Help! My Client Fell Into the Medi-Gap!

Don’t panic. This issue comes up a lot at Cannon Financial Institute. We will guide you through this emergency and your client will be incredibly grateful to you. So, take a deep breath, let it out slowly to the count of ten (which will reduce your pulse rate), then read the following summary.

To refresh your memory: Medicare is comprised of four separate parts and you must sign up for each one separately.

1. Part A: Hospital Insurance
2. Part B: Medical Insurance
3. Part C: Medicare Advantage Plans (These plans are typically offered by HMOs, PPOs and usually combine Parts A, B and D. We will cover this in article 3)
4. Part D: Prescription Drug Coverage

People are often surprised to learn that Medicare has both deductibles and co-payments just like standard health insurance. The annual deductibles and the co-payments constitute “the gap” in coverage. Should you have a serious illness these costs can mount up. To ameliorate these costs, most Medicare users who have enrolled in Parts A & B, purchase a Medi-gap policy, which pays a portion of these out of pocket costs. (Most plans do not pay your annual deductible, however).

Key Takeaway:  to purchase Medi-gap coverage you must have enrolled in “original” Medicare. (Also referred to as “traditional” Medicare).  If you have enrolled in a Medicare Advantage Plan, which is a completely different type of plan, you cannot purchase Medi-gap coverage. Reason? Advantage plans are a different avenue to get Medicare benefits and includes Part D, prescription drug coverage, while a Medi-gap policy is a supplement to your original Medicare benefits.

Original Medicare is defined by the U.S. Centers for Medicare & Medicaid Services as:

“a fee-for-service health plan that has two parts: Part A (Hospital Insurance) and Part B (Medical Insurance). After you pay a deductible, Medicare pays its share of the Medicare-approved amount, and you pay your share (coinsurance and deductibles).”¹

Key takeaway: physicians are not required by law to accept Medicare. Most physicians have signed an agreement to accept assignment for all Medicare-covered services. That is, they accept the amount Medicare pays for various procedures. 

Private insurance companies approved by Medicare sell Medi-gap plans and each plan must offer the same benefits. However, there are ten standard Medi-gap plans with each designated by a letter from A to N.  Every lettered plan has the same basic benefits. The difference between the plans is the cost since more expensive plans cover additional medical procedures.

Key takeaway: neither Medicare nor Medi-gap plans provide for long-term “custodial care” provided by nursing homes. You must purchase a separate long-term care policy from a private insurer to get this coverage. However, Part A covers up to 100 days of "skilled nursing care.” This is difficult to qualify for and is completely different from “custodial care.”

Click here to download a free publication from Medicare which explains Medi-gap plans in detail.

OK, your client has enrolled in original Medicare and has Parts A and B and purchases a Medi-gap plan.  Now what? Skip Part C (Medicare Advantage plans which will be covered in our next article) and go directly to Part D which is for prescription drug coverage. As with Medi-gap policies, Part D drug coverage policies are offered by private insurance companies approved by Medicare. All plans must offer a drug in each category of prescription drugs, but the drugs can be different.

Key takeaway: you need to do your homework before choosing your prescription drug coverage plans since plans can be very different. Example: some will protect you from future increases in drug prices and others won’t.

Allow me to end by saying that Medicare is not purchased through the Health Insurance Marketplace set up under the Affordable Care Act (Obamacare). It is a completely different program.

To learn more about this topic, register for our Capitalizing on the Insurance Opportunity course or our Issues & Updates: The Why, What, and How of Medicare online course.

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Resources: 

 ¹ https://www.medicare.gov/glossary/o.html

Contributing Writer: Subject Matter Expert Charles McCain