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Do I Need Supplemental Insurance if I Have Medicare?

Last Updated: September 1, 2022
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Medicare is a healthcare safety net for seniors in the U.S. The federally run program provides free hospital insurance and low-cost medical insurance for qualified seniors over the age of 65. But like all safety nets, Medicare has a few holes — more practically known as gaps in coverage. Depending on the type and frequency of the medical services you need, those gaps can be costly. 

Fortunately, you have options to plug the holes in that safety net. Those options comprise a category of paid healthcare plans called Medicare supplemental insurance. 

Medicare basics  

Before diving into the options for Medicare supplemental insurance, it’s helpful to review some Medicare basics. First, standard Medicare, also called Original Medicare, includes Part A Hospital Insurance and Part B Medical Insurance. Hospital insurance covers in-patient stays, while medical insurance covers doctors’ visits, including those required while you are admitted to the hospital. Most seniors do not pay a premium for the hospital coverage, but there is a monthly premium for Medicare Part B. 

Both the hospital and the medical insurance coverage require you to assume some financial responsibility for your care, in the form of deductibles, co-insurance, and copayments. Notably, Medicare puts no lifetime cap on these out-of-pocket expenses for covered services.

You should also know that there’s a range of healthcare services Medicare doesn’t cover at all. So, while you share in the expenses of covered services, you take full financial responsibility for non-covered services. That creates a fair amount of financial uncertainty and underpins the need for plans that supplement Medicare.

Medicare supplement plans: What is Medigap? 

Medigap is one of the most common ways to supplement Medicare. This is a standardized, regulated health plan that pays part of the out-of-pocket medical costs for individuals insured by Medicare. All Medigap policies are offered by private health insurers, and they’re always coupled with Original Medicare.

Depending on where you live, you may have your choice of up 10 types of Medigap policies. Each has different levels of coverage, but all address cash expenses arising from Medicare, such as deductibles, copayments, and coinsurance. The types of Medigap policies are identified by letters and, with a few exceptions, all policies with the same letter must offer the same coverages. Those exceptions apply only in certain states. For example, in Massachusetts, Minnesota, and Wisconsin, Medigap plans are standardized differently. And some states may offer what’s called Medicare SELECT. This is a lower cost plan that limits you to in-network healthcare providers

You do pay a premium for Medigap coverage, which would be in addition to the premium you’re paying for your Part B Medicare. 

What Medigap covers

All Medigap policies address 50% to 100% of your Medicare Part B coinsurance or copayment and your Part A hospice care coinsurance or copayment. Most Medigap plans cover 50% or more of your Part A deductible, and some will cover your Part B deductible as well. Two Medigap options, Plans K and L, even place a cap on your annual out-of-pocket expenses

While a Medigap policy reduces your out-of-pocket costs for healthcare, it does not expand the services Medicare covers. Original Medicare, for example, does not cover prescription drugs, vision, dental, and ear care. And Medigap offers no benefits in these areas either. The only exception is that some Medigap plans do provide international health coverage while you are travelling, which you don’t get from Original Medicare alone. 

For more information about Medigap, please reference the 2022 Medigap policy guide, developed by the Department of Health and Human Services.

Medicare supplement plans: What is Medicare Advantage?

Another option to supplement your Medicare is Medicare Advantage. Medicare Advantage is like Medigap in that it’s regulated coverage offered by private health carriers. But that’s about where the similarities end. Medicare Advantage, also called Medicare Part C, is an alternative to Original Medicare. It includes standard Part A and Part B benefits along with other services. Many Medicare Advantage plans, for example, include Part D prescription drug coverage at no additional cost. Some offer dental and vision coverage as optional add-ons

Shopping for a Medicare Advantage plan is like shopping for any type of private insurance. You can’t make the decision on premiums alone; you have to evaluate copayments, deductibles, coverage limits, covered services, and caps on out-of-pocket expenses. All of these can vary from one plan to another. Medicare Advantage plans also specify the physician or provider network you can use

Premiums for Medicare Advantage plans vary as well. Some plans have no premium, other than your Medicare Part B premium. Other plans have a premium that’s in addition to your Part B premium. And some will cover part or all of your Part B premium for you. 

Comparing Supplemental Insurance Plans: Medicare Advantage vs. Medigap

So, how do these two programs line up against one another? Here are the key differences: 

  • Medigap plans are standardized, while Medicare Advantage plans are not. 
  • You can only buy Medigap if you have Original Medicare. Medicare Advantage is an alternative to Original Medicare. You cannot combine Medigap with Medicare Advantage. 
  • Your Medigap premium is in addition to your Part B Medicare premium. With Medicare Advantage, you may or may not have to continue paying your Part B premium. Some Medicare Advantage plans pay some or all the premium for you
  • Medigap does not expand the services that are covered by Medicare. Medicare Advantage plans, however, may cover more services than Original Medicare.  
  • When you have Medigap with Original Medicare, you can see any healthcare provider that accepts Medicare. Medicare Advantage plans restrict you to in-network providers, by limiting or eliminating the benefits you receive with out-of-network providers.  
  • Medigap premiums are usually higher than Medicare Advantage premiums.
  • Medigap reduces the out-of-pocket expenses you’ll incur with Original Medicare. Medicare Advantage restructures those expenses, but they won’t necessarily be lower. Medicare Advantage does put a cap on lifetime out-of-pocket expenses, which doesn’t exist with Original Medicare and Medigap.
  • Some Medicap plans cover you when you’re travelling to another state or country. Medicare Advantage plans won’t typically cover healthcare expenses you incur while traveling.  

Other ways to supplement Medicare

If Medigap and Medicare Advantage don’t meet your needs, there are other ways to supplement your Medicare coverage, including:  

  • Group health coverage from your employer, former employer, spouse’s employer, or spouse’s former employer: Depending on the size of the employer sponsoring the health plan, Medicare may be your primary or secondary health coverage, also known as primary or secondary payer. The primary payer receives claims first and pays the healthcare provider according to the plan limits. If there are leftover costs, the secondary payer reviews the claim and pays according to its plan limits. Even with two payers, you may still have additional, out-of-pocket costs.  
  • Private dental and vision coverage: Original Medicare insurance does not cover these services at all, so this coverage would operate independently of your Medicare. 
  • Medicaid: If you qualify for Medicaid, it would be your secondary insurance and Medicare would be your primary.
  • Life settlement: If you have a life insurance policy, you may be able to sell it through a transaction known as a life settlement. The process yields a payout that’s an average 4-11 times higher than the cash surrender value and worth up to 60% of the death benefit. You can use the proceeds however you’d like, including creating an emergency fund for unplanned medical expenses. In this sense, you can supplement you coverage with a cash safety net. 

Medicare supplemental insurance FAQs

Are supplemental insurance plans worth it?

It depends. Most seniors do supplement Medicare in some way. Those that don’t have access to group health coverage will often invest in a Medigap policy to supplement Original Medicare or Medicare Advantage plan in lieu of Original Medicare. The right choice between these two really hinges on what you need. Medicare Advantage has lower premiums, which can keep costs down for healthy seniors. Medigap has higher premiums than Medicare Advantage plans. But those higher premiums may be worth it when: 

  • You have health issues that require frequent doctor visits. 
  • You travel frequently out of your home state or out of the country. 
  • You prefer to choose your own doctors and specialists, rather than seeing only the healthcare providers that are in your plan’s network.

Do I need supplemental insurance if I have Medicare? 

If you have access to another form of health coverage, such as retiree or spousal benefits, you may not need to buy supplemental health insurance because most of your health costs will likely be covered between Medicare and Medicaid. However, the level of Medicaid coverage you receive may impact what’s covered, so supplemental insurance may still be worth looking into if you don’t have full coverage. If you see the doctor often, you can keep your cash expenses low with a Medigap policy. If you are generally healthy, but would like the peace of mind of prescription drug coverage, vision care, and dental care, a Medicare Advantage plan is worth a look.

How is Medigap different from Medicare Advantage? 

Medigap supplements Original Medicare, while Medicare Advantage is an alternative to Original Medicare. Medigap does not significantly expand the range of services that are covered by Medicare; instead, it reduces your out-of-pocket costs for using those covered services. Medicare Advantage plans usually have a wider set of covered services relative to Original Medicare, but you are still responsible for copays and coinsurance as outlined in your policy. When you have Original Medicare and Medigap, you can receive care from any health provider that accepts Medicare. On the other hand, Medicare Advantage plans generally restrict you to healthcare providers within a network.

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Catherine Brock

Catherine Brock is a personal finance writer who's been featured in The Motley Fool, Refinery29, and has made appearances on ABC7 Chicago, FOX2News St. Louis, KCAL9 Los Angeles, Fox19 Cincinnati, WGN TV Chicago and WCPO TV Cincinnati. When she's not writing, she can be found riding a horse in the country or shopping online for clothes.

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