Supplementing Medicare Benefits

People covered by Medicare have different options each year.

Choices range from Original Medicare to a variety of Medicare supplemental plans. The right choice next time might not be the same as last time. It's an important decision about a complex matter, so make sure you know how it works.

NOTE: This article was written before Affordable Care Act (ACA) took effect in 2014. ACA does not focus on Medicare, but it may affect some of the information in this article. As always, you should consult insurance experts to determine what is right for you.

Each October, insurance companies begin advertising their Medicare products and plan benefits for the coming year, notifying their members if they are withdrawing from the Medicare market, or notifying them of any changes in benefits or increases in cost.

The choice must be made during the Annual Election Period (AEP), which occurs each year from November 15 through December 31. This is also the time to compare coverage for prescription drugs to decide whether to stay with a current plan or switch to another.

The AEP is a short window of time during which the Medicare beneficiary must compare current coverage, and the costs they are obligated to pay, with the options that are available for the coming year.

While the benefits and cost-sharing remain fairly constant in Original Medicare (although the deductibles and premiums do go up each year), the benefits, cost-sharing, plan restrictions, and requirements often change each year in Medicare Advantage plans.

Most people have many different choices of insurance products that provide Medicare Part D drug benefits, as well as choices for receiving their Medicare Part A hospital and Medicare Part B medical benefits, including some Medicare Advantage plans that will also cover drugs under Part D.

People who choose Original Medicare receive their Medicare Part A and B benefits directly from Medicare.

In any case, a person must continue to pay their Part B premium, regardless of the plan they are enrolled in.

Those who choose coverage from one of the Medicare supplemental products must pay careful attention to the benefits and costs they will incur through premiums, deductibles, and co-payments, and compare those costs with staying in Original Medicare. Some of these plans have an annual cap on out-of-pocket costs, but may exclude certain expenses from that cap. Other plans charge co-payments for some services Medicare covers at 100 percent.

Medicare Options

First, understand that Medicare plans and details change, seemingly constantly, as government requirements shift and insurance companies jockey for position. The information provided here gives you the basics, but be sure to do your homework and verify your information each time you are making a decision.

Original Medicare -— This is the fee-for-service plan that covers many health care services and certain drugs for specific health conditions. You can go to any doctor or hospital that accepts Medicare in the United States. When you get health-care services, you will use the number on your red, white, and blue Medicare card.

The Original Medicare program pays for many health-care services and supplies, but there are costs that you must pay, like co-insurance, co-payments, and deductibles. These costs are called "gaps" in Medicare coverage. You might want to consider buying a Medigap policy to cover these gaps in Medicare coverage. You can also add coverage for Part D prescription drugs by joining a Medicare Prescription Drug Plan (PDP).

Medigap Policies -- A Medigap policy is health insurance sold by private insurance companies to fill the "gaps" in Original Medicare Plan coverage. If you are in the Original Medicare Plan and have a Medigap policy, then Medicare and your Medigap policy will each pay their share of your covered health-care costs.

Medicare Advantage Plans -— Available in many areas. If you have one of these plans, you don't need a Medigap policy, and it is illegal for a company to sell you one. These plans include:

  • Health Maintenance Organizations (HMO)
  • Preferred Provider Organizations (PPO)
  • Private Fee-for-Service Plans (PFFS)
  • Medicare Special Needs Plans (SNP)
  • Medicare Medical Savings Account Plans (MSA)

These plans may cover more services and have lower out-of-pocket costs than the Original Medicare Plan. But you cannot use a Medigap policy to cover those out-of-pocket costs. Some plans also cover Part D prescription drugs.

In some plans, like HMOs, you may only be able to see certain doctors or go to certain hospitals to get covered services. In PPOs, you may be able to use out of network doctors and hospitals and pay higher out-of-pocket costs. In PFFS plans, each time you receive services, you must check with your doctors and hospital to make sure they will accept the plan. SNPs usually focus on certain populations, such as people in nursing homes or those who are also covered by the state's Medicaid program.

Making sense of Medigap policies

Those who choose Original Medicare will need to decide how they want to pay their deductibles and co-payments under both Part A and B of Medicare when using Medicare-covered services. Federal law prohibits buying insurance to pay the out-of-pocket costs imposed by a Part D Plan.

People who continue to work past age 65 may not need to sign up for Medicare until they stop working. In most cases, their employer's plan will continue to provide them with primary coverage, although some small employers with fewer than 20 employees may want to supplement Medicare's coverage. (The premium for supplementing Medicare benefits is less expensive than providing primary coverage for someone 65 or older. Employers with less than 20 employees are allowed to provide for supplemental coverage.)

Tip: If Medicare with health benefits is provided through an employer or retirement plan, contact the employer or the health plan before changing plans. Enrolling in a Part D plan could cause you to lose all the health benefits from the employer's plan.

Those who are retired may have benefits from their or their spouse's previous employment to supplement their Medicare benefits. Those who are in Original Medicare and don't have employer-sponsored health benefits may want to buy an insurance product to supplement their Medicare benefits, known as a Medigap policy, to cover the cost of Medicare's deductibles and co-payments. Some Medigap polices may also provide additional benefits not covered by Medicare. You still need a Part D plan because Medigap policies can no longer provide benefits for prescription drugs.

It's relatively easy to compare Medigap policies. Insurance companies are only allowed to sell 12 standard benefit packages in most states, with the exception of Wisconsin, Massachusetts, and Minnesota, each of which has their own version of standard Medigap plans.

DOWNLOAD: You can get an idea of various Medigap policies in a PDF available via the link at the bottom of this page. The information is probably not current because it changes frequently, but it can help you know the range of choices to consider.

As a basic benefit, Plans A-J all cover the Part B 20-percent co-insurance required for all Medicare medical and outpatient services. Medigap Plans K and L pay a percentage of the Part B co-insurance, up to the annual maximum limit. There is no annual limit on the 20-percent Medicare co-insurance a person can be charged, or that Medigap polices A-J pay.

Another basic benefit included in all 12 plans, is coverage of the daily co-payment required when a hospital stays last longer than 60 days. Coverage for the Medicare Part A hospital deductible is covered completely by Medigap plans C through J, and partially by Plans K and L until the annual out-of-pocket limit has been reached.

This in-patient hospital deductible is not an annual deductible and it can be incurred several times during a calendar year. Medigap plans C, F, and J cover the annual Medicare Part B deductible.


Medigap policies pay only after Medicare has processed and paid its claim for Medicare-covered services. How much a Medigap policy pays depends on how Medicare pays the claim. Medicare contracts with companies to process and pay its claims. Claims for Medicare Part B medical services or other outpatient care are considered to be either "assigned" or "unassigned." Claims for Medicare's Part A in-patient or nursing home care are always assigned, although the cost-sharing is calculated differently.

An assigned claim means that the provider, a doctor for instance, has agreed to charge the person no more than Medicare's approved amount. Medicare pays that provider 80 percent of its approved amount for each service and a Medigap policy pays the 20 percent co-payment once the annual deductible has been met.

Providers that don't accept the Medicare's approved amount for their services are "not accepting assignment," although they do accept and treat Medicare patients. When a claim is not assigned the provider is allowed to charge more than Medicare's approved amount, but in most cases not more than 15 percent above that amount. This 15-percent difference is known as an "excess charge." Four of the Medigap plans, F, G, I, and J cover excess charges.

When a claim is assigned, the provider will receive its payment directly from Medicare. When a claim is unassigned, the beneficiary is usually expected to pay the full amount of the bill at the time of service and be reimbursed by Medicare later.

Most Medigap companies can receive claims electronically from Medicare, thus preventing the insured person from having to send a claim to the Medigap company. When a Part B claim is assigned, the Medigap insurance company will also send its check directly to the provider. When the claim is not assigned, it will send its check to the insured person.

In-patient stays are always assigned claims and facilities are paid directly by Medicare claims-processing contractors. Hospitals and nursing homes are accustomed to billing other sources of insurance and often bill Medigap polices for deductibles and co-payments for Medicare-covered care.

Medicare for Non-Seniors

People younger than 65 with disabilities or permanent kidney failure may also be eligible for Medicare benefits. However, unlike seniors, they have no federal right to a Medigap policy when they first become eligible for benefits. Some states require companies to sell a Medigap policy to a younger disabled person newly eligible for Medicare, and a few do so for people with kidney failure known as End Stage Renal Disease or ESRD. Some of these states may limit which plans a younger disabled person can buy. Some states limit the amount of premium a company can charge a younger Medicare beneficiary, but many others don't. To know your rights contact your state insurance department.

Eligibility for coverage

When people are first eligible for Medicare at age 65, insurance companies selling Medigap policies are required to sell them the policy of their choice during the first six months of their eligibility. A person can't be turned down because of their health, and the company can't apply a waiting period before benefits will be paid if the individual has had any kind of health coverage, including Medicaid, for six months prior to applying for a Medigap policy. This is one of the few times people are guaranteed coverage at the best price for their age and place of residence.

Getting help

Most families need some assistance sorting though all the choices for getting and supplementing Medicare benefits. Each state has a federally funded insurance counseling program usually known as the State Health Insurance Assistance Program (SHIP), although some of the programs may use a different name. You can usually find the contact information for your state's SHIP program at the back of the booklet "Medicare and You" which is published by the federal government and sent to Medicare beneficiaries each year. You can also find that information at the national SHIP program.

For more information on Medicare and Medicare Advantage plans, visit California Medicare, federal Medicare, or call 1-800-Medicare.

You may be able to get extra help to pay for the premiums, annual deductible, and co-payments related to the Medicare Part D prescription drug program if you meet certain income and asset limits. Call Social Security at 1-800-772-1213, or call 1-800-Medicare for more information.

If you also receive benefits from a state Medicaid program, or the state pays your Medicare premium, you will receive LIS automatically. For help choosing an MA or Part D plan that will coordinate with your state Medicare benefits schedule an appointment with your local SHIP, or call 1-800-Medicare.

Bonnie Burns, training and policy specialist for California Health Advocates (CHA), is a nationally recognized expert on Medicare, Medicare supplemental, and long-term care insurance. For many years, Bonnie served as a consumer representative to the National Association of Insurance Commissioners (NAIC). California Health Advocates (CHA) is a not-for-profit consumer advocacy organization dedicated to timely and responsive education and advocacy efforts on behalf of California Medicare beneficiaries and the pre-retirement population.

Download File: PDF icon Example Medigap policies
Are they hitting pre-65s with unnecessary testing? Do HMOs try to "pre-fund" future Medicare Plans by ordering many many test prior to Medicare? Should persons beware when asked, a pcp refuses to wait until person can afford co-pays (will be paying thru 2011 on one mo.tests alone Dec2010)? Where is the truth in costs: told WI passed Jan.2011 legislation which says "costs must be stated upfront" yet no one in providing or testing has those costs: "yes" a WI checkpoint site has some costs but not the most expensive-testing, or the required 3 facilities where "also" the same tests,same quality, same procedures be run. Speaking to one "in-the-know" told, "before doctors vacation they often pad-funding with ordering many tests," says, "this is what is done?" It begins with the PCP: if a prob. exists, but apparently no symptoms or signs after prob. cleared-up (by another medicl-related-professional), is there any reason further tests need be ordered; and, if that is so very strongly the conviction of the pcp, then given heavy financial-strain (given no symptoms or signs/regular mobility & activities), couldn't the test "wait"? Friends in medically-related areas say, "tell the pcp you will not be in-the-state" until able to pay for it; "refuse the test" (the pt. has been "scared" by the pcp and is not going to refuse the test), or "don't go." Which will it be for your loved-one when hitting the pre-Medicare months?