Health Care in Retirement – Medigap (Medicare Supplemental Insurance)

by | Health Care, Planning for Retirement

In Part 6 of our Health Care in Retirement Series, we are going to review Medigap plans.  To jump to any of the other parts of this series now, use the links below:

What is Medigap? 

Medigap plans are policies sold by private insurance companies that help pay for some of the remaining costs that you are otherwise obligated to cover yourself under Medicare Parts A and B.  These policies are also known as Medicare Supplement Insurance.

Medigap plans are standardized policies and are named based on a corresponding letter of the alphabet.  In the State of Maryland, Plans A, B, C, D, F, G, K, L, M, and N are offered to retirees.  The plans must comply with all Federal and State laws and as such, offer the same basic benefits regardless of the insurer that sells them to you.

Even with the standardization of the plans, the cost of the plans themselves can vary depending on the insurance company that offers them.  This makes it necessary to compare policies and the type of pricing offered.

What does a Medigap plan cover?

The basic benefits that all Medigap plan must include are as follows:

  • The coinsurance cost under Part A for days 61-90 of a hospital stay
  • The coinsurance cost under Part A for days 91-150 of a hospital stay
  • All hospital-approved costs for days 151-365

These basic benefits limit your out-of-pocket expenses for longer duration hospital stays, which can become expensive under Part A.

Beyond the basic coverage, other benefits that Medigap plans may provide coverage for include:

  • The Part A deductible cost
  • The coinsurance cost for hospice care under Part A
  • The coinsurance or copayment costs under Part B
  • The coinsurance cost charge by a skilled nursing facility
  • The Part B deductible
  • Part B excess charges
  • Emergency care received while in a foreign country

Medigap plans do not cover long-term care needs, such as permanent stays in assisted living facilities, memory care units, or nursing homes.  For these expenses, long-term care insurance can be a solution to manage these costs, as can moving to a continuing care retirement community.

How Much is the Monthly Premium?

The Medicare website has an online tool that can help you find and compare Medigap plans available in your state.  In 2022 and in the State of Maryland, the lowest cost Medigap policy starts at $32 per individual per month.  Premiums are paid directly to the insurance company from which you purchase the policy.  The monthly premium for Medigap policies generally depends on the benefits offered in the plan.

Once a plan is chosen, premiums are determined by how the policy is rated.   Policies rated on “attained age” are less expensive initially but will increase in cost over time.  Policies rated on “issue age” are more expensive initially, but don’t increase in cost over time.  Policies rated on a “community” rating basis are the same rate to all people regardless of age.

Determining which plan provides the most comprehensive and affordable coverage given your income and health care needs is how a financial advisor can help you choose a policy.

Do Medigap plans have a deductible and out-of-pocket maximum?

Most Medigap plans have separate deductible amounts for Parts A and B coverage.  The deductible amounts will depend on the plan you select.

As for out-of-pocket maximums, most Medigap plans do limit the total costs that you would otherwise be required to pay to receive care under Medicare Parts A and B.  As with the deductible amounts, the caps on your out-of-pocket expenses depend on the plan you select.  In this way, plans paired with Original Medicare and/or Medicare Part D can provide similar coverage to a Medicare Advantage Plan (Part C).

Do Medigap plans have any copayments or coinsurance requirements?

Most Medigap plans have $0 copayments and coinsurance rates.  Instead, you pay 100% of your costs up to the deductible amounts that applies to your Medicare Part A and B coverages.  All subsequent costs are then covered by your Medigap policy.

Plans K and L do have coinsurance rates of 10% and 5% that apply to costs incurred under Medicare Part B.  These end when the out-of-pocket maximum amount for the plan is reached for the calendar year.  Plan G is the most comprehensive option available.

When am I eligible to sign up for a Medigap Plan?

If you are enrolled in Medicare Parts A and B, you’re eligible to sign up for a Medigap plan on the first day of the month in which you turn age 65.  This is considered your Initial Enrollment Period and last for six (6) months.

During this period, Federal law mandates that insurance companies offer you a Medigap Plan regardless of your health status or the existence of any pre-existing conditions.  This mandate is known as your guaranteed issue right.

In most cases, your guaranteed issue right expires after your 6-month Initial Enrollment Period ends.  The exceptions to this are as follows:

  • If you are enrolled in a Medicare Advantage Plan (Part C) and the insurance company stops offering Part C coverage in your state
  • If you are enrolled in a Medicare Advantage Plan (Part C) and you move to a state that your current insurance company does not cover
  • If you have supplemental insurance coverage through an employer who cancels their plan
  • If you are enrolled in a Medigap plan and the insurance company offering the plan goes bankrupt
  • If you cancel your Medigap plan, switch from Original Medicare to Medicare Advantage (Part C), and then switch back to Original Medicare within the first year of enrolling in Medicare; this is known as a “trial period”

Do I have to sign up for a Medigap Plan?

No.  Medigap plans are optional insurance coverage, which means you are not required to sign up for a plan.  However, if you do obtain a Medigap plan, you are afforded a 30-day free-look period.  During this time, you can continue evaluating the policy to determine if you really want to keep it.  If you change your mind, you can cancel it by contacting the insurance company you purchased it from and asking them to end your coverage.

Additionally, if you’re enrolled in Medicare Part C, a Medigap plan is considered duplicative coverage and it cannot be used to cover copayments, coinsurance, or any expenses arising from you not reaching your Part C deductible. For this reason, it is illegal for an insurance company to sell you a Medigap plan if you’re enrolled in Medicare Part C (Medicare Advantage) and not planning to switch to Original Medicare.

Can I change plans after I sign up?

Yes, you can switch plans at any time but there are factors to consider before doing so.

First, insurance companies are not required to sell you a policy outside of your 6-month Initial Enrollment Period unless you have a guaranteed issue right.  Instead, they can require you to submit to medical underwriting, which can increase the cost of your Medigap premium or disqualify you from receiving coverage altogether.

Second, insurance companies can also make you wait up to six (6) months to receive benefits if you have a pre-existing condition and switch to a plan with different benefits than your old policy.

For these reasons, it is essential to evaluate the coverage and price types, as well as consider your current and future health status before signing up for a Medigap plan.

Are there penalties for not signing up for a Medigap Plan?

No.  Medigap is an optional coverage.  However, there are some significant disadvantages for not obtaining a policy when first eligible.  These disadvantages are discussed below.

What are the disadvantages for not signing up for a Medigap Plan?

As already stated, insurance companies are required to offer you a Medigap plan if you sign up for it within the first six (6) months of initially enrolling in Part B.  This is considered your “guaranteed issue” right.  During this time period, the premium determination is based on the community risk rating of other Medigap plan holders, not on your individual health status.  This lowers your cost.

If you try to obtain a Medigap policy after your Initial Enrollment Period expires, insurance companies can require you to complete medical underwriting before agreeing to issue you a policy.  This may result in higher premiums or complete denial of coverage based on your individual health status or the existence of any pre-existing conditions.

Moreover, out-of-pocket costs are unlimited under Medicare Parts A and B, which could result in large expenses if you experience frequent or longer duration illnesses or injuries requiring care.

Lastly, Medicare Parts A and B do not provide health coverage outside of the United States.  If you plan to travel out of country during retirement, a Medigap Plan can provide benefits that you won’t receive under Original Medicare.



If you are approaching age 65 and need help evaluating how your health care costs will impact your retirement plan, please contact us today.  For more information on Medicare, return to Part 1 of our Health Care in Retirement Series to learn about your retirement health care options.  

Chris Yeagle

Chris Yeagle

Principal & Financial Advisor - Honeygo Financial

Chris began his career as a financial advisor with Merrill Lynch where he developed retirement plans for hundreds of clients and helped those he served to simplify their strategies and manage their investments.  He is a graduate of the University of Baltimore’s Merrick School of Business and he holds a Master of Finance from Loyola University.  Chris and his family are life-long Marylanders, who enjoy traveling the country visiting new places and old friends.

Honeygo Financial is a registered investment advisory firm offering services in Maryland and in other jurisdictions where exempted.  All written content is for informational purposes only and should not be considered tax, legal, insurance or investment advice. Opinions expressed herein are solely those of the firm, unless otherwise specifically cited.  Material presented is believed to be from reliable sources and no representations are made as to its accuracy or completeness.