Here's How Clients Are Filling In Medicare Gaps

What it means: In many communities, a majority of the high-income retirees over 65 have Medigap coverage.

All U.S. financial professionals who work with high-income retirees need to understand how the Medigap and Medicare Advantage plans in their markets work.

Enrollment numbers: About 14.1 million of the 66.5 million people who were eligible for Medicare in 2023 had Medigap coverage, according to AHIP.

In 2022, 14.3 million of the 65.1 million Medicare enrollees had Medigap coverage.

But, because of Medicare Advantage program growth, the number of people with traditional "fee for service" Medicare coverage, rather than Medicare Advantage plan coverage, fell.

The percentage of Medicare fee-for-service enrollees with Medigap coverage increased to 41.9% in 2023, from 41.4% the year before.

Extrapolations based on KFFF Medicare enrollee income data suggest that roughly 20% of Medicare enrollees, or about 13 million, have an annual household income over $80,000.

AHIP's estimate that 5.5 million Medigap enrollees are in that income category implies that about 40% of the Medicare enrollees with household income over $80,000 have Medigap coverage.

Medicare gap-filler coverage basics: Medicare provides coverage for people ages 65 and older, some people with disabilities and people with severe kidney disease.

The traditional Medicare program uses deductibles, co-payment requirements and coinsurance bills to prevent unnecessary use of care and hold down overall program costs.

States provide subsidized gap-filler arrangements for many low-income people.

High-income Medicare enrollees who go without any form of gap-filler coverage and break their legs, have heart attacks or learn they have cancer may end up with hundreds of thousands of dollars in out-of-pocket costs.

The Medigap program gives private insurers a way to sell standardized, state-regulated insurance policies that fill in traditional Medicare coverage gaps without making much effort to manage the insureds' use of care.

The Medicare Advantage program is newer. The issuers offer Medicare enrollees plans that look like a replacement for traditional Medicare Advantage coverage.

The plans manage enrollees' use of care and may refuse to cover some procedures.

Medicare gap-filler coverage enrollment: People get a one-time chance to sign up for Medigap coverage, with no questions about health status asked, around when they turn 65. People who want to sign up for Medigap coverage later may have to qualify for a special enrollment period or go through medical underwriting.

People can sign up for Medicare Advantage without going through medical underwriting around when they turn 65 and during annual enrollment periods that run from Oct. 15 through Dec. 7.

The enrollment rules mean that moving to Medicare Advantage from Medigap policies is often easier than moving from Medicare Advantage plans to Medigap coverage.

In some markets, top Medicare Advantage plans offer rich benefits and highly regarded provider networks.

In other markets, many of the top providers shun Medicare Advantage networks. A high-income retiree in those markets who is unaware of the difference between Medicare Advantage plans and Medigap coverage may be someone who has received little or no advice from knowledgeable financial professionals.