Medicare supplement policies

What a Medicare supplement policy does

Original Medicare (Part A hospital insurance and Part B medical insurance) pays only part of a beneficiary's bill. The beneficiary still owes deductibles, coinsurance and copayments. A Medicare supplement policy, usually called Medigap, is private health insurance that pays some or all of those leftover costs. New York's statute defines it as an accident and health policy that pays or reimburses health care services not provided by Medicare.

Three points define the product:

• The buyer must be enrolled in both Part A and Part B.
• Medigap works only with Original Medicare. It does not work with a Medicare Advantage plan, and it is unlawful to sell a Medigap policy to someone the seller knows is in Medicare Advantage unless that person is leaving it.
• Medigap pays after Medicare pays its share of an approved charge. If Medicare does not approve a service, Medigap generally pays nothing for it either.

Standardized plans: same letter, same benefits

Medigap plans are standardized and identified by letters. Every Plan G sold by any insurer carries the same benefits as every other Plan G; what differs between insurers is mainly the premium, along with the insurer's service. New York's law requires a uniform system of designation that shows the type and scope of coverage.

Since June 1, 2010 the plans are A, B, C, D, F, G, K, L, M and N, plus a high-deductible version of F. Plans E, H, I and J were dropped. H, I and J had covered prescription drugs, which became the job of Medicare Part D, a separate stand-alone plan.

Basic benefits in every plan include:

• Part A hospital coinsurance, plus coverage for an extra 365 days of hospital care after Medicare's days run out
• Part B coinsurance or copayments
• The first 3 pints of blood each year
• Part A hospice coinsurance or copayments

Plans K and L pay the hospital coinsurance and extra days in full but only 50% and 75% of the other basic cost-sharing, and they cap the insured's yearly out-of-pocket spending.

Additional benefits vary by letter: the Part A deductible, the Part B deductible, skilled nursing facility coinsurance, Part B excess charges (what a non-participating doctor may bill above the Medicare-approved amount) and foreign travel emergency care.

Two newer designs trade lower premiums for more cost-sharing:

• Plan M pays 50% of the Part A deductible and none of the Part B deductible.
• Plan N does not pay the Part B deductible and adds copays of up to $20 per office visit and up to $50 per emergency room visit (the ER copay is waived if the patient is admitted).

The 2020 change for new enrollees

Federal law (MACRA) barred insurers, from January 1, 2020, from selling plans that cover the Part B deductible, which are C, F and high-deductible F, to anyone who first became eligible for Medicare on or after that date. People who already had those plans may keep and renew them. Plan G (and a new high-deductible G) became the closest option for new enrollees.

Medicare Select

Medicare Select is a Medigap policy that requires the insured to use network hospitals and sometimes network doctors, except in an emergency, to receive full benefits. In exchange, premiums may be lower. Otherwise it must meet every Medigap requirement.

Buying protections

• Open enrollment. Under federal law, during the six months that begin with the first month a person is both 65 or older and enrolled in Part B, an insurer cannot refuse to sell any Medigap plan it offers or charge more because of health. Some states go further. New York requires Medigap insurers to accept applications from Medicare enrollees all year.
• Pre-existing conditions. A policy may impose a waiting period of up to six months for conditions treated or diagnosed in the six months before coverage starts. The wait must be reduced by prior creditable coverage if there was no break longer than 63 days.
• Guaranteed renewable. Medigap cannot be cancelled because of the insured's health, only for nonpayment or a material misstatement on the application.
• Free look. The buyer has 30 days to review the policy and return it for a full refund.
• No duplication. A producer must not sell a policy that duplicates Medigap coverage the person already has.

Exam tip: Medigap covers Medicare's cost-sharing plus a few listed extras, such as foreign travel emergency care; it does not cover other services Medicare excludes. It does not pay for long-term custodial care, routine dental, vision or hearing care, or (in any plan sold today) outpatient prescription drugs.

What regulators require

The insurance department sets minimum standards for Medigap and a minimum loss ratio (benefits paid compared with premiums collected). Insurers must use plain-language disclosure (the standard outline of coverage), and no one may advertise or sell any health policy as a Medicare supplement unless it meets those standards.