Medigap

Medigap refers to various private supplemental health insurance plans sold in the United States to help pay for medical expenses not covered (or only partially covered) by Medicare. Medigap's name is derived from the notion that it exists to cover the difference or "gap" between the expenses reimbursed by Medicare and the total amount charged. A person must be enrolled in part A and B of medicare before they can enroll in a Medigap plan. During open enrollment (3 months before and 3 months after month of 65th birthday) a person may obtain a medigap plan with no health questions asked. Outside of open enrollment, the issuing insurance company will require medical questions to be answered and may obtain an attending physicians statement if necessary. Medigap insurance is normally not necessary if a person participates in an enhanced type of Medicare, such as a Medicare Advantage plan.

Medigap offerings have been standardized by the Centers for Medicare and Medicaid Services (CMS) into twelve different plans, labeled A through L, sold and administered by private companies. Each Medigap plan offers a different combination of benefit. The coverage provided is normally proportionate to the premium paid. However, many older medigap plans offering minimal benefits will cost more than more current plans offering full benefits. The reason behind this is that older plans have an older average age per person enrolled in the plan, causing more claims within the group and raising the premium for all members within the group. Since Medigap is private insurance and not government sponsored, the rules governing the sale and offerings of a Medigap insurance policy can vary from state to state. Some states such as Massachusetts, Minnesota, and Wisconsin require Medigap insurance to provide additional coverage than what is defined in the standardized Medigap plans. Some employers may provide Medigap coverage as a benefit to their retirees.

Drug coverage
Some Medigap policies sold before January 1, 2006 may include prescription drug coverage, but after that date no new Medigap policies could be sold with drug coverage. This time frame coincides with the introduction of the Medicare Part D benefit.

Medicare beneficiaries that enroll in a Medicare Part D plan may not also retain a Medigap policy with drug coverage. People with Medigap polices with drug coverage that enrolled in Medicare Part D by May 15, 2006 had a guaranteed a right to switch to another Medigap policy that has no prescription drug coverage, but beneficiaries that retained a Medigap policy with drug coverage after that date have no such right; in that case the opportunity to switch to an Medigap policy without drug coverage is solely at the discretion of the private insurance company issuing the replacement policy.

Medicare beneficiaries that hold a Medigap policy with drug coverage, who then enroll in a Medicare Part D Plan after May 15, 2006 will have to pay a late enrollment penalty. The only exception is for the few beneficiaries holding a Medigap policy that, on average, pays out at least as much as standard Medicare prescription drug coverage. A Medigap policy with prescription drug coverage bought before mid-1992 may pay out as much as or more than a Medicare Part D plan. Medigap policies sold in Massachusetts, Minnesota, and Wisconsin with prescription coverage may also pay out as much as or more than Part D.