Medigap: Covering the Gaps in Medicare

Nolo

Learn about the policies designed to fill the gaps in Medicare coverage — called medigap insurance.

Even for those who have Medicare coverage, a serious illness or injury can cause financial havoc because of the bills Medicare does not cover. Responding to this risk, about two-thirds of all Medicare recipients aged 65 or over buy some kind of private health coverage — called medigap insurance.

The term medigap comes from the notion that these insurance policies will cover the gaps in Medicare payments. Unfortunately, most medigap coverage is not nearly as complete as its advertising would lead you to believe.

Before you buy a medigap insurance policy, consider not only the services covered, but the amount of benefits and the monthly cost of the policy. Also pay attention to two other factors: how much premiums may rise in the years to come and, assuming you are willing to pay those premiums, whether you will be allowed to keep the policy.

Premium Increases

It is one thing to find insurance coverage you can afford today. It may be quite another to find a policy that you can still afford in later years when your income and assets have decreased and the policy premium has increased — as it is sure to do. In choosing a medigap policy, consider the terms on which the policy premiums will rise over time. If the current premium will be a significant strain on your financial resources, you may want to consider a less expensive policy.

Eligibility and Enrollment

If you enroll in Medicare Part B (which pays part of basic doctor and laboratory costs, while Part A pays for part of hospital or nursing home stays) when you turn 65, for the next six months federal law forbids insurance companies from denying you eligibility for medigap policies. This six-month period is called the open enrollment period.

If you do not enroll in Medicare Part B when you turn 65, you can sign up for it later, during the yearly general enrollment period — January to March. You will then have a six-month open enrollment period for medigap policies beginning July 1 of that year.

If you did not sign up for Part B at age 65 because you were covered by an employment-related health insurance plan, you will have a six-month open enrollment period for medigap policies beginning the date your Part B coverage begins, regardless of when you sign up for it.

Eligibility After Open Enrollment

If you try to buy a medigap policy after your open enrollment period has ended, the insurance company might not sell it to you. Insurance companies try to identify in advance people who are likely to collect a lot of benefits, and then refuse to insure them. They do this by asking to examine your medical records over the previous few years and refusing to sell you a policy if you have had a significant amount of medical treatment or you have a condition that is likely to require extensive treatment in the near future. Almost all insurance companies require such initial eligibility reviews — sometimes called medical underwriting — for plans that provide the most extensive benefits.

Preexisting Illness Exclusion

Many policies contain a provision excluding benefits for any illness or medical condition for which you received treatment within a given period before your coverage began.

Six months is a typical exclusion period. Usually, the shorter the exclusion period, the higher the premium. However, if you have a serious medical condition that may require costly medical treatment at any time, and you have been treated for it recently, consider a policy with a short exclusion period or none at all.

Where the Gaps Are

Listed below is what Medicare doesn't cover.

During a hospital stay, Medicare Part A does not pay:

the yearly deductible ($912 in 2005)
the coinsurance amount for each day you are hospitalized more than 60 days and up to 90 days for any one benefit period ($228 in 2005)
the coinsurance amount ($456 in 2005) for each day you are hospitalized more than 90 days and up to 150 days for any one benefit period past a 150-day hospitalization
anything past a 150-day hospitalization
the cost of three pints of blood, unless replaced, or
medical expenses during foreign travel.

During a stay in a skilled nursing facility, Medicare Part A does not pay:

the coinsurance amount for each day you are in the facility more than 20 days and up to 100 days for any one benefit period ($114 in 2005), or
anything for a stay of more than 100 days.

For home health care, Medicare Part A does not pay:

20% of the approved cost of durable medical equipment or approved non-skilled care, or
anything for nonmedical personal care services.

For doctors, clinics, laboratories, therapies, medical supplies, and equipment, Medicare Part B does not pay for:

the $100 yearly deductible
20% of the Medicare approved amount
15% above the Medicare approved amount if provider does not accept assignment
preventive or routine examinations and testing
treatment that is not considered medically necessary
prescription medication that you can administer yourself (though it offers drug discount cards for such medications)
general dental work
routine eye and hearing exams, or
glasses or hearing aids.

Medigap vs. Medicaid vs. Managed Care

Wondering whether you need medigap insurance at all? First, if your income is low, you may qualify to receive Medicaid or "Medicare Savings Programs" that will pay some of these costs for you, including the deductibles, premiums, and coinsurance amounts. For more information, see Social Security, Medicare & Government Pensions: Get the Most Out of Your Retirement & Medical Benefits, by attorney Joseph L. Matthews & Dorothy Matthews Berman (Nolo).

Second, if you're a fan of HMOs, consider a Medicare managed care plan, which will pay many of these costs for you, possibly at a slightly lower cost than most medigap policies.