Medicare won't cover all of your health-care costs during retirement, so you may want to buy a supplemental medical insurance policy known as Medigap. Offered by private insurance companies, Medigap policies are designed to cover costs not paid by Medicare, helping you fill the gaps in your Medicare coverage.
When's the best time to buy a Medigap policy?
The best time to buy a Medigap policy is during open enrollment, when you can't be turned down or charged more because you are in poor health. If you are age 65 or older, your open enrollment period starts when you first enroll in Medicare Part B. If you are not yet 65, your open enrollment period starts when you turn 65 and then lasts for six months. A few states also require that a limited open enrollment period be offered to Medicare beneficiaries under age 65.
If you don't buy a Medigap policy during open enrollment, you may not be able to buy the policy that you want later. You may find yourself having to settle for whatever type of policy an insurance company is willing to sell you. That is because insurers have greater freedom to deny applications or charge higher premiums for health reasons once open enrollment closes.
What's covered in a Medigap policy?
Under federal law, only 12 standardized plans can be offered as Medigap plans (except in Massachusetts, Minnesota, and Wisconsin, which have their own standardized plans). Each Medigap policy is labeled with the letters A through L. Plan A is the basic benefit plan, while Plan J offers the most coverage. All cover certain services, including Medicare coinsurance amounts. Plans B through J also offer some combination of other benefits. These include coverage of Medicare Part A and B deductibles, and preventive medical care. Plans K and L are designed to provide protection against catastrophic expenses. They have lower premium costs than other Medigap plans, but require you to pay some higher coinsurance costs until you meet an annual out-of-pocket limit.
You can buy the Medigap plan that best suits your needs. But it's important to note that not all Medigap plans are available in every state.
Are all Medigap policies created equal?
Generally, yes. Although Medigap policies are sold through private insurance companies, they're standardized and regulated by state and federal law. A Plan B purchased through an insurance company in New York will offer the same coverage as a Plan B purchased through an insurance company in Texas. All you have to do is decide which plan that you want to buy.
However, even though the plans that insurance companies offer are identical, the quality of the companies that offer the plans may be different. Look closely at each company's reputation, financial strength, and customer service standards. And check out what you'll pay for Medigap coverage. Medigap premiums vary widely, both from company to company and from state to state. You can find a tool on the Medicare website (www.medicare.gov) that will help you compare Medigap policies offered in your area.
Does everyone need Medigap?
No. In fact, it's illegal for an insurance company to sell you a Medigap policy that substantially duplicates any existing coverage you have, including Medicare coverage. In general, you won't need a Medigap policy if you participate in a Medicare managed care plan or private fee-for-service plan, or if you qualify for Medicaid or have group coverage through your spouse.
You may also not need to buy a Medigap policy if you work past age 65 and have employer-sponsored health insurance. You can still enroll in Medicare, but your employer-sponsored insurance will be your primary payer, so you'll submit claims to them first. Medicare will be the secondary payer, paying costs covered by Medicare but not covered by your employer's plan. If you find yourself in this situation, you may want to enroll in Medicare Part A, since it's free. Remember that if you enroll in Medicare Part B, your open enrollment period for Medigap starts. If you don't buy a Medigap policy within six months, you may be denied coverage later or charged a higher premium.
In addition, you may not need to buy a Medigap policy if you are covered by an employer-sponsored health plan after you retire (e.g., as part of a retirement severance package). In this case, your employer's plan will be your primary payer, and Medicare will be your secondary payer. However, if you wish, you can convert your employer-provided plan into a Medigap policy. In fact, some insurance policies automatically change coverage when you reach age 65 because they assume that you will sign up for Medicare. Keep in mind, though, that coverage and premium amounts may change.
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