How Medicare Supplement Plans Work and Understanding Medigap Insurance

Let's face a person newly eligible for Medicare, it can seem very difficult. In this section we explain the basics of how Medicare supplement insurance plans work. We want you to understand the core nature of how Medigap insurance fills the gaps in coverage. Medicare is primarily divided into three sections: Part A, Part B, and Part D. These are key benefit sections of Medicare. Let's look at each one separately. Again, this is a simplified description to help introduce the way Medicare works.

Medicare Part A. Hospital/Facility

Part A is the part that you pay into your whole life through payroll deductions. If you are a foreign citizen, you can also "buy in" to Part A assuming you did not contribute to it through payroll deductions.

Part A is the part of Medicare that pays for hospital and facility costs that you incur. This is really where the big bills are in today's medical world. Hospital costs can quickly run 10's of thousands of dollars.

Part A works like an 80/20 plan with a deductible. This means for a calendar year, you pay the deductible first and then you pay 20% of the remaining charges associated with hospital/facility costs. Of course, the issue here is what if you have a $100K bill. You do not want to pay 20% of $100K or $20,000! That's where the Medicare supplement or Medigap policy comes in. The core plans cover the deductible and the 20%. This is very important to protect you from the big bills.

Medicare Part B. Physician costs

Part B is the part that covers physician costs. You must opt for the additional coverage and also pay a monthly premium to medicare to get Part B. Part A does not require an additional payment. This Part B premium but yours may be higher as it is now means tested. This means that you may pay higher if you are in a higher income bracket.

Part B works similarly to Part A above. It works like a 80/20 plan with a deductible as well. You pay the deductible first and then you 20%. Again, the issue with just having Medicare is that you do want to be on the hook for 20% of a large bill. Again, the Medicare supplement or Medigap policy covers the deductible and the 20%.

Medicare Part D. Medication costs

Part D is the newest addition to Medicare. It is unique in that Medicare is paying the bill but private health insurance carriers are administering the benefit. This expansion of the original Medicare plan was created to handle prescription ever increasing part of health care costs going forward. There are many options on the market now for Part D coverage. Each carrier tends to have 2-3 options. They tend to have separate copays for generic and brand name medications. This coverage will become a commodity going forward so if it is too good to be probably is. The general price range should run from $20-40 monthly in terms of premium. There are plans on the market that are very cheap but they do not cover much. They are termed "place holders" since they allow a person to avoid the penalty for not signing up for Part D. Part D is very different from most other coverages in that you can change plans regardless of health Nov 15th through Dec 31st of each year. One quick note...the so called "donut hole". After your total medication costs hit $2250, you will have to pay for your medication costs until you personally pay $3600 annually out of your pocket.

So...not too bad after all. Medicare is essentially an 80/20 plan with deductibles for hospital and physician costs. Part D now covers medication costs with copays. There are other little ancillary benefits and details but the core benefits are the 80/20, deductibles, and Copays. At this Medicare supplement site, you can find all the detail on the actual benefits and information on how and when to enroll. With a Medicare supplement used in conjunction with Medicare, you potentially can have very little out of pocket.