How Do Medigap Policies Work?

Understanding Your Medigap Policy and Supplemental Insurance

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Original Medicare (which includes Part A Hospital Insurance and Part B Medical Insurance) pays for most of the cost of enrollees' health-related services and medical supplies. But there is some cost-sharing (coinsurance and deductibles) that can result in a lot of out-of-pocket expenses, especially if you are hospitalized, need skilled nursing facility services, or receive extensive outpatient care such as ongoing dialysis.

Fortunately, Medicare Supplement Insurance (also known as Medigap policies) can cover these "gaps" by picking up all or most of the out-of-pocket costs that you'd otherwise have to pay if you had Original Medicare on its own. Some Medigap policies also will pay for certain health services outside the United States and additional preventive services not covered by Medicare.

Medigap insurance is voluntary—you're not required to purchase it—and you are responsible for the monthly or quarterly premium. Medicare will not pay any of your costs to purchase a Medigap policy.

How Do Medigap Policies Work?

If you are in Original Medicare (Part A and Part B) and you have a Medigap policy, first Medicare pays its share of the Medicare-approved amounts for your covered health care costs. Then your Medigap policy pays its share of the cost.

But it's important to understand that in most cases, the Medigap plan is picking up the out-of-pocket expenses for things that Medicare does cover, just not in full. A Medigap plan won't cover things like long-term care or dental and vision care, since those are things that Medicare doesn't cover.

For example: Alice G has type 2 diabetes and visits her primary care physician every three to four months for follow-up care. Her Medigap policy covers Part B coinsurance, but not her Part B deductible. At the beginning of the year, she pays for the first $198 of her medical visit costs (this is the Part B deductible in 2020). Thereafter, Medicare pays 80% of the Medicare-approved amount of her doctor’s visit and her Medigap policy pays the remaining 20%. Medicare approves an office visit amount of $65, so Medicare pays $52, Medigap pays $13, and Alice doesn't have to pay anything.

Medigap policies are sold by private insurance companies. These policies are required to be clearly identified as Medicare Supplement Insurance. And, each policy must follow Federal and state laws designed to protect consumers.

In all but three states, Medigap insurance companies can only sell you a standardized Medigap policy identified by letters A through N. There are some letters missing, because plans E, H, I, and J were no longer sold after June 2010, and Plans M and N were added. People who already had plans E, H, I, or J were allowed to keep them. As of 2020, Plans C and F are no longer available to people who are newly-eligible for Medicare, although people who became eligible for Medicare prior to 2020 can keep or newly-enroll in those plans.

Each Medigap plan must offer the same basic benefits, no matter which insurance company sells it. So, Medigap Plan G has the same set of benefits regardless of insurance company or location.

A Medigap tip from Dr. Mike: Not all plans are available in all areas. And, three states—Massachusetts, Minnesota, and Wisconsin—have their own Medigap policies that are different from the standard Medigap plans.

How Much Does Medigap Insurance Cost?

How much you pay for a Medigap policy depends on the plan you pick and which insurance company you use.

Each of the plans (A through N) offers a different set of benefits and the costs vary with the amount of coverage. In general, Plan A, which provides the fewest benefits, generally has the lowest premiums. Medigap plans that offer more benefits, such as Plan F and G, usually have a higher premium.

According to the American Association for Medicare Supplement Insurance, Plan F is by far the most popular choice, with 54% of Medigap enrollees selecting Plan F in 2018 Plan N is next, with 11% of enrollees; Plans D and G have a combined 19% of enrollees. As of 2020, however, Plan F and Plan C are no longer available for newly-eligible Medicare enrollees to purchase. This is due to legislation passed in 2015 that prohibits the sale (to newly-eligible enrollees) of Medigap plans that cover the Part B deductible, which Plans C and F both do. Medicare beneficiaries who became eligible prior to 2020 can keep or purchase Plans C and F, but newly-eligible beneficiaries cannot.

Plan F is the most comprehensive Medigap option, and tends to be the most expensive. According to a Business Insider analysis, the average cost of Medigap Plan F in 2018 (for a 65-year-old) was $143/month. But it ranged from an average of just $109/month in Hawaii to an average of $162/month in Massachusetts.

The most comparable Medigap plan available to newly-eligible Medicare enrollees as of 2020 is Plan G; it's the same as Plan F except that it doesn't cover the Part B deductible. The American Association for Medicare Supplement Insurance analyzed 2020 Plan G premiums for a 65-year-old male and found premiums ranging from $109/month in Dallas to $509/month in Philadelphia. But in each area, there are numerous insurers offering Plan G, and the prices vary significantly from one insurer to another.

Although Medicare defines what each Medigap plan offers, it does not regulate what the insurance company can charge. Private insurance companies can charge different premiums for exactly the same Medigap coverage.

For example: In North Carolina, as of 2020, the monthly premium for Medigap Plan A (for a 65-year-old) ranges from a low of $97 to a high of $1465. This would amount to an annual difference of $16,417 between the premiums for the lowest-cost plan versus the highest-cost plan—both of which have identical benefits.

What Type of Benefits Do Medigap Policies Offer?

Medigap plans A through N all include the following basic benefits:

  • Inpatient Hospital Care: Covers the Medicare Part A coinsurance (but not the Part A annual deductible) plus coverage for an additional 365 days after Medicare coverage ends. (All of the Medigap plans except Plan A do, however, cover some or all of the Medicare Part A deductible, in addition to covering the Part A coinsurance.)
  • Outpatient and Physician Costs: Covers the Medicare Part B coinsurance (but not the Part B annual deductible) or copayments for hospital outpatient services. The Part B coinsurance is generally 20% of the Medicare-approved amount for the service.
  • Blood: Covers the first three pints of blood you need each year.
  • Hospice Care: Covers the Part A hospice care coinsurance.

[Note that Medigap Plans K and L pay a portion of the costs for outpatient/physician costs, blood, and hospice care. But they do not fully cover the out-of-pocket costs for those services. Medicare.gov has a chart showing how each plan covers the various out-of-pocket costs that a Medicare beneficiary could have.]

Depending on which Medigap plan you select, you can get coverage for additional expenses and benefits Medicare doesn't cover, including:

  • Hospital (Part A) annual deductible (plans B to N, but with partial coverage from Plans K and L)
  • Skilled nursing facility coinsurance (plans C to N, but with partial coverage from Plans K and L)
  • Emergency care during foreign travel (plans C, D, F, G, M, and N)
  • Medicare Part B excess doctor charges (plans F and G). An excess charge is an amount above the Medicare-approved amount that a doctor who does not participate in the Medicare program (but who has not opted out altogether) can charge.

Medicare Part B Deductible Coverage: No Longer Available to New Enrollees

Medicare Part B has an annual deductible, which amounts to $198 in 2020 (it can change each year). Medigap plans C and F pay that deductible, but these plans are no longer available for people who become eligible for Medicare as of 2020 or later.

The Medicare Access and CHIP Reauthorization Act—MACRA—prohibits the sale of Medigap plans that cover the Part B deductible as of 2020, but this only applies to people who are newly-eligible for Medicare. People who already had Medigap plans C or F prior to 2020 can keep them. And people who were already eligible for Medicare prior to 2020 can still apply for Medigap Plans C or F if they want to newly enroll in Medigap or change their coverage (keeping in mind, however, that Medigap insurers in most states can use medical underwriting if a person applies for a plan after their initial enrollment period ends)

A Medigap fact from Dr. Mike: Although Medigap Plans L and K provide fairly comprehensive coverage, they do not cover all of the out-of-pocket costs that an enrollee will have. Instead, for most services, they pay a portion of the out-of-pocket costs (50% for Plan K and 75% for Plan L) and the enrollee pays the rest. But these Medigap plans do have out-of-pocket caps, after which the Medigap plan will pay the full share of the covered out-of-pocket costs: In 2020, the caps are $5,880 for Plan K, and $2,940 for Plan L. There is also a high-deductible version of Medigap Plan F and Plan G, which require the enrollee to pay $2,340 before the Medigap plan starts to pay benefits.

When Can I Buy a Medigap Policy?

Unlike Medicare Advantage and Medicare Part D, there is no annual open enrollment period for Medigap plans. Federal rules grant a one-time six-month open enrollment window for Medigap, which starts when you're at least 65 and enrolled in Medicare Part B. During that window, all Medigap plans available in your area are available to you on a guaranteed-issue basis, regardless of your medical history. But after that window ends, it's gone forever. There are some limited circumstances that will allow you a guaranteed-issue right to buy a Medigap plan after that initial window ends, but for the most part, Medigap plans are medically underwritten after that six-month window ends.

In addition, there's no federal requirement that Medigap insurers offer plans on a guaranteed-issue basis when an applicant is under age 65 and enrolled in Medicare due to a disability (85% of all Medicare beneficiaries nationwide—more than 9 million people—are under age 65).

But states can set their own rules for Medigap eligibility. The majority of the states have implemented laws ensuring at least some access to Medigap plans for beneficiaries under age 65, and some states have made it easier for enrollees to switch from one Medigap plan to another, even after their initial enrollment window ends. You can click on a state on this map to learn how Medigap eligibility is regulated in the state.

Do I Need a Medigap Policy if I am enrolled in a Medicare Advantage Plan?

As long as you are enrolled in a Medicare Advantage Plan, you do not need to buy a Medigap policy, and it would not provide you with any benefits. In fact, it is illegal for anyone to sell you a Medigap policy if you are in an Advantage plan.

If you have a Medigap plan and then switch from Original Medicare to Medicare Advantage, you're allowed to keep your Medigap plan—and some people do, in order to ensure that it will still be there if they want to switch back to Original Medicare after their trial right period ends. But a Medigap plan won't pay for any of your Advantage plan's deductibles, copayments, or coinsurance, so it would essentially be dormant coverage for the whole time you have an Advantage plan.

Who Else Doesn't Need Medigap Coverage?

Medigap plans aren't necessary if you're covered by Medicaid in addition to Medicare (i.e., dual-eligible), or if you have coverage under an employer-sponsored plan that provides coverage that supplements Medicare.

As of 2016, according to a Kaiser Family Foundation analysis, 30% of Original Medicare beneficiaries had supplemental coverage from an employer-sponsored plan, 29% had Medigap coverage, and 22% had Medicaid. Most of the rest—19% of all Original Medicare beneficiaries—had no supplemental coverage at all, while 1% had some other type of supplemental coverage.

Where Can I Learn More About Medigap Coverage?

Before buying a Medigap plan, it’s important that you understand Medicare’s Medigap rules, your rights, as well as the Medigap options available in your state. The following resources are a good place to start:

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Article Sources
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