Do I Need Supplemental Insurance if I Have Medicare? (2024)

When you enroll in Medicare, you'll likely see ads asking if you want to sign up for extra insurance. You might wonder why you would need supplemental insurance if you have Medicare.

However, while Medicare covers a large share of your health care bills, it will not pay for everything. That's where having some extra insurance can help. If you're wondering why you may need Medicare supplemental insurance and how to choose it, here's some information.

Why Do I Need Supplemental Insurance If I Have Medicare?

If you look at the Medicare website, they list out what you could owe out of pocket for needing care.¹ You may be responsible for some sizable deductibles, co-payments and coinsurance costs.

For example, under Medicare Part B, the government pays for 80% of doctor services, and you pay the other 20%. So, if you had a $100,000 surgery, you would owe $20,000 yourself. Adding Medicare supplemental insurance can help you cover these large bills.

What Do Medicare Supplement Plans Cover?

Private insurance companies sell Medicare supplement insuranceto help cover these extra out-of-pocket costs. They are also known as Medigap policies because they fill in the Medicare coverage gaps.

Typically, you pay an insurance company a monthly premium, and they agree to pay for deductibles, coinsurance and other out-of-pocket costs from Medicare, according to your insurance policy terms. Note that these policies do not pay for prescription drugs. If you want insurance for your prescriptions, you could purchase an additional Medicare Part D plan.

How Do I Choose Medicare Supplement Insurance?

Insurance companies label Medigap plans with a letter (A through N) to show what benefits are included. For example, according to Medicare.gov, Medigap Plan F will pay for health care during foreign travel but Plan A will not.²

To make it easier for consumers, the government requires that insurance companies offer the same benefits for each type of Medigap policy. In other words, Medigap Plan G will offer identical coverage at every company. The premium could be different, but the benefits will be the same.

Each plan is a trade-off between the amount of coverage and the premium cost. Medigap Plan K might have a lower premium because it only covers 50% of the Medicare Part B coinsurance (the 80/20 split for doctor services). On the other hand, Plan C covers the entire Medicare Part B coinsurance but will likely charge a higher monthly premium.

Who Is Eligible for Supplemental Insurance?

Anyone who has Medicare Part A and Part B is eligible to apply for a Medicare supplement plan. However, you need to qualify for coverage with the private insurance company. When you first turn 65 and sign up for Medicare Part B, you have a Medigap open enrollment period that lasts six months.³ During this time, you could sign up for any Medigap plan in your area and the insurer must accept your application, even if you have preexisting health conditions.

After the open enrollment period, you can still try signing up for a policy, but the insurance company could ask you questions about your health for underwriting. If you have preexisting conditions, they could increase the premium or even deny giving you a policy.

Are There Any Other Considerations?

To keep your Medicare supplemental insurancecoverage, you need to pay premiums throughout the year. This is an additional cost during retirement. If you don't end up needing treatment, it's possible you could pay more in premiums than the value you'd get from the policy, similar to any health insurance program.

Keep in mind that these policies only cover medical bills. They do not provide coverage for prescription drugs, dental care, routine eye care or long-term care. Instead, you would need to pay for these out of pocket or have coverage in place through another insurance policy.

Are There Alternative Insurance Programs?

Besides Medigap, you could also cover your retirement health insurance costs through a Medicare Advantage plan. Medicare Advantage is private health insurance. Through this program, you would leave traditional Medicare and instead have the private insurer pay for your health care bills. The government also sets up regulations so the Medicare Advantage coverage must be similar to Medicare.

Medicare Advantage policies typically have a bit more flexibility than Medigap and can include extra benefits such as dental, vision and prescription drugs. They may also charge a lower monthly premium than Medicare supplement plans.

The downside of Medicare Advantage is that you would need to renew your policy each year during an annual enrollment period. The insurance company can change your benefits or even cancel the plan altogether during this time, so you may need to find a new one in such an event. The co-payments and deductibles can also be higher for Medicare Advantage than for Medigap.

The Bottom Line

As you figure out how to manage your retirement health care coverage, consider speaking with a financial representative. They can help you determine the next steps for managing health care costs in retirement.

Sources

1. Costs. https://www.medicare.gov/basics/costs/medicare-costs.
2. Compare Medigap Plan Benefits. https://www.medicare.gov/health-drug-plans/medigap/basics/compare-plan-benefits.
3. Get ready to buy. https://www.medicare.gov/health-drug-plans/medigap/ready-to-buy.