Key Takeaways
- Medigap plans can drastically reduce your out-of-pocket costs under Medicare. They help cover the “gaps” that traditional Medicare doesn’t, but it’s crucial to understand when and how to use them.
- Medigap isn’t the only solution. Depending on your health needs, other options might make more sense—but you’ll need to weigh them carefully to avoid hidden out-of-pocket costs.
Understanding Out-of-Pocket Costs with Medicare
If you’re on Medicare or about to enroll, the phrase “out-of-pocket costs” might already have you cringing. Most people assume that once they’re on Medicare, all their healthcare expenses are covered, but that’s far from the truth. There are deductibles, coinsurance, and copayments that can add up fast. That’s where Medigap plans come into the conversation—they help plug the gaps that Medicare doesn’t cover. But is Medigap the best option for you?
Let’s break down the essentials, so you can decide whether you need a Medigap plan to keep those sneaky out-of-pocket costs in check.
What Are Medicare’s Out-of-Pocket Costs?
Before we jump into Medigap, let’s get clear on what traditional Medicare leaves you responsible for paying.
Medicare Part A (Hospital Insurance)
Most people don’t pay a premium for Part A, but there are costs to watch for if you end up in the hospital. In 2024, you’ll have a $1,632 deductible per benefit period, and after 60 days in the hospital, you’ll start paying $408 per day. After 90 days, that jumps to $816 per day until you use up your lifetime reserve days.
Skilled nursing care after a hospital stay can also add up. You get the first 20 days covered, but after that, it’s $204 per day for days 21 through 100.
Medicare Part B (Medical Insurance)
This is where people tend to get hit with a lot of unexpected costs. The standard monthly premium for 2024 is $174.70, but that’s not all. You also have a $240 deductible to meet. After that, you’re looking at 20% coinsurance for most doctor services, outpatient care, and durable medical equipment.
Medicare Part D (Prescription Drug Coverage)
Part D is great for helping with prescription drug costs, but it’s not free. On average, the monthly premium is around $55.50, and you may face up to a $545 deductible. Then, after you spend a certain amount, you enter what’s called the “coverage gap” or “donut hole,” where your costs go up until you reach the catastrophic phase. While catastrophic coverage kicks in earlier these days, you could still be looking at high costs before it does.
Why Medigap Plans Exist
Medigap plans exist to cover the costs that traditional Medicare leaves behind, such as the deductibles and coinsurance for Parts A and B. These plans can be lifesavers if you frequently visit the doctor, need ongoing care, or just want peace of mind. However, they come with their own set of complexities that are rarely discussed.
What No One Tells You About Medigap
Most people know that Medigap plans can cover the gaps in Medicare, but there are a few things that aren’t always talked about. Let’s dive into what often gets overlooked.
1. Medigap Doesn’t Cover Everything
Even though Medigap plans help with a lot of your out-of-pocket expenses, they don’t cover everything. For example, Medigap doesn’t include prescription drug coverage, so you’ll still need to enroll in a separate Medicare Part D plan. Medigap also won’t cover dental, vision, or hearing care, which are things a lot of people mistakenly assume are part of their Medicare coverage.
2. When You Can Enroll Matters—A Lot
There’s a very specific window when it comes to enrolling in a Medigap plan, and missing it could cost you. If you enroll during your Medigap Open Enrollment Period, which is the six months after you turn 65 and enroll in Part B, you can get a plan without worrying about medical underwriting. But if you miss that window, insurers can deny you coverage or charge you a lot more based on your health.
3. Medigap Only Works with Original Medicare
This might seem obvious, but it’s worth pointing out. If you decide to go with a Medicare Advantage Plan instead of Original Medicare, you can’t use Medigap. Medicare Advantage plans typically bundle hospital, medical, and sometimes even drug coverage into one, but they have their own network restrictions and costs that differ from Medigap.
4. Costs Can Vary Wildly
While Medigap plans are standardized by the government (meaning a Plan G or Plan N will offer the same benefits no matter where you get it), the cost of the plan can vary significantly depending on where you live, your age, and other factors.
Is Medigap Right for You?
The decision to get a Medigap plan depends on your personal situation. There’s no one-size-fits-all answer. Here’s how to think about it:
1. Do You Expect High Medical Costs?
If you’re dealing with chronic health issues or anticipate needing frequent medical care, a Medigap plan could save you a lot of money. With Medicare Part B’s 20% coinsurance, even a handful of doctor’s visits or outpatient treatments can add up quickly.
2. Do You Want to Avoid Surprise Bills?
Medigap plans can provide peace of mind. If you’re someone who doesn’t like surprises—especially when it comes to medical bills—Medigap could be worth it. You’ll pay a monthly premium, but you’ll avoid the big out-of-pocket costs that could arise from an unexpected hospital stay or outpatient treatment.
3. Do You Travel Frequently?
Original Medicare covers you anywhere in the U.S., but what about when you travel abroad? Some Medigap plans include coverage for emergency medical care while traveling internationally, which could be crucial if you spend a lot of time outside the country.
Alternatives to Medigap
While Medigap is a solid choice for many, it’s not the only option available. Depending on your needs, other approaches might make sense.
1. Medicare Advantage Plans
These are all-in-one plans that bundle Medicare Parts A, B, and sometimes D together. They often have lower premiums than Medigap, but you’ll have to deal with networks, pre-authorizations, and sometimes higher out-of-pocket costs for certain services. Medicare Advantage plans are great if you’re healthy and don’t expect a lot of medical expenses, but they could leave you with higher costs if your health changes unexpectedly.
2. Health Savings Accounts (HSAs)
If you’re still working and have a high-deductible health plan, you might be able to save money in an HSA and use those funds to pay for healthcare costs in retirement. This can be a flexible way to handle out-of-pocket expenses under Medicare, although you can’t contribute to an HSA once you’re on Medicare.
A Long-Term Decision
Choosing whether to get a Medigap plan is a big decision, and it’s one you’ll want to make carefully. While Medigap can help cover the gaps in Medicare, it’s not always the best option for everyone. Think about your current health, your financial situation, and how much risk you’re willing to take on when it comes to unexpected healthcare costs.
Don’t just assume that Medigap is a must-have because you’ve heard it’s the “safe” choice. Sometimes, other options like Medicare Advantage might make more sense, depending on your situation. The key is understanding your options and what each one will cost you—not just in premiums, but in potential out-of-pocket expenses.
Take Charge of Your Medicare Plan
If you take anything from this, remember: Medicare won’t cover everything, and out-of-pocket costs can sneak up on you if you’re not prepared. Medigap plans can help fill in some of the gaps, but they aren’t a magic bullet. Take your time, look at your health, your lifestyle, and your financial needs before making a decision.
