Definition
Private insurance, also called Medicare Supplement, that pays some of the out-of-pocket costs Original Medicare leaves behind: deductibles, coinsurance, and copays. Plans are standardized by letter, so a given plan's benefits are the same from every insurer in most states and only the premium differs. You must be enrolled in both Part A and Part B, and Medigap cannot be combined with a Medicare Advantage plan.
Why it matters
Original Medicare has no cap on what you can owe in a bad year; Medigap converts that open-ended exposure into a fixed monthly premium. Insurers must accept you regardless of health during a one-time window when you first enroll in Part B, and can charge more or decline you afterward.
Example
A retiree on Original Medicare has a hospital stay and months of outpatient treatment that generate $4,000 of deductibles and coinsurance. With a Medigap policy costing $150 a month, $1,800 for the year, the insurer covers nearly all of the $4,000 and her total cost is close to the premium. In a healthy year she pays the $1,800 and collects nothing, which is the trade she made.
Put it into practice
Related terms
This definition is educational, not financial, legal, or tax advice. U.S. rules and limits change; verify time-sensitive details with official sources. See our disclaimer.