Who Needs Medigap?

Most Americans are automatically signed up for Medicare when they turn 65.  Created in 1965, Medicare is a federal government program that is intended to provide medical coverage for those who would not otherwise be able to afford it.  Money for Medicare comes from payroll deductions.

Original Medicare (as it existed prior to Balanced Budget Act of 1997) had two parts, A and B.  Part A covers hospitalization and related costs, and Part B pays for services not covered in Part A, primarily outpatient and doctor services.  Medicare reduces costs for these services (and increases availability) by effectively turning the over-65 population into one giant insurance pool, in order to spread costs and risks more widely.

However, Medicare does not pay for all medical services.  It does not cover copayments, deductibles, and coinsurance.  Nor does it cover long-term care, routine eye and ear services, or hearing aids or eyeglasses.  So there are always costs associated with medical care, even for those on fixed incomes and therefore less able to afford them.

This is where medigap plans comes in.  Simply put, a medigap policy is an insurance policy that is intended to cover what Medicare doesn’t – to fill in the gaps in coverage; hence the name.  Unlike Medicare, medigap policies are sold by private insurance companies.  However, they are strictly regulated by state and federal law and must clearly be labeled as “Medicare Supplement Insurance” on the front.

There are several medigap plans available, and in most states, insurance companies sell offer ten different plans, identified by letter.  Some states offer what is called Medicare SELECT.  This is a medigap policy which limits coverage to certain physicians and health care facilities specified by the policy.  As a result, Medicare SELECT policies generally cost less than most standard medigap policies.

Since medigap policies are offered by many private insurance companies, the wise buyer will shop around to get the best coverage for the best price.  The medigap policies offered vary in the amount of coverage they offer.  The customer should look at the coverage offered by each and determine his or her needs before buying.