What is a Medicare Supplement Plan?
As the name implies, a Medicare Supplement Plan supplements the benefits provided in Original Medicare. If you recall, Original Medicare is made up of Parts A and B. Part A covers inpatient benefits such as those you receive for a hospital stay. Part B covers outpatient care such as visiting a Primary Care Physician (PCP) or other specialist.
But Original Medicare only covers 80% of your medical costs, leaving you with the remaining 20%. That’s not too bad if the bill is $100. But what happens if the bill is $25,000? Or $250,000?? That is not a stretch in today’s world. Your 20% could get exceptionally high exceptionally fast. With no cap to your expenses and no extra coverage, your risk is endless. Such a bill could easily devastate retirement savings.
So what can you do? There are two main options to fill this “gap”. One option is the Medicare Supplement Plan. The other is the Medicare Advantage Plan. Both help put a ceiling on the maximum amount of money you will pay from your pocket. This is sometimes known as your “maximum out-of-pocket” (MOOP) amount. Today we will focus on the Supplement Plan option.
“Medigap”: Another Name for Medicare Supplement Plans
A Medicare Supplement Plan is also called a “Medigap” policy because it is intended to “fill the gap” that Original Medicare leaves. With a Supplement Plan, you pay a second monthly premium alongside your Part B premium. Don’t stop paying Part B! You must have Part B set up and active to enroll in a Supplement Plan. This Supplement Plan model is designed as a “pay it up front” system. It works by you paying a set fee ahead of time and then using benefits as needed. Whether you need your plan more or less in a single year, your price is the same.
What Are the Advantages?
There are several different types of Medicare Supplement Plan options to choose from. Each covers benefits a little differently. (Check out this handy comparison chart on the Medicare website to get a quick overview). A Medicare Supplement Plan’s advantages tend to be most beneficial for three types of people:
- those who travel or don’t want to worry about a network
- those who are especially concerned about their medical needs now or in the future
- those who simply want peace of mind
Let’s look at each of these types:
No Network
One of the biggest advantages of a Supplement Plan is that there is no network to deal with. If the doctor accepts Medicare, then you can see that doctor. There aren’t hoops to jump through to see a specialist. You don’t have to worry about care being covered if you change doctors (so long as they accept Medicare). And you can travel around the country with ease, knowing you can find doctors to treat you wherever you go. It takes away a lot of the stress and strife from the process.
Medical Security
Secondly, a Medicare Supplement Plan is well-suited for someone who presently needs or worries about needing a lot of medical care in the future. In general, a Supplement Plan has no copays or coinsurance (though fees vary by plan). You just pay your premium and Part B payments and Medicare takes care of the rest. Even if you need to see the doctor 50 times during the year, your premium payment is the same. Premium payments don’t go up based on your health claims, and you are guaranteed into a plan if you sign up when you are first eligible for Medicare (some exceptions apply). If you wait until later in life to sign up for a Supplement Plan, you will probably be asked to fill out a medical questionnaire and could be denied if you have certain conditions.
Peace of Mind
Lastly, a Medicare Supplement is great for people who are willing to pay a little more to have peace of mind. Because your premium payments (and keeping Part B) keep your plan active, you will know up front what your medical bills will be for the year. This makes it easier to budget with fewer surprises. Peace of mind also stems from not needing to work within a network. Plus, Supplement Plans tend to have far fewer changes from year to year compared to Advantage Plans. Also, an Advantage Plan’s maximum out-of-pocket cap (the most you would pay in one year) tends to be higher than you would pay for a year of premiums on a Supplement Plan.
What Are the Disadvantages?
This all sounds great, right? But what are the drawbacks? First is the cost. Some people cannot afford the cost of a Supplement Plan along with Medicare Part B when they are on a fixed retirement income. Also, as long as you are not using your plan very much, you will be paying more than the benefit you receive (unless you are counting the safety net it is for future medical needs). The next drawback is that prescriptions are not covered in a Supplement Plan and would have to be covered on a separate plan (Medicare Part D) if you don’t want to incur a fee down the road (more on that in another post). And finally, Supplement Plans tend to have few or no extra benefits like dental, vision, and hearing compared to their Advantage Plan counterparts. If you want those benefits, they will probably have to be purchased separately.
Summary
All in all, there are a lot of good reasons to consider a Medicare Supplement Plan when trying to plan for the future. Keep in mind all the advantages and consider the disadvantages too so you are well-informed when making a decision. Also, take a look at our Medicare Advantage post (coming up soon!) to get information on the second great option for covering that “gap.”
As always, call us if you have questions or if something is confusing. We are happy to clear up the mess and make your decisions easier. Have a great day everybody, and make every year golden!
