare and interested in Medigap, you will each need your own policy. The company you purchase the policies through will guide you through the payment process. Your Medigap premiums are separate from your Social Security or Medicare coverage; you will typically pay the insurance company directly.  

Red flag?

Unfortunately, there are some bad apples out there hawking Medigap plans. To protect yourself, look for red flags when shopping for your plan. If someone tries to convince you that you need more than one Medigap plan, run the other way. You, as an individual, can only have one Medigap plan. If someone suggests Medigap is part of the services you are receiving from the government, run the other way. Medigap is a private health insurance; there is no grey area.

Medicare Advantage 101

One time you would not purchase a Medigap policy is if you have a Medicare Advantage plan. You cannot have both. A Medicare Advantage plan is a more robust offering than plain old Medicare. To enroll in a Medicare Advantage plan, you will have coverage through Medicare Part A and Part B; then, you would also enroll in Part C, the Medicare Advantage portion of the coverage. Dental, vision, prescription drug coverage, and hearing are examples of coverage you may receive through enrolling in Part C.

A Medicare Advantage plan is an approach to receive the coverage you would receive through standard Medicare, plus additional coverage. A Medigap policy is an approach to fill in the holes in your Medicare coverage. Both approaches are provided through private insurance companies. Therefore, you will likely work with an insurance agent to help navigate the plan options. You should shop around regardless of the approach you select. Your insurance representative should provide guidance based on your unique needs and provide you with cost transparency.

Long-term care

Neither Medigap nor Medicare Advantage plans offer coverage for long-term care expenses. They may offer skilled nursing care coverage. Long-term care coverage is a separate type of insurance you would purchase as an individual or rider on an existing insurance policy. Our blog post, Relieve the Burden and Financial Stress with Long-Term Care Insurance, is a primer on the ins and outs of long-term care insurance.

Once you select your Medicare approach, communicate the premiums and the anticipated expenses to your financial planner to include in your financial plan. Medicare open enrollment occurs every year from October 15 through December 7. If you change your plan during open enrollment, you should also update your financial plan.

Comprehensive planning

Healthcare expenses are one of the most significant risks to a long and financially secure retirement. Coordinating your insurance coverage, shopping around, and continuing your education on the best for your evolving needs are the best approaches to protecting yourself and mitigating risk. Medigap or a Medicare Advantage plan will likely play a role in your financial plan at some point during your retirement; the timing and costs will be unique to you. Your comprehensive financial plan should address all your financial goals. It is your job to update your financial planner along the way. 

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