What you Need to Know to Save Money with a Medicare Supplement
Updated: Jun 26
Choosing Original Medicare for your senior health care needs offers excellent flexibility and freedom. You have access to most doctors, hospitals and other health care providers throughout the U.S. Unlike other programs, you are not limited to those within a plan’s network, and you do not need a referral from a primary care doctor to see a specialist.
But this freedom comes with one major downside: exposure to unlimited out-of-pocket expenses because Original Medicare typically covers only 80% of approved Medicare costs. You are responsible for the remaining 20%.
As administered by the federal government, Original Medicare has two parts: Part A (hospital insurance) and Part B (medical insurance). Each part will have:
A deductible, or how much you have to spend before the policy begins paying.
Copays, or a fixed amount you might pay for each service or doctor visit.
Coinsurance, or a percentage of the expenses you pay after meeting the deductible (such as the remaining 20%).
Fortunately, a solution is Medicare supplement insurance, also called Medigap.
What is Medicare supplement insurance?
These plans do not replace Original Medicare. Instead, they work in tandem with Parts A and B. You will pay the plan’s premium to a private insurance company. The federal government defines ten standardized plans (Plans A-N). All “A” plans must offer the same coverage, regardless of what company sells them. The same holds true for B-N.
All plans cover all or part of your:
Part A coinsurance and hospital costs,
Part A hospice care coinsurance or copayment,
Part B coinsurance or copayment, and
The first three pints of blood.
Beyond that, some plans will cover:
Skilled nursing facility care coinsurance,
Part A deductible,
Part B deductible,
Part B excess charge, and
Some foreign travel costs.
Takeaway action step: You can compare the individual plans at the Medicare website, although not every plan is available in every state.
Insurance companies can choose which plans to offer in which states, as long as they meet each state’s requirements. So, once you determine which plan you want, you will have to research which companies offer that plan and at what cost.
Takeaway action step: The research tool on the Medicare website is an excellent place to start.
There are five ways to help save on upcoming medical costs with Medicare supplement insurance.
Five ways to save with Medicare supplement insurance
Shopping for the plan. Where you live will affect what premium you will pay. But even within your zip code, different insurers will charge different premiums for the same lettered plan, even though they offer the same benefits.
Takeaway action step: By finding the lowest-cost provider, you might be able to afford the premium of a more comprehensive plan and lower your out-of-pocket costs forever.
Premium increase calculations. How your premium is calculated will affect how much you pay in the future, so you want to know how your insurer determines premiums.
All premiums can go up because of inflation and other factors. But how your age affects your premium is determined by the “rating method.”
There are three methods:
Attained age (the most common). The premium is based on your age today and will increase with time because it mirrors how much health care you need.
Issue age. The premium is based on your age when you buy the policy, so the younger you are, the lower the premium. And it will not change because of age in the future.
Community (the least common). All policyholders must be charged the same amount, regardless of age, so the premium isn’t affected as you get older. This method offers the most price stability in the future, but the insurer may charge a little more upfront.
Excess charges. Medicare assignment is the fee Medicare will pay for a particular medical service in your location. About 97% of doctors accept Medicare assignment.
But those who don’t participate in Medicare – primarily specialists – can charge you up to 15% of the approved Medicare amount as “Part B excess charges.” You will have to pay this charge.
Takeaway action step: Be sure to ask your doctors in advance if they “participate” in Medicare. But also consider choosing a Medigap plan that includes excess-charge coverage.
Demographic information. Your Medigap premium will be affected by age, gender, tobacco usage, when you enroll, type of policy and available household discounts. While you cannot affect most factors, being tobacco-free for at least a year can lower your rate, and multiple policies in one household could mean a 5% price break.
Takeaway action step: Be sure to check on any discounts you might be eligible for.
Travel coverage. The advantage of Original Medicare is that you are covered anywhere in the U.S. But if you tend to travel abroad, having a Medigap plan may cover 80% of medically necessary emergency care outside the U.S. after you meet a yearly $250 deductible, with a $50,000 lifetime limit.
The real value of a Medigap plan
The most significant benefit of the combination of Original Medicare and a Medigap plan is that you can predict your health care costs, especially with the all-encompassing plans. You budget for the Medigap premium you can afford, and you should avoid most surprises.
Remember that Original Medicare and Medigap do not cover prescription drugs, so you may want to buy a Part D prescription drug plan from a private insurer.
 Kaiser Family Foundation. “How Many Physicians Have Opted-Out of the Medicare Program?” kff.org (accessed April 9, 2022).