Despite Medicare’s comprehensive medical coverage, beneficiaries are still exposed to significant out-of-pocket costs. These costs come from services that are not covered by Medicare (including long-term care services and supports and dental, vision, and hearing services) as well as deductibles and coinsurance in Part A and Part B. This cost sharing liability is described in more detail in “Traditional Medicare”.
Sources of Supplemental coverage
Approximately 10 percent of Medicare beneficiaries in 2019 had no supplemental coverage that would provide a cap in out-of-pocket costs for Part A and Part B services (). The remaining 90 percent of beneficiaries had varying sourcing and degrees of private or public supplemental coverage. Specifically, beneficiaries with private supplemental coverage include those who purchased private Medigap policies (22%) or who have retiree coverage through a former employer (18%). Additionally, many Medicare beneficiaries have an out-of-pocket cap through their enrollment in an MA plan (41%). Low-income beneficiaries who qualify for Medicaid in their state (9%) have coverage for cost sharing, Medicare premiums, and any other adult Medicaid benefits their state may have.
Privately purchased Medigap policies cover Medicare cost-sharing requirements. Their benefits are standardized by the Centers for Medicare & Medicaid Services, but significant variation occurs in the operation of Medigap marketplaces across states. Beneficiaries are eligible to enroll in a Medigap plan during their open enrollment period (the first six months of their enrollment in Part B). During this open enrollment period, Medigap coverage must be offered on a guaranteed-issue basis, meaning Medigap insurers cannot deny a policy to any applicant based on age, gender, or health status. In addition, for Medigap coverage purchased during the open enrollment period, premiums cannot vary by health status. Most states allow Medigap insurers to practice medical underwriting outside of this open enrollment period and deny coverage or charge higher premiums to beneficiaries with preexisting conditions. Federal law does not require Medigap insurers to sell policies to beneficiaries who qualify for Medicare based on long-term disability or to any beneficiaries switching from a Medicare Advantage plan to traditional Medicare during the annual open enrollment period. States have the flexibility to go beyond these minimum standards for Medigap policies.
Medicare coordination across supplemental coverage sources</strong
Medicare coordinates benefit coverage with other coverage sources. While in some circumstances, Medicare is the secondary payer, in most instances, Medicare is the primary payer, with any supplemental coverage providing secondary, wraparound coverage. The Medicare Secondary Payer provisions specify that Medicare is the primary payer for beneficiaries with supplemental coverage through a group health insurance plan under the following conditions: for individuals 65 years or older enrolled in a group health plan through an employer with fewer than 20 employees; for persons with a disability who are younger than 65 enrolled in a plan through an employer with fewer than 100 employees; and for people 65 years or older with retiree coverage through a former employer. Medicare is the secondary payer for beneficiaries with supplemental coverage from a group health insurance plan for individuals ages 65 and older if the employer has more than 20 employees and for people under the age of 65 with a disability if the employer has 100 employees or more.
Medicare is the primary payer for beneficiaries with a private Medigap plan and for individuals who are dually covered by Medicare and Medicaid. The Medicare Savings Programs, described in more detail in “Premium and Cost-Sharing Assistance,” also provides some wraparound coverage to beneficiaries with low incomes who do not qualify for Medicaid in their states. These programs provide cost-sharing assistance that reduces or eliminates out-of-pocket costs for beneficiaries who are eligible.
References
MedPAC. (2022). Health Care Spending and the Medicare Program: A Data Book. Chart 3-2. Retrieved from: https://www.medpac.gov/wp-content/uploads/2022/07/July2022_MedPAC_DataBook_SEC_v2.pdf