Original Medicare requires beneficiaries to pay a deductible, as well as co-insurance or co-pays. Because there’s no cap on out-of-pocket expenses with Medicare, these costs can add up quickly. Medicare Supplement plans, also called Medigap plans, are private health insurance programs developed in conjunction with Medicare that pay most or all of these costs.
Medicare Supplement Plans are Standardized
Despite the thousands of insurance companies licensed to sell Medicare Supplement plans, it’s not that difficult to compare them. In most states, there are 10 different plans, identified by a letter: A through G, and K, L, M and N. The most important thing to keep in mind is that all such plans are standardized – that is, the benefits of a Plan A are identical no matter which insurance company sells it or which state it’s sold in. Likewise, a Plan G sold in New York has identical benefits to a Plan G sold in Oregon, and so on. The only difference, really, is the premium charged by different companies.
Narrrowing the Field
The most popular plans are the A, B, C, D, F and G plans, which offer participants various combinations of benefits. The other four plans -- K, L, M and N – are specially designed with lower premium costs and higher deductibles. K and L plans pay only limited benefits until you reach an out-of-pocket spending target, while M and N plans don’t pay the Part B deductible or co-pays. The M plan pays only 50 percent of the Part A deductible, which can mean you'll still have significant out-of-pocket costs.
Plans A and B are the most basic of the plans available. They each cover Part A co-insurance and an extra 365 days in the hospital, Part B co-insurance, the cost of the first 3 pints of blood, and Part A hospice care. In addition, the B Plan pays the Part A hospital deductible.
The F plan, the most comprehensive, includes everything in the B plan plus co-insurance for a covered stay in a skilled nursing facility, up to 80 percent of covered costs incurred out-of-country, the Part B deductible, and Part B excess charges.
The C, D, and G plans each have different combinations of these benefits.
The benefits offered by Medicare Supplement plans are self-explanatory except for “Part B excess charges.” Doctors who do not accept Medicare’s payment as payment in full are entitled to charge their patients an additional 15 percent above that amount. For instance, if Medicare pays $500 for an outpatient procedure, a doctor who doesn’t accept Medicare assignment may charge the patient an additional $75. Such excess charges are covered by Medicare Supplement plans F and G only.
Which Options to Select
It’s nearly impossible to say for certain that you won’t need a particular benefit at some point in the future, so one approach is to select the most comprehensive plan your budget will allow. The F plan is the most comprehensive; a G plan is identical except it doesn’t cover the Part B deductible, which in 2015 is $147 per year. The premium savings offered by the other plans are based on eliminating benefits. Analyze your health situation to determine whether you need those benefits to avoid significant out-of-pocket costs.
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