• Non-Medicare Retiree Health Options: Medigap, Employer Plans, and Other Government Programs

    This post originally appeared on The Finance Buff.

    In my recent three-post series on Medicare’s structure and payment systems (part I, part II, part III), I deliberately did not discuss other sources of health benefits for retirees. These include individually purchased Medicare supplements (Medigap), employer-sponsored plans, and benefits from other government sources (e.g., Medicaid, Veterans Health Administration, and others).

    With one caveat, none of these are formally part of Medicare in the sense that Medicare does not administer or finance the benefits. The caveat is that Medicare does pay a subsidy to employers who offer a qualified drug benefit. Also, employers can offer Medicare Advantage (MA) plans as their retiree health benefit which is subsidized by Medicare (as described in a prior post). Nevertheless, employer plans are conventionally thought of as outside Medicare proper.

    Medigap

    Of the additional sources of retiree health benefits listed above, Medigap is the only one available to every elderly Medicare beneficiary. Medigap policies supplement Medicare in the sense that they cover some of the FFS Medicare cost sharing (copayments, deductibles, and coinsurance). They also complement Medicare to the extent they provide benefits not offered by FFS Medicare. Medigap policies are standardized and identified by letters A through L, except in Massachusetts, Minnesota, and Wisconsin, which have their own standardization scheme (source).

    Beneficiaries must be enrolled in both Medicare Part A (hospital insurance) and Part B (outpatient insurance) before purchasing a Medigap policy. One cannot enroll in both an MA and a Medigap plan. Since Medigap policies are not subsidized by Medicare, beneficiaries pay the full premium, which varies by insurer, plan type, and state, and can be several hundred dollars per month. Medigap policies are guaranteed renewable (can’t be canceled due to health problems) but are not always guaranteed issue (you can only buy them during open enrollment periods or after certain events). Since 2006, Medigap policies do not offer prescription drugs (source).

    Employer Plans

    Employer plans are another common, though not universally available, way retirees receive health benefits. Because employer plans vary in benefits and cost by employer, there is not much that can be said about them in general. Comprehensive information on such plans is not publicly available so they are not as widely studied as other sources of retiree health benefits (one source for further reading is the Kaiser/Hewitt survey).

    Other Government Sources

    The other major sources of health benefits for retirees are Medicaid and the Veterans Health Administration (VHA). The former is available for low income/low asset elderly individuals but the qualification levels and exact benefits vary by state. The latter is available for certain veterans with service-connected health issues or low incomes. Both Medicaid and VHA benefits are very low cost to the beneficiary. Medicaid programs for Medicare beneficiaries are widely studied (source for Medicaid). The VHA is less widely studied (here’s one source). Both can be important sources of financing of health care for qualified beneficiaries but the majority of Medicare beneficiaries are not eligible for either.

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