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Turning age 65 means becoming eligible for Medicare, the federal health insurance program that helps millions of older Americans pay for healthcare. Nearly 56 million people are currently enrolled in Medicare.
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 Medicare, including copayments, coinsurance, deductibles and, depending on the plan selected, even emergency medical care when traveling outside the United States. 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. With a Medicare Supplement plan, you can significantly reduce your out-of-pocket costs.
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:
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 Part A 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 Medicare 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:
- 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 Part C (Medicare Advantage) & Medicare Part D (Medicare Prescription Drug Plan)
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.
What If I Wait to Enroll in Medicare Supplement Insurance?
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.
How to Select a Medicare Supplement Plan
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.
Taking the Next Steps
You can evaluate your Medigap coverage and see if it’s the best option for your needs.
For More Reading:
- Do You Need Supplemental Insurance with Medicare?
- How to Choose the Right Medicare Coverage
- How to Choose the Right Medicare Supplement Plan
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