Medicare Parts A and B cover virtually all Americans over age 65 and provide many valuable hospital and medical insurance benefits, keeping healthcare costs manageable for retirees. However, it doesn't pay for everything, and if your health takes a turn for the worse, you could still find yourself looking at massive medical bills.
Fortunately, there's a solution to this uncertainty, known as Medicare Supplemental Insurance, or Medigap. Here's an overview of what type of expenses Medigap plans can cover, how much they cost, and how to get started.
What Medicare doesn't cover
To be clear, Medicare does a great job of keeping healthcare expenses affordable for America's senior population. It covers a great deal of medical expenses, and you can read full descriptions of what Medicare Part A covers here and Part B here.
However, there are certain expenses Medicare doesn't pay for. Here are some of the most common ones that Medicare beneficiaries have to pay for:
- Deductibles: Medicare Part A (hospital insurance) has a $1,316 deductible per benefit period for inpatient hospital stays. Part B (medical insurance) has a $183 deductible per year.
- Coinsurance payments: In addition to the deductible, inpatient hospital stays of longer than 60 days have a coinsurance requirement of $329 per day for days 61-90 and $658 for each "lifetime reserve day" for stays longer than 90 days. You have a total of 60 lifetime reserve days to use, beyond which you're responsible for all costs associated with a hospital stay. Skilled nursing stays are covered for 20 days, but require a $164.50 daily coinsurance payment for days 21-100, and beyond this period, the beneficiary is responsible for the costs.
- Part B copays: After the Part B deductible is met, Medicare typically covers 80% of medical services provided, and the beneficiary is responsible for the other 20%. Also, be aware that Medicare pays 80% of the "Medicare-approved amount." Some physicians can charge more, which would mean you're responsible for the difference.
Collectively, these uncovered expenses are often referred to as Medigaps. And as you can probably imagine, these can add up to quite a bit of money, especially if your health isn't great.
In fact, according to Medicare.gov, the average Medicare beneficiary who relies on just Medicare Parts A and B can expect to pay a total of $635 per month, or $7,620 per year out of pocket for healthcare expenses. This can vary widely, depending on your health. For example, it's estimated that the average Medicare beneficiary in poor health has about 2.5 times the out-of-pocket expenses of someone in good health.
A Medigap plan could help keep expenses predictable
As you can see, it's reasonable to say that your healthcare costs can be quite unpredictable if Medicare Parts A and B (also referred to as "original Medicare") are your only forms of health coverage. As anyone who has ever gotten a bill for an uncovered hospital stay can tell you, the costs can certainly add up quickly.
One solution is a Medigap plan. As the name implies, this is an additional insurance plan that is designed to help cover costs that Medicare doesn't pay for.
The different types of Medigap plans and what it costs
In most states (Massachusetts, Minnesota, and Wisconsin are the exceptions), Medigap plans are identified by one of 10 letters, and the benefits of these plans are standardized. In other words, every "Medigap Plan A" provides the exact same package of benefits.
Some Medigap plans will cover your copays and coinsurance, and some will cover your Medicare deductibles, either in full or in part. As an example, Medigap Plan A, which is required to be offered by any insurance company that sells Medigap, covers your Medicare coinsurance and copayments in full but does not pay for deductibles. You can compare the features of all 10 types of Medigap plans on Medicare's website.
Different companies offer different selections of Medigap plans. In addition to being required to offer Plan A, all Medigap insurers are required to offer either Plan C or F, but beyond that, the selection can vary considerably. Plan F is the most comprehensive Medigap plan and covers virtually every copay, coinsurance, or deductible charge you could possibly face.
However, it's important to mention that the cost of Medigap plans is not standardized. Obviously, plans that provide more benefits tend to be more expensive, but the premiums you'll pay for a Medigap plan can also vary significantly based on the insurer and your geographical location. Check out Medigap's plan finder to compare the options available to you.
As a reference, Medigap Plan F premiums range from $159 to $239 per month, on average for a 65-year-old male, depending on where he lives.
Which plan do most seniors choose?
Medigap Plan F, as I mentioned, is the most comprehensive plan, and is therefore the most expensive. So, it may surprise you to learn that two-thirds of people who choose to buy a Medigap plan choose Plan F, the most expensive option, according to the American Association for Medicare Supplement Insurance.
Simply put, most retirees don't want to worry about the costs of anything, especially something as unpredictable as healthcare. Sure, it's more money per month, but if a major health catastrophe hits you, a good Medigap plan can be the difference between no medical bills at all and complete financial ruin. If you think that's an exaggeration, consider that according to Senior65.com, Plan F can cover almost $1 million in expenses that Original Medicare won't cover, during just one year of serious illness.
The bottom line is that if you're a Medicare beneficiary and want to take some of the uncertainty out of your healthcare expenses, it could be a smart idea to explore your Medigap options and choose a plan that fits your needs and your budget.