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Medicare Supplement 101

Editor's Note: "Medicare Supplement" is often used interchangeably with the terms "Medigap" and "Medicare Supplemental Insurance". Because all three terms are commonplace in the topic of Medicare Supplements, this website will similarly use all three variations of the word.

A Medicare Supplement is a type of health insurance sold by private insurance companies that is specifically designed to cover expenses that are not covered by the government-provided Original Medicare. The name "Medigap" is derived from its purpose of filling in any "gaps" in Medicare coverage. It helps to pay for your share of Medicare-eligible expenses, which would include a) deductibles, b) co-pays, and c) co-insurance. How it does this depends on which Medicare Supplement plan you choose.

As with most insurance plans, a Medicare Supplement plan will include a monthly insurance premium that you pay to your insurance company. It will also have deductible, co-insurance, and co-payments associated with the coverage that it provides. Medicare Supplement insurance provides additional coverage beyond that provided by Original Medicare. It is 100% optional coverage. In other words, no one is under any obligation to purchase a Medicare Supplement plan.

What Kind of Protection Can Medicare Supplement Provide?
While the rules governing Medicare are complex, here's a simplistic view of how it would work:

1. If you are enrolled in Original Medicare, then Medicare will generally cover 80% of eligible medical expenses.
2. While Medicare covers the bulk of your medical expenses, you will still be responsible for these costs:

a. Premiums
b. Deductible
c. Co-Payment
d. Co-Insurance

Depending on the nature of your Medicare-eligible medical expenses, these four components of out-of-pocket costs could be very manageable. The "Premiums" for Original Medicare depend on a number of factors, including previous tax status and current income levels, but it is manageable for many Medicare enrollees. The "Deductible" is an annual, one-time expense if you spend at least the deductible amount in a calendar year. The "Co-Payments" are fixed dollar amounts paid each time an eligible service is used. "Co-Insurance" represents a stipulated share of the billed amount that you are responsible to cover. A Medicare Supplement can provide additional coverage of the Deductible, Co-Payment and Co-Insurance amounts associated with Medicare-eligible expenses. Out of the three costs, the "Co-Insurance" could be the most damaging situation to you for a large-ticket treatment. For example, you require a prosthetic limb in order to help you in your everyday activity. In this scenario, the actual costs of a prosthetic limb can be in the thousands of dollars. The 20% co-insurance rate could represent a significant out-of-pocket expense. A policy would provide insurance against such unexpected, large-ticket expenses.

How Much Does a Medigap Plan Cost?

The cost depends on the plan you choose to buy, as each plan has its own different coverage. Unlike Individual/Family health insurance plans, Medicare Supplement plans were built to be much easier to compare costs across companies because the plan offerings are standardized by law. Many state insurance departments publish rate information from the various insurers on their websites. You will know how much it will cost for you or a loved one only by requesting a quote from a licensed agency or the insurance company directly.

For example, here is the Medicare Supplement rate guide for Connecticut for 2009, noting that rates vary by states based on each state's carriers, regulations and pricing. Monthly premiums (excluding high-deductible plan options) will generally run from $100 per month for the basic plans to $500 per month. (Disclaimer: Your quoted premium amounts will vary based on a number of variables, including but not limited to your zip code of residence and tobacco use. Only a licensed agent can provide you with official quotes from the various insurance companies.) The monthly premium costs of Medicare Supplement plans vary according to the plan you select, your insurance company and your health status. MedicareSupplement.com provides a free quote search tool to help you receive free quotes for Medicare Supplement coverage.

Additional Points about Medicare Supplements:

Medicare supplements provide single-person insurance coverage. In other words, it does not provide coverage for both you and your spouse. If you are considering a Medicare supplement for both you and your spouse, you must purchase separate policies.

When you purchase a Medicare supplemental policy, you must have Medicare Part A and Part B. You must also be current on your monthly Medicare Part B premiums. For more information on Part A and Part B, visit Basic Medicare Definitions.

Medicare Supplemental Insurance policies are sold as standardized plan types with letter designations from A-N. Any approved insurance company selling Plan A must provide identical benefits to any other insurance company selling Plan A. This makes comparisons between offerings from different insurance companies significantly easier.