What is Medicare Supplemental Insurance (Medigap) & Why Might You Need It?

If you’re 65 or older (or suffer from a specific disability), you likely receive healthcare coverage from Medicare, the United States’ national health insurance system for seniors. Medicare will cover a good chunk of your health-related expenses in your later years, but not everything. In fact, even with Medicare, out-of-pocket costs for health care can still leave you with a five- or six-figure bill. To help fund these coverage “gaps,” private insurers offer Medigap plans that work in conjunction with Medicare. Here, we’ll better explain Medicare Supplemental Insurance (Medigap) and why you might need it.

If you need assistance with your retirement plan, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.

How Medicare Works

Medicare was implemented in 1966 and now operates under the Centers for Medicare and Medicaid Services (CMS). Since health insurance is far more expensive for seniors than it is for young people, the government created Medicare as a way to get older Americans affordable coverage. Medicare is broken down into four different parts:

Hospital and Hospice Coverage (Part A)

Part A covers inpatient medical costs where the enrollee has been admitted to the hospital or hospice care. Additionally, certain rehabilitation and skilled nursing home costs can be covered under Part A.

Outpatient Medical Coverage (Part B)

Part B covers outpatient procedures like labs, blood work, vaccines, imaging like X-rays and MRIs, chemotherapy, and chiropractic services. Part B also covers certain durable medical equipment like canes, walkers, scooters, and other mobility assistance devices.

Medicare Advantage (Part C)

Part C consists of private alternative plans known as Medicare Advantage. This part is optional and combines many of the elements of Parts A, B, and D into a single consolidation plan. Medicare Advantage functions like the private insurance plans you’d find through your place of employment.

Prescription Drugs (Part D)

Part D covers prescription drugs that can be self-administered.

These four programs combined form the Medicare program, which covers nearly 60 million Americans with health insurance in some way or another. However, no Medicare plan will cover all the costs involved with treatment, an operation, or a hospital stay. And while most enrollees can get 80% of their bills covered, that remaining 20% can put a dent in your personal finances. That’s where Medigap comes in.

Filling the Gaps with Medicare Supplement Insurance

Medicare Supplement Insurance, or Medigap, is designed to cover the areas where Original Medicare falls short. Medigap plans are sold by private insurance companies, but the plans are standardized and must follow certain federal and state regulations.

The federal government has authorized ten different Medigap coverage plans, each with a range of benefits and costs. Choosing from the ten plans depends on your individual needs, but Medigap will help fund costs like copays and deductibles, coinsurance for when Medicare coverage is used up, and preventative medical procedures. 

Medigap plans are offered to all Medicare-eligible people once they reach 64 years and 9 months. In order to qualify for Medigap coverage, you must enroll in both Medicare Part A and Part B. You’ll need to pay premiums for both Medicare Part B and the Medigap coverage, too.

Who Needs Medigap Coverage?

Unless you’ve built up a massive nest egg that will comfortably cover all of your out-of-pocket medical expenses in retirement, you’ll likely want some kind of Medigap coverage if you’re enrolling in Original Medicare. Even paying just 20% of the medical bill for something like a hip replacement or extended hospital stay can create an untenable price tag. And when your income is fixed, you can’t afford any surprises.

The best time to sign up for Medigap coverage is the moment you’re eligible. You’ll need to enroll in both Medicare Parts A and B (but not D) and choose one of the ten standardized plans. Why enroll early? Because you won’t have to answer any health-related questions if you sign up for Medigap within 6 months of enrolling in Medicare. You won’t be denied coverage for a pre-existing condition and your benefits last for life. If you sign up after the 6 month open enrollment period ends, you’ll still be eligible for coverage, but it’ll likely be more expensive as you’ll need to answer health-related questions.

If you’re looking to buy Medigap coverage, you’ll get the best slate of options if you apply during the open enrollment period, but it still pays to shop around for the best deal. Also, don’t forget to consult your advisor to see how Medigap coverage fits into your financial profile.

Work With an Experienced Financial Advisor

We hope you better understand what Medicare Supplemental Insurance (Medigap) is and why you might need it. If you have any remaining questions, reach out to a team member from Good Life Financial Advisors of Mount Pleasant today!


The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual.