Medicare Supplement Insurance


Under Traditional Medicare (also called Original Medicare), beneficiaries have cost-sharing responsibilities that can be substantial if they have a serious health problem. In addition, Traditional Medicare does not limit beneficiaries’ out-of-pocket costs. Many beneficiaries supplement their benefits with private insurance to help lessen the risk of high out-of-pocket costs. These supplemental polices are often under an employer’s retiree health benefit plan or a Medicare Supplement Insurance policy, known as a Medigap plan.

Medigap History: In 1990, Congress standardized the Medigap policies that insurance companies may offer. Congress also created a variety of major consumer protections, including a uniform outline of coverage, guaranteed issue of coverage at age 65 or older (regardless of health status) for the first six months of Medicare Part B enrollment, a six-month limit on coverage restrictions for preexisting conditions, guaranteed renewal, and a prohibition on the sale of duplicative policies. In 1997, Congress expanded guaranteed access to Medigap plans, allowing special enrollment periods under certain circumstances. It improved portability protections by requiring that prior, continuous insurance coverage be credited against the allowed six-month restriction on benefits related to preexisting conditions.

With the advent of the Medicare drug benefit (Medicare Part D), Congress prohibited the sale of prescription drug coverage in Medigap plans. In 1990, Congress also created two new standard Medigap plans with additional cost-sharing. It called for the review and updating of the standard plans in 2010.

First-dollar coverage debate: Over the years, some Medicare reform proposals have included measures to restrict Medigap’s’ ability to cover all or most Medicare cost-sharing Others have suggested placing a surcharge on Medigap plans that provide comprehensive protection against most cost-sharing. Some analysts believe that if Medigap plans do not fully cover Medicare cost-sharing, people will be more cost-conscious when seeking care and, in turn, will use less care. This belief assumes that people are seeking unnecessary care.

This approach to cost containment raises several issues. Increasing cost-sharing can also discourage people from seeking necessary care. Health care decisions involve much more than cost. For instance, they can also include quality and safety. Finally, consumers are most often following a provider’s treatment recommendation. They may seek treatment without regard to cost-sharing unless they simply cannot afford it. Further, Medigap plans, as secondary payers, do not make coverage decisions and only pay based on Medicare’s coverage rules. The reasons for observed differences in Medicare costs and service use among Medigap participants are a topic of ongoing debate.

In 2015, the Medicare Access and Children’s Health Insurance Program Reauthorization Act, commonly known as MACRA, prohibited certain Medigap policies from covering beneficiaries’ payment of Medicare Part B deductibles. This change was intended to limit first-dollar coverage and only applies to individuals who became eligible for Medicare beginning January 1, 2020.

Access and cost concerns: Concerns remain about Medigap access and cost, in particular, that not all Medicare beneficiaries are able to purchase Medigap policies. Federal law does not require insurers to issue Medigap policies to Medicare beneficiaries with disabilities under age 65, including those eligible for Medicare because of end-stage renal disease. Whether Medicare beneficiaries younger than age 65 have access to Medigap policies depends on whether their state has required protection.

Medicare Supplement rules ordinarily do not ensure access to Medigap coverage outside the initial open enrollment period or designated guaranteed issue periods. During the initial enrollment period, Medigap is guaranteed to issue a policy. But under current law, if beneficiaries disenroll from a Medicare Advantage plan to change to Traditional Medicare, they may not be able to buy Medigap coverage. Or it may cost more. Policies may be medically underwritten if not purchased during the open enrollment or guaranteed issue periods. This complicates the decision to switch from MA to Original Medicare

Rate increases based on age can make Medigap plans too expensive for many people on fixed incomes. Medigap policies have standards for the share of premiums that must be spent on claims. This is called the medical-loss ratio. The share that must be spent on medical costs is lower than those required of other health insurance products under the Affordable Care Act.



Affordability and availability

Congress and state legislatures should keep Medicare Supplement Insurance (Medigap, or MedSupp) affordable and available to those who need it by:

  • requiring pure community rating and prohibiting insurers from varying premium levels and premium rate increases for different individuals on the basis of age; 
  • applying similar regulatory rules on medical underwriting to all Medigap insurers;
  • requiring Medicare Supplement insurers to provide Medicare beneficiaries with disabilities under age 65 who are not in Medicare’s end-stage renal disease (ESRD) program with the same guaranteed access to supplemental coverage given to beneficiaries age 65 and older; and
  • enacting policies or establishing programs to protect ESRD beneficiaries from high out-of-pocket costs. Potential solutions include creating a managed care option; developing a federally supported Medigap policy, Medigap risk-pool program, or reinsurance program for guaranteed access to private supplement coverage; or some variation or combination of these options.

Federal and state policymakers, together with the National Association of Insurance Commissioners, should review Medicare Supplement insurance standards to ensure that plans continue to offer meaningful benefits and affordable choices for beneficiaries to supplement their coverage in fee-for-service Medicare and protect them from high out-of-pocket costs

Congress should ensure that people with preexisting conditions have access to Medigap coverage and should make the Medigap medical-loss ratio standards similar to the standards for other private insurance plans, including Medicare Advantage (MA) plans.

Open enrollment

The availability of Medigap can affect beneficiaries’ decisions about when and whether to enroll in Traditional Medicare or MA. It can also affect retiree coverage. Congress should put traditional Medicare, MA plans, and retiree health plans on a level playing field. They can do this by making all Medigap products available without regard to health status for Medicare beneficiaries who are switching from an MA plan into Traditional Medicare.

Beneficiaries should be able to switch during Medicare’s annual open enrollment period each fall, the January 1–March 31. MA open enrollment period (or disenroll and switch to fee-for-service Medicare during this time), or when an MA beneficiary has a special enrollment period allowing a change to fee-for-service.


When reviewing and approving Medigap premiums, states should be particularly attentive to ensuring that rates appropriately reflect claims exposure and that premium increases are justified and reasonable.