What is a Medicare Supplement Plan (MediGap)?
Medigap is also best known as Supplemental Insurance for medicare that helps fill “gaps” in Original Medicare. (Original Medicare is only Part A and B) and is sold by private companies. Original Medicare pays for much, but not all, of the cost for covered health care services and supplies. A Medicare Supplement Insurance (Medigap) policy can help pay some of the remaining health care costs, like:
- Copayments
- Coinsurance
- Deductibles
Other things to know about Medigap policies:
- You must have Medicare Part A and Part B:
You don’t technically need Medicare Part B to enroll in a Medicare Supplement plan, however without it, your supplement won’t cover any of your outpatient costs. Ultimately, it’s not likely to be cost-efficient to have a Medicare Supplement plan without Medicare Part B, and it isn’t recommended. - You pay the private insurance company a monthly premium for your Medigap policy. You pay this monthly premium in addition to the monthly Part B premium that you pay to Medicare.
- Some Medigap policies also cover services that Original Medicare doesn’t cover, like medical care when you travel outside the U.S.
Medicare Supplement Plans are optional.
What is Part D?
Medicare Part D simply put is coverage for your medication needs. Medicare Part D coverage is for people who are not enrolled in a Medicare Advantage Plan (as most of them include it) and have Part A and/or Part B.
Although Part D is optional, if you do not purchase Part D with Original Medicare, a Medicare Advantage Plan or have some other type of Creditable Coverage by the time you are 65 you will be subject to a penalty.
Medicare calculates the penalty by multiplying 1% of the “national base beneficiary premium” ($33.06 in 2021) times the number of full, uncovered months you didn’t have Part D or creditable coverage. The monthly premium is rounded to the nearest $.10 and added to your monthly Part D premium.
The national base beneficiary premium may change each year, so your penalty amount may also change each year.
How does Medicare Part D Coverage work?
- Annual Deductible
You will pay the network discounted price for your medications until you accumulate it and have satisfied the deductible. After that, you enter initial coverage. - Initial Coverage
During this stage of Part D drug coverage, you will pay a copay for your medications based on the drug formulary. Each drug plan will separate its medications into tiers. Each tiers has a copy amount that you will pay. For example, a plan might assign a $7 copay for a Tier 1 generic medication. Maybe a Tier 3 is a preferred brand name for a $40 copay, and so on. The insurance company tracks the spending by both you and the insurance company until you have together spent a total of $4,130 in 2021 (this may change yearly). - The Coverage Gap also known as (Donut Hole)
After you’ve reached the initial coverage limit for the year, you enter the coverage gap. During the gap, you will pay only 25% of the retail cost of your medications. In 2021, that limit is $4,130. While in the coverage gap, you are responsible for a percentage of the cost of your drugs.
NOTE: To get OUT of the gap, it only counts what you have paid in deductibles, copays and gap spending that year, plus manufacturer discounts. They do not count anything the federal government contributes. - Catastrophic Coverage
After you’ve reached the end of the coverage gap, your plan will kick in to pay 95% of the costs of your formulary medications for the rest of the year. This feature in Part D drug plans helps you limit your potential spending if you have expensive medications.
Definitions:
Copay
A fixed amount for a covered service (e.g. $10 or $20) you pay to an insurance provider
Coinsurance
The percentage of costs of a covered health care service (e.g. 10%, 20%) you pay after you've paid your deductibler
Deductible
The amount you pay out of pocket before your plan will pay any expenses
Out-of-Pocket Maximum
Maximum limit you'll spend out of pocket in a given calendar year
Out-of-Pocket
Amount you pay out of your own pocket for health services
Formulary
A list of generic and brand name prescription drugs covered by your health plan