No gaps in understanding: Here’s your primer on Medigap coverage

Jul 26 2018

Every year, older adults can opt out of a Medicare Advantage plan and opt in to original Medicare during open enrollment season, which begins on Oct. 15. But unexpected problems can arise with this change. Notably, seniors who want to return to original Medicare might not be able to purchase Medicare supplemental insurance, also known as Medigap coverage.

Medigap covers some or all of the out-of-pocket costs associated with Medicare (deductibles, copayments and coinsurance), minimizing the financial risk to seniors. Under original Medicare, there is no limit to an individual's out-of-pocket liability. (By contrast, Medicare Advantage plans limit out-of-pocket costs to a maximum $6,700 a year.)

Yet private insurers are required to offer Medigap policies only when people first enroll in Medicare and under a few special circumstances. Otherwise, insurers can refuse to cover people with preexisting conditions, such as diabetes and heart disease.

"People think they can choose Medicare Advantage one year and traditional Medicare another year, and go back and forth without difficulty," said Tricia Neuman, senior vice president at the Kaiser Family Foundation and a co-author of a new report on consumer protections in Medigap. "But in states that don't guarantee supplemental coverage, this might not be a realistic option." (Kaiser Health News is an editorially independent program of the foundation.)

Only four states require insurers to issue Medicare supplemental policies to adults age 65 and older, regardless of their health status: Connecticut, Massachusetts, Maine and New York. Dozens of other states have more limited protections.

Craig Boyle, 69, learned about uncertainties surrounding Medigap the hard way three years ago, after he ran over a fire hose while biking to work in Denver and landed on his head.

Rushed to the emergency room, Boyle was told that he'd broken a couple of vertebrae but had a much bigger problem: Scans revealed two tumors at the top of his spine, compressing his spinal cord.

Surgery was in order, and doctor friends recommended two local surgeons with significant experience in this rare procedure. But neither worked with Kaiser Permanente of Colorado, the Medicare Advantage plan Boyle had chosen when he turned 65.

Boyle thought he could switch to original Medicare and be treated by a specialist at the University of Colorado's Anschutz Medical Campus. But two large Medigap insurers declined to cover him because the spinal surgery was a disqualifying preexisting condition.

"I have to say, I'm fairly knowledgeable about insurance, but I had no idea that this was a possibility," Boyle said.

He ended up getting lucky: A Medicare Advantage plan offered by Aetna in Colorado had in its network the University of Colorado surgeon he wanted to see. Boyle joined that plan (Medicare Advantage plans are required to accept all applicants), had the procedure and experienced no significant complications afterward.

Because your health needs can change after you first sign up for Medicare, it's important to understand the ins and outs of supplemental coverage, said Fred Riccardi, director of programs and outreach at the Medicare Rights Center. Your local chapter of SHIP (which often stands for Senior Health Insurance Assistance Program) is a good place to start.

Here's some essential information about Medigap coverage:

Medigap basics. Medicare supplemental policies help fill gaps in traditional Medicare coverage. There are 10 types of plans, each with standard benefits.

All plans cover coinsurance and copayments for Medicare Part A (hospital services), Medicare Part B (physician services and outpatient care), and hospice care, either in full or in part. All but one plan pays in full or in part for Medicare's hospital deductible — this year, $1,350 per hospital stay. Some plans pick up coinsurance costs for skilled nursing facilities ($167.50 per day after the first 20 days); some do not. Drug costs are not included among other benefits.

About 13 million people — over 95 percent of them older adults — had Medigap coverage in 2016, the most recent year for which data are available.

Premiums vary depending on someone's age, gender, geographic location and, in some states, smoking status. Monthly costs range from under $100 on the low end to over $250 on the high end, said Katie Haug, an insurance broker at Caravus in St. Louis.

Medigap open enrollment. Once you've enrolled in Medicare Part B, insurers are required to offer you a Medigap policy, regardless of your health status, over the next six months.

If you've chosen original Medicare, your automatic right to buy Medigap ends after this six-month period. Insurers can then exclude you from coverage or charge you more for a policy if you've been recommended for surgery or if you have a preexisting condition, such as chronic bronchitis, asthma or rheumatoid arthritis.

If you've chosen a Medicare Advantage plan, you have 12 months to change your mind, select original Medicare and qualify for a Medigap policy regardless of your health status. This ends after you've been enrolled in Medicare Advantage for a year. From this point on, Medigap insurers can take your medical status into account in deciding whether to offer you coverage.

Special considerations. Under federal law, you regain your right to buy a Medigap policy regardless of your health status under the following conditions: if your Medicare Advantage plan withdraws from the area where you live or is found guilty of fraud; if you move out of your plan's service area; or if your retiree health coverage is canceled by your former employer.

Twenty-eight states go further by requiring insurers to issue Medigap policies to seniors when an employer alters retiree health coverage. (More than 13 million people on Medicare have out-of-pocket expenses covered through retiree health plans.) Nine states have a similar requirement for people who become ineligible for Medicaid. (More than 7 million individuals on Medicare are also enrolled in Medicaid, which covers Medicare's out-of-pocket expenses.)

Last September, Boyle experienced another change in his insurance status when Aetna notified him it was discontinuing his Medicare Advantage plan in Colorado. Because this triggers an automatic right to purchase Medigap coverage, he was able to transfer to original Medicare — this time, with supplemental coverage from UnitedHealthcare.

Now, he and his wife pay $360 a month for their supplemental coverage. This arrangement works better since the couple divides their time between Colorado and Florida, where she has relatives and is treated for Parkinson's disease at a renowned clinic at the University of Florida.

"I have to say, I feel fortunate that things worked out for us," he said, "even though there were some rocky parts along the way."

KHN's coverage of these topics is supported by Laura and John Arnold Foundation, Gordon and Betty Moore Foundation and John A. Hartford Foundation