Why Buying Medicare Supplement Insurance at 65 is a Smart Financial Decision

Category: Medicare Originally Posted: December 11, 2014 by HealthCare.com Staff Last modified: April 13, 2015

Turning age 65 means becoming eligible for Medicare, the federal health insurance program that helps millions of older Americans pay for healthcare. Nearly 41.1 million adults age 65 and up were enrolled in Medicare, as of July 1, 2012. 1

While Medicare provides a basic level of health insurance for individuals 65 years and older, its benefits are limited. This means potentially exposing one’s lifelong retirement savings to costly medical bills. Medicare supplement insurance, commonly referred to as Medigap, offers a solution to help protect your finances.

Medicare supplement plans pay for healthcare expenses not covered by Medicaid, including copayments, coinsurance, deductibles and, depending on the plan selected, even emergency medical care when traveling outside the United States.2 Though some may wonder if it is necessary, purchasing Medicare supplement insurance can be a savvy financial move when you turn 65.

Medicare supplement plans help reduce out-of-pocket medical expenses

Depending on your healthcare needs, Medicare deductibles, copayments and coinsurance can add up quickly over the course of a year, potentially reaching thousands of dollars. Medicare supplement premiums may be less than $50 to a few hundred, depending on the plan you select, where you live and how the company rates policies.

The information below offers a high-level glance at what Medicare covers. In 2014, costs for Original Medicare—Parts A, B, C and D—were as follows:3

Medicare Part A – hospital insurance

Those who paid Medicare taxes while working do not pay a premium, but those who do not qualify for premium-free Part A paid up to $426 per month.

For a hospital stay, those with Medicare Part A paid the following:

  • $1,216 deductible per benefit period
  • $0 for the first 60 days of each benefit period
  • $304 per day for days 61 –90 of each benefit period
  • $608 per “lifetime reserve day” after day 90 of each benefit period, up to a lifetime maximum of 60 days

Skilled nursing facility stays were as follows:

  • $0 for the first 20 days of each benefit period
  • $152 per day for days 21–100 of each benefit period
  • All costs for each day after day 100 of the benefit period

Medicare Part B – medical insurance

Premium costs vary by modified adjusted gross income—anywhere from around $104.90 to $335.70 per month in 2014. The Part B deductible in 2014 was $147 for the year after which point Medicare pays its share of stated benefits.

For example, those who receive chemotherapy as outpatients or patients in a doctor’s office or freestanding clinic will pay:4

  • A copayment under Part B in a hospital outpatient setting
  • 20 percent of the Medicare-approved amount and the Part B deductible in a doctor’s office or freestanding clinic

Medicare Advantage Plan (Part C) and Medicare Prescription Drug Plan (Part D) Premiums

Plan premiums vary. Those with Part D may owe an adjusted monthly amount on top of their premium if their income exceeds a certain level.

The expenses incurred from hospitalization and the likelihood of incurring them increases with age. The average hospital stay for Americans age 65 to 84 was $12,300, according to the latest AHRQ report on the cost of hospital stays in the United States. This age group accounted for highest percentage of total U.S. hospital costs (33 percent) and stays (26 percent). The average hospital cost per stay paid by Medicare was $11,600, the highest average cost per stay for all payers.

To provide a basic overview, Medicare supplement plans A through G, M and N share the same core benefits—plans K and L cover them at a lower percentage:

  • Medicare Part A coinsurance and hospital costs (up to an additional 365 days after Medicare benefits are used) – 100 percent
  • Medicare Part B coinsurance or copayment – 100 percent
  • Blood (first 3 pints) – 100 percent
  • Part A hospice care coinsurance or copayment

After that, benefits vary among Medicare supplement plans and individuals must investigate and select the coverage that best meets their medical needs.

If you wait to enroll in a Medicare supplement plan, you may pay more or fail to qualify

You may be healthy and need little medical care at 65, but that can change. Medicare supplement plans are guaranteed issue during your Medigap Open Enrollment Period, which begins on the first day of the month in which you both turn 65 and enroll in Medicare Part B and lasts 6 months. At that time, you cannot be denied a Medicare supplement plan or charged more for having health problems. If you wait until after open enrollment, you are not guaranteed coverage unless specific circumstances apply.

Only those with Medicare Part A and Part B can enroll in Medicare supplement plans. Those with Medicare Advantage cannot enroll in a Medicare supplement plan unless they drop their Medicare Advantage coverage.

Shop for the best rate, but choose a company you trust

Private companies sell Medicare supplement plans, but they are limited to standardized plans based on state and federal laws. Medicare supplement insurance coverage is identified by letters A through N—plans E, H, I and J are no longer sold, though some previously covered individuals may still have them.

Beyond their carrier, Medicare supplement plan variations are essentially limited to premium cost and provider network. Cost may be a major factor in selecting a Medicare supplement plan, but it should not be the only factor. It is important to shop around.

  • Check the provider network to see if you have access to your preferred doctors and hospital and/or that those included are conveniently located.
  • Buy from a company you trust, one with good financial strength and high-quality customer service.
  • Be sure the plan you are buying is Medicare-approved. Unfortunately, Medicare fraud is a real problem and some unsavory companies and individuals will provide misleading information in an attempt to gather personal information and/or sell you a plan that is not valid Medicare supplement insurance or does not exist at all.

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Centers for Medicare & Medicaid Services. “What’s Medicare Supplement (Medigap) Insurance?” Medicare.gov. N.D. Retrieved from Centers for Medicare & Medicaid Services. “What’s Medicare Supplement (Medigap) Insurance?” Medicare.gov. N.D. Retrieved from.

Centers for Medicare & Medicaid Services. 2014 Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare. Revised February 2014. Retrieved fromhttp://www.medicare.gov/pubs/pdf/02110.pdf.

1 Centers for Medicare & Medicaid Services. “Medicare Enrollment – Aged Beneficiaries: As of July 1, 2012.” CMS Denominator File. N.D. Retrieved from http://www.cms.gov/Research-Statistics-Data-and-Systems/Statistics-Trends-and-Reports/MedicareEnrpts/Downloads/12Aged.pdf

2 Centers for Medicare & Medicaid Services. “What’s Medicare Supplement (Medigap) Insurance?” Medicare.gov. N.D. Retrieved from http://www.medicare.gov/supplement-other-insurance/medigap/whats-medigap.html

3 Centers for Medicare & Medicaid Services. “2014 Medicare Costs.” Medicare.gov. Revised Oct. 2013. Retrieved from http://www.medicare.gov/Pubs/pdf/11579.pdf

4 Centers for Medicare & Medicaid Services. Your Medicare Benefits. Revised Aug. 2014. Retrieved from http://www.medicare.gov/Pubs/pdf/10116.pdf

5 Pfuntner, A (Truven Health Analytics), Wier, LM (Truven Health Analytics), Steiner, C (AHRQ). Costs for Hospital Stays in the United States, 2010. HCUP Statistical Brief #146. January 2013. Agency for Healthcare Research and Quality, Rockville, MD. Retrieved from http://www.hcup-us.ahrq.gov/reports/statbriefs/sb146.pdf