Medigap Fundamentals: Standardized Medicare Supplements

Medicare Supplement insurance, commonly referred to as Medigap, is a type of private health insurance designed to pay for some of the out-of-pocket costs that Original Medicare (Part A and Part B) does not cover. These "gaps" include deductibles, coinsurance, and copayments. Because Original Medicare typically pays for only about 80% of outpatient expenses, a Medigap policy provides the financial security necessary to manage the remaining 20%.

For the complete Health Insurance exam guide, it is vital to remember that Medigap policies are sold by private insurance companies, not the federal government. However, the federal government and the National Association of Insurance Commissioners (NAIC) have standardized these plans to ensure consumers can easily compare them. To qualify for a Medigap policy, an individual must be enrolled in both Medicare Part A and Part B.

It is also important to distinguish Medigap from Medicare Advantage (Part C). While Medicare Advantage is an alternative way to receive Medicare benefits, Medigap is a supplement to Original Medicare. An individual cannot have both a Medicare Advantage plan and a Medigap policy simultaneously.

The NAIC standardized Medigap plans into several lettered categories (Plans A through N). Each plan with the same letter must offer the exact same benefits, regardless of which insurance company sells it. This allows applicants to shop based on premium price and company reputation rather than benefit differences.

Plan A is the most basic Medigap plan and is considered the "core benefit" plan. Every insurance company that sells Medigap policies must offer Plan A. All other lettered plans (B, C, D, etc.) must include these core benefits found in Plan A, then add additional benefits on top of them. The core benefits include:

• Part A Coinsurance: Coverage for the daily coinsurance amount for hospitalization and an additional 365 days of coverage after Medicare benefits are exhausted.
• Part B Coinsurance: Coverage for the 20% coinsurance or copayment for outpatient medical services after the Part B deductible is met.
• Blood: Coverage for the first three pints of blood each year (which Medicare does not cover).
• Hospice Care: Coverage for the coinsurance or copayments associated with Part A hospice care.

The most important time to buy a Medigap policy is during the Medigap Open Enrollment Period. This period begins when an individual is age 65 or older and is enrolled in Medicare Part B. During this six-month window, an insurer cannot use medical underwriting to deny coverage, charge more for health problems, or place a waiting period for pre-existing conditions.

If an applicant misses this window, they may be subject to medical underwriting, meaning the insurance company can review their health history and potentially deny coverage or charge significantly higher premiums based on their health status. However, there are certain "Guaranteed Issue" rights—such as when a person's previous employer-sponsored plan ends—that allow them to buy a Medigap policy outside the open enrollment period without underwriting.

While Medigap covers many "gaps," it does not cover everything. Standard Medigap policies generally exclude coverage for:

• Long-term care (nursing home stays).
• Vision or dental care.
• Hearing aids.
• Private-duty nursing.
• Prescription drugs (these are now covered under Medicare Part D).

From a regulatory standpoint, agents must follow strict marketing guidelines. They must provide an Outline of Coverage to the applicant at the time of application. Prohibited practices include twisting (misleading a client to replace a policy to their detriment) and high-pressure tactics. Additionally, a Medigap policy cannot duplicate benefits already provided by Medicare or other insurance the individual holds.