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Medigap 101: What you need to know

See if Medigap supplemental insurance makes sense for you.

  • Health Savings Account
  • Living in Retirement
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  • Living in Retirement
  • Health Savings Account
  • Insurance
  • Living in Retirement
  • Health Savings Account
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  • Living in Retirement
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Key takeaways

  • Medicare does not cover all health care expenses in retirement.
  • Medigap can help eliminate many Medicare out-of-pocket costs, extend skilled nursing home and hospital coverage, and cover health care costs when traveling abroad.
  • You can generally keep your doctors under Medigap.

Jeff and Alison Otto of Framingham, Massachusetts, knew picking a Medicare plan would take time and effort. So they talked to friends, family, and their doctor, and read extensively about their options. What really surprised them was the realization that Medicare would not cover all their health care costs in retirement, including those when traveling abroad.

"We travel a lot and want the security of knowing we can get medical treatment away from home," says Jeff, who with Alison is looking forward to visiting her family in England. So like a quarter of retirees, the Ottos decided to buy Medigap insurance to cover health care costs that Medicare does not.

Medicare and Medigap

Since its introduction in 1965, Medicare was designed to cover only a portion of a retiree's health care needs. "Original Medicare" includes 2 parts: Part A, hospitalization coverage, and Part B, physicians and outpatient services. Only selected services are covered, and costs are shared between Medicare and you.

When it's time for you to sign up for Medicare, you have 3 primary options: You can choose to pay what Medicare doesn't cover from your own pocket, buy supplemental insurance, such as Medigap, or buy an all-in-one policy called a Medicare Advantage Plan.

Medigap plans, the focus of this article, are sold by private insurance companies and are identified by capital letters—A, B, C, D, F, G, K, L, M, and N.1 Each lettered plan, regardless of the insurance company, must offer the same standardized features. (Read Viewpoints on Fidelity.com, 6 key Medicare questions to learn about other Medicare options.)

Why buy Medigap?

Here are 4 common reasons retirees choose to add Medigap to traditional Medicare.

  1. Medigap can eliminate most of your Parts A and B out-of-pocket costs. Generally, under Medicare, you are responsible for a portion of the cost after deductibles. Your Medigap insurance may pay for your portion of coinsurance, copays, and other costs you owe.
  2. Medigap provides some long-term care coverage. With Medicare, you get a limited number of coverage days for hospital stays, time in a skilled nursing facility (for example, after surgery or for rehabilitation services after a fall), or if hospice care is needed. Medigap provides additional time in these facilities, just in case.
  3. Medigap covers health care needs when traveling abroad.2 If you don't plan to travel frequently, it might be more cost effective to look into travel insurance, including medical evacuation insurance for emergencies overseas. Pricing will depend on where you are going, your age, and how long you will be traveling. Read Viewpoints on Fidelity.com: Retiree travel tips for staying healthy abroad.
  4. Medigap generally lets you keep your doctors. Still, it's important to check with your doctors, specialists, hospitals, and medical facilities to make sure they accept the exact insurance company and Medigap policy you are considering.

When should you enroll in Medigap?

You can enroll in a Medigap plan after you've enrolled in Medicare Part B. Generally, there are 2 time periods when you'll be eligible without any medical underwriting or worry about pre-existing conditions.

  • You've turned 65 and enrolled in Part B. In this "initial enrollment period," you have 6 months to select and enroll in a Medigap policy.
  • You are older than 65 and losing employer coverage. Once you enroll in Medicare Part B, you'll have 6 months to buy a Medigap policy.

If you miss your initial 6-month enrollment window, insurance companies generally require medical underwriting and you can be denied coverage, or may have to pay a higher premium for a Medigap policy, sometimes substantially higher.

As time passes, you can switch plans based on cost or a different level of coverage, but do so cautiously. Do not stop paying premiums on your existing plan before you find a new plan that will accept you. Switching by choice usually means you'll be subject to medical underwriting. Higher costs or outright denial may be the outcome.

How much Medigap coverage?

When deciding how much gap coverage you'll need, it's important to think about your health situation at age 65 and how healthy you might be at 75, 85, and 95. Steve Feinschreiber, senior vice president at Strategic Advisers, Inc., a Fidelity Investments company, offers 4 rules of thumb to consider as you shop for Medigap insurance:

  1. Don't overestimate the status or durability of your good health. "Consider the practical reality of needing more insurance as you age," advises Feinschreiber. "Even elite athletes run into health problems as they move through the decades."
  2. Use your family health history as a guide. "Talk to your doctor about aging and take a look at your family history," says Feinschreiber. "It could be a good guide to help decide the kind of coverage you might want to plan for."
  3. Choose your insurance separately from your spouse. Since there is no "joint" or "family" coverage under Medicare, it may be most cost effective for you and your spouse to choose different coverage options from separate insurance companies.
  4. Weigh costs vs. coverage. Medigap plans can be quite costly. "If you find the costs for gap insurance are hurting the overall health of your retirement income plan, think about where you might be able to make trade-offs," says Feinschreiber. "It's about finding the right balance so you have sufficient coverage and don't run out of money over the course of your retirement."

Countdown to Medicare

Because choosing a Medigap plan can be rather time consuming and complicated, it's a good idea to get started early, perhaps by age 64, or at least 6 months before you retire. To simplify the process, use our checklist.

Checklist: Medicare and Medigap steps to take before you turn 65

(or at least 6 months before losing your employer health insurance)

Age 64

  • Order your "Medicare and You" book on www.medicare.gov.
  • Talk to your employer about coverage options if retiring or if continuing to work.
  • Schedule an appointment with your primary care physician to discuss Medicare and Medigap options.
  • Find and research the options you'll have in your state for Medigap policies. Compare what they offer and how much they cost.
  • Schedule any medical appointments needed, including vision and dental (to maximize your existing coverage).

1–3 months before turning age 65

  • Apply online for Medicare Parts A & B.
  • Make final decision for a Medigap policy.
  • Finalize any details with your employer.
  • Look for your Medicare cards to arrive in the mail.

65th birthday month

  • Confirm that your coverage is in place for the first day of your birthday month.
  • Apply for your Medigap Supplement Insurance.

Fortunately, the transition into Medicare and Medigap was quite seamless for the Ottos. They realize that their needs may change over time, especially as they curtail travel plans as they get older. "Although we've seen costs increase over the last 2 years since we enrolled in Medigap, we have the right level of supplemental coverage for now and think we're getting good value at $800 per month for the both of us including dental coverage," said Alison.

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