Watch Out for the ‘Medigap Trap’

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A bit of foresight can save you from the Medigap trap — yet one more rule to learn when navigating Medicare and Medicare Advantage (MA). In short, it’s a mistake to plan to enroll in MA when you’re relatively healthy, thinking you can just switch to traditional Medicare as you get older and sicker, says David A. Lipschutz, co-director of the Center for Medicare Advocacy.

MA can be attractive when first enrolling in Medicare for beneficiaries who aren’t worried about network restrictions on doctors or pre-approval requirements for high-level care.

Technically, people who choose an MA plan can change their minds every year during open enrollment and move to traditional government-run Medicare with its unrestricted access to providers who take Medicare. It may be tempting to think about switching when health declines or there’s a need to see providers not in the MA network. But it’s not that easy. Welcome to the Medigap Trap.

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The Medigap trap

“There's not free movement between traditional Medicare and Medicare Advantage in large part because of the barriers to picking up a Medigap policy,” Lipschutz says.

Medigap is the umbrella name for an array of private insurance policies that supplement traditional Medicare, making out-of-pocket costs for care more manageable. Without Medigap, out-of-pocket costs for traditional Medicare enrollees can be overwhelming.

While MA plans cap annual out-of-pocket spending, traditional Medicare does not. And the charges can add up quickly. To start, without Medigap, traditional Medicare patients must pay 20% of the cost for covered medical services after meeting a deductible. And patients who are hospitalized for a long period are charged as much as $816 per day. A separate Medigap policy can pick up a lot of those costs, making treatment covered by Medicare more affordable.

But if a Medicare participant doesn’t enroll in a Medigap plan when first signing up for Medicare, supplemental coverage may be unavailable later. In most states, Medigap plans are automatically available only in the first six months after an enrollee becomes eligible for Medicare. After that, health screening may be required and the plans can refuse coverage or charge higher rates for those with health issues.

Where you live matters

Only four states — Connecticut, Massachusetts, Maine and New York — prohibit insurers from denying a Medigap policy to eligible applicants, including people with pre-existing conditions.

An enrollee in another state who wants to switch from MA to traditional Medicare may be unable to get or afford Medigap. While they retain the option to make this switch during open enrollment, the higher cost of care may make a traditional plan unworkable.

Says Lipshutz: “Unless you're in one of those handful of states, you very well might find that you cannot purchase a Medigap policy and then it could be very expensive.”

Note: This item first appeared in Kiplinger Retirement Report, our popular monthly periodical that covers key concerns of affluent older Americans who are retired or preparing for retirement. Subscribe for retirement advice that’s right on the money.

Elaine Silvestrini has worked for Kiplinger since 2021, serving as senior retirement editor since 2022. Before that, she had an extensive career as a newspaper and online journalist, primarily covering legal issues at the Tampa Tribune and the Asbury Park Press in New Jersey. In more recent years, she's written for several marketing, legal and financial websites, including Annuity.org and LegalExaminer.com, and the newsletters Auto Insurance Report and Property Insurance Report.