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Kelly Ruggles is the author of "The Financial Playbook" for Retirement.
Kelly C. Ruggles, Financial Planner and Educator

Chapter 4- Medigap

Many people assume that Medicare is the only health insurance they will need after the age of 65. This can be a costly assumption. Medicare is designed to provide for basic coverage. Medigap insurance is designed to fills in these gaps by covering what Medicare doesn’t.

What Medicare Covers


If you are hospitalized, Medicare will cover much of the costs, including semiprivate rooms, general nursing and other services and supplies. Under current terms Medicare will pay all but $952 for the first 60 days, all but $238 per day for days 61 to 90 and all but $476 per day for days 91 to 150. If you are hospitalized beyond that, Medicare pays nothing.

Nursing facilities

Medicare requires that you must have been in a hospital for at least 3 days prior to entering a Medicare approved facility. You must meet other requirements as well. Medicare pays 100% of the approved amount for the first 20 days, all but $119 a day for an additional 80 days, and nothing beyond 100 days.

Home Health Care

If you require home health care, which includes part-time or intermittent care, home health services, or physical or occupational therapy, you receive 100% of the approved amount for as long as you meet Medicare requirements. Medical equipment is covered for 80% of the approved amount.

Hospice Care

Hospice care is covered for as long as the doctor certifies your need and Medicare pays all but some limited costs for outpatient drugs and inpatient respite care. Drugs for symptom relief and pain control, medical and support services (from a Medicare approved hospice) and other services are covered.


If a need for blood arises after your deductible, all but the first 3 pints are covered under your plan so long as they are deemed medically necessary and are furnished by a hospital or nursing facility.

Physician Services

Medicare usually covers inpatient and outpatient services – 80% of approved amount after deductible, 50% of approved charges for most outpatient mental health services and 20% of other outpatient services such as physical, occupational and speech-language services.

Gaps in Medicare Coverage

Just with the above-abbreviated examples, you can see that Medicare does not cover all medical expenses. In fact, Medicare only covers an average between one half to three-fourths of medical expenses.

Unfortunately, the gap between what Medicare pays and what you are charged is only widening. This makes sense if you realize that Medicare was only intended to help seniors with minor or short-term illness. Not all the gaps can be discussed here, but the following will give you a sampling.


Your deductible for a hospital stay is $952 for the first 60 days. This applies each time you enter the hospital. Part B covers medical procedures and the deductible is $124.


Medicare uses a national fee schedule to decide what physicians can charge for their services, and they pay 80% of that figure. You have already guessed the problem with this – your doctor might routinely charge more for those services. This means you are responsible to pay the difference.


Medicare does not cover certain services at all, such as prescription drugs and hearing aids.

Medicare Prescription Drug Bill and Discount Card Program

The Improvement and Modernization (MMA) program starts in the beginning of 2006. You may be better off without the coverage unless your annual prescription drug costs are more than $800.00. To determine if you would benefit from the coverage, calculate the cost of the premiums and deductibles, compared to your annual out of pocket cost for prescriptions.

Comparing policies

There are several Medigap plans from which to choose which are typically constant regardless of where you live. This makes finding a Medigap insurer much simpler for you because each plan will the same wherever you purchase it. In a handful of states there are slightly different types of Medigap plans, but each insurer in your state will be the same as another in your state.

Although the plans are the same your premium will vary depending on the plan and the company. You get more coverage than through Medicare and in most areas you can choose your own doctors, specialists, clinics and hospitals, but the price may be higher than for Medicare.

A Medigap plan isn’t the whole answer since it does not cover long-term care at home or a nursing home, hearing aids, vision care, dental care, or unlimited prescription medicine. Moreover, you may not be eligible for Medigap if your health is already poor. Some people do not have insurers that offer Medigap plans in their area either.

How to select a Medigap policy

Fixed income:

One choice if you are on a limited income is Plan A, the basic plan. This is still very good as it provides you an extra 30 days of hospitalization per year and covers 100% of Medicare Part B, or the 20% that they do not pay. Wisconsin, Massachusetts, and Minnesota offer their own similar basic plan.

Family members:

Consider Plans C through J if you do not have family in the area to care for you. These plans meet 100% of your Medicare co-payment for nursing facility care.


Since hospitals often release you within hours or days following surgery, plans D, G, I and J cover up to $1,600 per year to assist you at home with short-term needs during your recovery.

Prescription drugs:

Standard coverage for 2006 has a monthly premium depending on the plan you choose, but is estimated at about $37. You pay the first $250 per year for your prescriptions. This is you deductible. After you pay your $250 yearly deducible you pay 25% of your yearly drug costs from the $250 (deductible) to $2,250 and your plan pays the other 75% of these costs. Next you pay 100% of your next $2,850 in drug costs, than you pay 5% of your drug costs (or a small co-payment) for the rest of the calendar year after you have spent $3,600 out-of-pocket. Than you plan pays the rest.

Foreign Travel:

If you travel overseas extensively, you can get coverage for emergency care in a foreign country with Plans C through J. In Massachusetts and Minnesota foreign travel coverage can be found in the Supplement 1 and 2 Plans and to the Basic Medigap Coverage. In Wisconsin, a Foreign Travel rider can be added.

Find out which policies are available to you.


You may not be eligible for all plans in all areas. In fact, not all insurers offer plans in all areas. Some insurers may deny you coverage due to your health depending on your state.

       Pre-Existing Condition:

Depending on your state some insurers may deny coverage if you have a pre-existing condition. Still others may require a waiting period for pre-existing conditions to be covered. Companies who do not have this requirement may have higher annual premiums.


Members of AARP often find a policy at a lower rate through one of their sponsors.

Medicare Select:

If you want a Medicare Select plan, you will be getting one of the 10 standard Medigap plans. These plans generally cost less, but require you to use the network providers to get the full benefits. If you do not, you will be responsible to pay what Medicare doesn’t pay.

Compare the premiums.

Although the plans are the same, the premiums are not. This will take some research on you or your insurance agent’s part to find the premiums on each plan for each insurer.

Insurance companies have three ways in which they set the prices for policies and comparing the premiums means making sure you are comparing the same thing.

Attained-Age Rating

This means that the premium rises as you age. For example, if you buy at 65, you pay what the company charges 65-year-old customers. As you age year by year the premiums rise in cost.

Issue-Age Rating

With the issue-age rating, the insurance company charges you based on the age you were when you signed up. You will always pay that premium and it does not go up as you age.

No-Age Rating or Community Rating

This is not a common method to price policies. Your age doesn’t matter with this policy as all policies are priced the same.

Catastrophic illness

If you are healthy and anticipate only routine medical expenses, a catastrophic policy may be an option to explore. With a catastrophic policy you will be responsible for much of the initial costs of coverage for such things as routine examinations, etc. Once the costs reach a predetermined point the policy kicks in and covers the remainder of your expenses. This could eliminate the need for a Medigap policy altogether.

Insurer’s financial strength rating?

Although seldom, insurance companies sometimes fail. This could leave you responsible for unpaid medical bills and without coverage. You can mitigate this risk by checking the insurance companies’ ratings carefully online or at the library.

You should choose a company with a B+ rating or higher. Also take into account the timeliness of payments and customer service. You can ask your friends and family for their recommendations, contact your state’s insurance department or go through an insurance agent for assistance.

Switch Medigap Policies

You may already have a Medigap policy, but you are worried about the stability of the insurance company or if you find a better deal with a strong company, you can switch policies.

If your policy was issued prior to January 1, 1992, you may not have switched to one of the standard plans. You should compare your older policy to the newer plans, keeping in mind that if you change plans, you cannot switch back to the older one. It’s also against the law for insurance companies to sell you two Medigap policies. This is why you are required to sign a statement which affirms that you are replacing your current policy and do not intend to keep both.

       Your new policy may have a deductible. If part or all of your deductible was satisfied under your original policy that portion will be credited to the new policy. Policies also have a “free-look” provision. This gives you 30 days – depending on your state - to review a Medigap policy after you’ve paid the premium. If, during that time, you decide you don’t want the policy, you can decline it and get a refund.

Next Chapter: Long Term Care

Financial Concerns for Retirement by Kelly C. Ruggles

©2007, Kelly C. Ruggles | Sitemap | Disclosure | Kelly Ruggles Bio
Kelly C. Ruggles, President of American Reliance Group, Inc., is a registered investment advisor. Mr. Ruggles is the author of "The Financial Playbook" for Retirement.

Mr Ruggles does not intend to provide personalized investment advice through this publication and does not represent that the strategies or services discussed are suitable for any investor. Investors should consult with their financial advisors prior to making any investment decisions.