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Home / Resources / Disadvantages of Medigap Plans

Disadvantages of Medigap Plans

By Kolt Legette

Since 2003, Kolt Legette has helped clients navigate the often-confusing world of insurance. His number one goal is protecting the medical and financial wellbeing of every person he speaks with, wheth ... sceler they choose to buy insurance or not. Kolt loves representing the best brands in medical insurance as it allows him to provide side-by-side comparisons for his clients. This allows the client to decide which company works best for them. By putting the needs of the client above everything else, Kolt helps real people find affordable health insurance solutions for their most pressing healthcare needs. With his belief that peace of mind is priceless, Kolt's goal in every interaction is to make sure every person he speaks to leaves with the peace of mind they rightfully deserveRead more

Feb 10, 2021

Medicare Supplement insurance, or Medigap, fills the “gaps” in Original Medicare and helps pay for health care costs. While there are advantages to having a Medigap policy, there are also a number of disadvantages to this coverage to take into consideration.

Original Medicare Part A (hospital insurance) and Part B (medical insurance) pay for much of the costs for covered health care services and supplies you’d need, but with no annual limit and many services not covered at 100 percent, your out-of-pocket costs can add up quickly. That’s why a Medigap plan may be helpful.

However, Medigap coverage isn’t right for everyone. Knowing your options, as well as both pros and cons of Medigap coverage, is important when it comes to making your health insurance decisions.

What Is Medigap?

When some people enroll in Original Medicare, they need additional coverage and cost assistance. In this case, they may choose to purchase a Medigap policy, or Medicare Supplement plan.

When you have a Medigap plan, Medicare will pay its share of the Medicare-approved amount for covered health care costs, then your Medigap plan pays its share. This helps cut down on your out-of-pocket costs for things like coinsurance, copayments and deductibles.

You must have Medicare Part A and Part B to qualify for a Medigap plan. Once you qualify, you must pay a monthly premium for the coverage in addition to your monthly Part B premium.

You can purchase a Medigap plan from any insurance company that’s licensed in your state to sell one, and it’s guaranteed renewable even if you have health concerns. You can apply for a Medigap plan at any time, but for the best outcome and rate, you should sign up during the Open Enrollment Period when you turn 65.

Cons of Medicare Supplement Plans

While Medigap plans may seem perfect at a high level, not all options work for everyone. There are five primary disadvantages to Medigap plans to review when considering your choices for coverage.

1. Cost

Because Medigap plans are sold by private insurance companies, they can charge a higher monthly premium. This is especially the case if you don’t enroll during the Medigap Open Enrollment Period or without guaranteed issue rights. In that case, you may be subject to medical underwriting and charged a higher premium.

Medigap policy monthly premiums can be high, and you are also still expected to pay your Medicare Part B monthly premium and deductible (in most cases) in addition to the Medigap premium. Some Medicare supplement plans also have a deductible you must meet before the insurance company starts covering your costs.

You also will have to pay for Part D prescription drug coverage since that’s not included with Medigap policies.

Plus, Medigap premiums can increase each year.

2. Not Guaranteed After Open Enrollment

While you can apply for a Medigap policy at any time, you’re not always guaranteed to be able to purchase one. For the best outcome, you should sign up during the Open Enrollment Period when you turn 65.

If you apply for coverage outside of the enrollment period, you may be subject to medical underwriting and could be denied coverage based on your age, medical history, or pre-existing conditions.

3. No Part D Coverage

While Medigap plans do offer some coverage beyond Original Medicare, they do not offer any prescription drug coverage. To avoid a late penalty, you will need to enroll in a stand-alone Medicare Part D plan for prescription drug coverage when you are eligible for Medicare Part B.

4. Difficult to Switch

If you choose to enroll in a Medigap plan when you first sign up for Medicare Part A and Part B, the insurance companies are obligated to sell you a policy regardless of your medical history or existing conditions.

However, if you choose to switch from a Medicare Advantage plan back to Original Medicare, you may not be able to sign up for a Medigap insurance policy until Medicare’s Annual Open Enrollment. During this time, since it’s outside of your initial enrollment period, you do not have guaranteed issue rights and you could be denied coverage or charged a higher premium.

Additionally, while you can switch Medigap plans at any time, you will likely be subject to medical underwriting.

5. Some Inconsistencies State-to-State

While plans are standardized in regard to coverage and benefits, they are not standardized in regards to cost or which plans are offered in which state. Insurance companies that sell Medigap policies don’t have to offer every Medigap plan, and they may vary in cost.

Additionally, some states, such as Massachusetts, Minnesota and Wisconsin, standardize Medigap policies differently than in other states.

Pros of Medicare Supplement Plans

According to Medicare, about 67 percent of eligible seniors choose Original Medicare Parts A and B, and about 81 percent of those beneficiaries have Medicare Supplement insurance. Here are a few advantages to Med Supp plans.

1. Helps Pay for Medicare Costs

The primary advantage to Medigap plans is the assistance in paying for out-of-pocket Medicare costs like coinsurance, copayments and deductibles.

Again, with a Medigap policy, once Medicare pays its share of the Medicare-approved amount for covered health care costs, your Medigap policy pays its share, cutting down on the out-of-pocket costs for you. Because there is no out-of-pocket maximum with Original Medicare, meaning there’s no limit on how much you may spend on health care, Medigap plans can be a significant help with those costs.

While you still have to pay your Medigap and Part B premium, many or even all of your other out-of-pocket costs may be taken care of.

2. Covers Additional Services

Medigap policies may cover services Original Medicare doesn’t cover, such as coverage when you travel outside of the U.S., fitness and wellness benefits, and even additional hospitalization coverage.

3. Guaranteed Acceptance when First Eligible

For six months, starting from the month you turn 65 and have Medicare Part B, you are guaranteed acceptance for a Medigap plan. Your policy cannot be rejected, denied, or require additional underwriting if you enroll during this Open Enrollment Period.

That’s because during this time, you have guaranteed issue rights, which means insurance companies can’t deny your application or charge you a higher premium because of a pre-existing condition.

4. Large Provider Network

With most Medicare Supplement plans, you can use any doctor, hospital or health care provider within the U.S. that accepts Medicare. In most cases, you do not need prior authorization or referrals to see specialists or other doctors.

You may also have emergency coverage when traveling in other countries.

5. Guaranteed Renewal

As long as you continue to pay your monthly premium, your policy will automatically renew each year. You do not need to do anything, though it’s recommended to reevaluate your plan and coverage each year to make sure it still meets your needs.

6. Standardized

All of the plans offered are standardized by the government. While not all plans are available in every state, there is no need to compare the same Medigap plan through different insurance agents or companies. The cost and coverage will be the same.

Medicare Supplement Policy Cost

The exact cost of a Med Supp insurance policy will vary based on a number of factors. Understanding how these different factors affect the cost can help you compare plans and make the right coverage choice for you.

The Type of Med Supp Plan You Choose

Medicare supplement plans offer the same primary benefits, but they can range in the amount of coverage for those benefits. They may cover 100 percent of benefits, not cover that benefit, or cover a smaller percentage of that benefit.

You can choose from Medigap plans A, B, C*, D, F*, G, K, L or M. Plans F and G offer high-deductible plans in some states. Plans K and L pay 100 percent of covered services once you meet your out-of-pocket yearly limit and your Part B deductible. Plan N pays for 100 percent of Part B coinsurance (with some exceptions).

Typically, the more extra benefits and coverage the plan offers, the higher the premium is.

*As of January 1, 2020, Plans C and F are not available to people new to Medicare (starting on January 1, 2020). If you already have either of these two plans, you’ll be able to keep your plan. If you were eligible for Medicare before January 1, 2020 but not yet enrolled, you may be able to buy one of these plans.

The Insurance Provider

Because Medigap plans are sold by private insurance companies, they can charge different monthly premiums.

While plans are standardized in regard to coverage and benefits, they are not standardized in regards to cost. Cost can even increase over time based on inflation, your age and other factors.

When You Purchase a Medigap Policy

If you purchase a Medigap policy during the open enrollment period, you can’t be denied or charged higher premiums because of your age or pre-existing conditions.

However, if you enroll during a different time of year, you may be asked to undergo medical underwriting. This could lead to rejection of your application, or having to pay a higher monthly premium.

Where You Live

Again, while coverage is standardized, cost is not. Med supp plans may be offered at different costs and monthly premiums depending on which state you live in.

Medigap vs. Medicare Advantage

Medicare Advantage plans, also known as Part C or MA plans, are offered by private insurance companies contracted through Medicare. With a MA plan, you will receive the same level of coverage that Original Medicare Parts A and Part B provide, as well as additional benefits offered by the MA plan.

Most MA plans provide coverage for:

  • Hospitalization
  • Hospice care
  • Doctor visits
  • Prescription drugs
  • Preventive care and screenings
  • Dental
  • Vision
  • Hearing
  • Fitness memberships

They may also offer additional benefits such as coverage while you travel, nutrition counseling, improvements to your home (such as adding wheelchair ramps), and more.

When considering whether a Medigap or MA plan is right for you, consider:

  • Whether your doctors and pharmacies are in-network
  • Premiums, copays and other out-of-pocket costs
  • Deductibles
  • Coverage restrictions
  • Additional coverage benefits
  • Prescription drug coverage

Think about your budget and coverage needs. While Medicare Advantage costs vary, Medigap plans help pay for those out-of-pocket costs you may face. Some MA plans may offer more benefits than combined Original Medicare and Medigap plans, such as prescription drug coverage. MA plans also have a narrower provider network, so if having a large network is important to you, consider a Medigap plan.

Both Medigap and MA plans have pros and cons, so compare plans and consider your own needs when deciding which is right for you. Remember, you cannot have a Medigap plan and a Medicare Advantage plan - it’s one or the other.

How to Apply for Medicare     

To enroll in Medicare, you can:

  • Apply online at www.ssa.gov
  • Visit your local Social Security office
  • Call Social Security
  • Call the Railroad Retirement Board (RRB) (if you worked for a railroad)
  • If you already have Part A and want Part B, you must complete an Application for Enrollment in Part B

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Originally posted on Feb 21, 2021 10:02:22

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Last Updated 01/13/2021