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Medicare Supplement Plans

Find out how Medicare supplement plans may be necessary to cover medical costs.

For some people seeking medical treatment, it may be necessary to fill the gap in their Medicare coverage with a supplement plan. [©Shutterstock, 2010]
©Shutterstock, 2010
For some people seeking medical treatment, it may be necessary to fill the gap in their Medicare coverage with a supplement plan.

Medicare Supplement Plans

Medicare supplement plans are also known as "Medigap" plans because they fill gaps in the original Medicare coverage. These health insurance policies are sold by private insurance companies that pay their share of covered expenses, just as Medicare does. According to Medicare.com, a Medigap plan also provides additional benefits that Medicare does not, such as emergency medical care in foreign countries. There are a variety of Medigap plans with different combinations of benefits, so Medicare recipients should review their options carefully before enrolling in a plan.

Gaps in Medicare Coverage

There are primarily two types of Medicare plans that have coverage gaps. Medicare Part A, also known as hospital insurance, covers home health services, hospice services, inpatient hospital care and inpatient nursing care. Medicare Part B, also known as supplementary Medicare insurance, covers a variety of outpatient services. It also pays for additional expenses, such as ambulance services, medical equipment, medical supplies and prosthetic devices.

Medicare Part A does not reimburse the beneficiary for expenses such as full-time home health care or unskilled home health care. According to Medicare.gov, Medicare Part A only covers the first 60 days of hospitalization after the deductible ($1,068 as of 2009) has been paid. After that, the coinsurance is $267 per day for days 61 to 90. After 90 days in the hospital, the coinsurance is $534 per day and Medicare pays other costs for up to 60 days in a lifetime (these are called reserve days). Skilled nursing care is covered for the first 20 days; for days 21 to 100, the coinsurance is $133.50 per day, and then the care is not covered after 100 days.

Medicare Part B has an annual deductible ($135 for 2009) that the beneficiary must pay before Medicare will begin to cover expenses. Medicare Part B also has a coinsurance rate of at least 20 percent, depending on the specific items or services provided. In addition, policyholders will also need to pay for expenses that are above the amount approved by Medicare.

How Medicare Supplement Plans Work

Medicare plans consist of one policy that provides just the core benefits and 11 other Medigap policies that provide the core benefits plus some combination of additional benefits. All Medigap policies sold after July 30, 1992, must provide the following core benefits:

• 100 percent coverage on the first three pints of blood
• Part A coinsurance for hospital days 61 to 90
• Part A coinsurance for reserve days (after 90 days in the hospital)
• Part B coinsurance for preventative care and other care

The 11 Medigap policies also provide varying combinations of the following benefits:

• Part A coinsurance on days 21 to 100 for skilled nursing care
• Part A hospital deductible
• Part B coverage for charges above the amount approved by Medicare
• Part B deductible
• Emergency coverage during foreign travel
• Home health services
• Hospice care coinsurance or copayment
• Preventive medical care

There are many factors that must be considered when obtaining Medigap coverage. Policyholders will have to determine the specific benefits they need and compare the cost of the benefits. They also need to understand the consequences of changing to a Medicare Advantage plan and then switching back to regular Medicare. Medigap policyholders should be aware of the consumer protections that they are provided under federal law.

Factors That Affect the Cost of Medicare Supplement Plans

The premium for a Medigap policy depends on the specific benefits and the insurance company. Once the desired combination of benefits has been selected, the premiums for that policy should be compared across multiple insurance companies to find the lowest premium. Prospective policyholders should also determine the factors that the insurance company uses to establish the premium. According to Medicare Interactive, these factors may include age, gender, overall health, marital status and smoking. A Medigap policy should be purchased in the open enrollment period so that the premium cannot be adjusted based on changes in health status during this period.

States may regulate the way in which the policyholder's age affects the premium of their Medigap policy. An attained-age-rated premium means the premium is based on the policyholder's age when the policy was purchased and will increase as the policyholder ages. The premiums on these types of policies are usually the most expensive over the course of the policyholder's life. A no-age-rated premium is not affected by the policyholder's age and is usually the most inexpensive over the policyholder's life. An issue-age-rated premium is based on the policyholder's age when the policy was purchased and does not change due to the policyholder's increasing age.

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