by Joseph L. Matthews
From the Nolo.com Retirement & Elder Care Center

If you're ill or seriously injured, Medicare won't cover all your expenses. Here's what you need to know about the policies designed to pick up the slack, called Medigap insurance. 

Even for those who have Medicare coverage, a seriousillness or injury can cause financial havoc because ofthe bills Medicare does not cover. Responding to thisrisk, about two-thirds of all Medicare recipients aged 65or over buy some kind of private health coverage -- calledMedigap insurance.

The term Medigap comes from the notion that these insurance policies will cover the gapsin Medicare payments. Unfortunately, most Medigapcoverage is not nearly as complete as its advertising would lead you to believe. HMOs and other managed careplans, an alternative way to cover these gaps, typicallyprovide broader coverage at slightly lower cost than mostMedigap policies -- and many people opt for these forms of coverage instead of Medigap. However, HMOs and other managed care plans restrict the doctors andfacilities available to you in ways that most Medigappolicies do not.

Before you buy a Medigap insurance policy, considernot only the services covered, but the amount of benefitsand the monthly cost of the policy. Also pay attention totwo other factors: how much premiums may rise in theyears to come, and whether you will be allowed to keepthe policy even if you are willing to pay those premiums.

Premium Increases

It is one thing to find insurance coverage you can affordtoday. It may be quite another to find a policy that youcan still afford in later years when your income andassets have decreased and the policy premium hasincreased -- as it is sure to do. In choosing a Medigap policy, consider the terms on which the policy premiumswill rise over time. If the current premium will be asignificant strain on your financial resources, you maywant to consider a less expensive policy.

Open Enrollment

If you enroll in Medicare Part B when you turn 65, forthe next six months federal law forbids insurance companies from denying you eligibility for Medigappolicies. This six-month period is called the openenrollment period.

If you do not enroll in MedicarePart B when you turn 65, you can sign up for it later,during the yearly general enrollment period -- January toMarch. You will then have a six-month open enrollmentperiod for Medigap policies beginning July 1 of thatyear. If you did not sign up for Part B at age 65 becauseyou were covered by an employment-related healthinsurance plan, you will have a six-month open enrollmentperiod for Medigap policies beginning the date your PartB coverage begins, regardless of when you sign up for it.

Eligibility After Open Enrollment

If you try to buy a Medigap policy after your open enrollment period hasended, the insurance company might not sell it to you.Insurance companies try to identify in advance people who are likely to collect a lot of benefits, and then refuseto insure them. They do this by asking to examine yourmedical records over the previous few years, and refusingto sell you a policy if you have had a significant amountof medical treatment or you have a condition that islikely to require extensive treatment in the near future.Almost all insurance companies require such initialeligibility reviews -- sometimes called medicalunderwriting -- for plans that provide the most extensivebenefits.

Pre-Existing IllnessExclusion

Many policies contain a provision excluding benefits forany illness or medical condition for which you receivedtreatment within a given period before your coveragebegan.

Six months is a typical exclusion period.Usually, the shorter the exclusion period, the higher the premium. However, if you have a serious medical conditionwhich may require costly medical treatment at any time,and you have been treated for it recently, consider apolicy with a short exclusion period or none at all.

Where the Gaps Are

During a hospital stay, Medicare Part A does not pay:

• yearly deductible, $776 in 2000
• coinsurance amount of $194 for each day you arehospitalized more than 60 days and up to 90 days for any one benefit period
• coinsurance amount of $388 for each day you arehospitalized more than 90 days and up to 150 days for any one benefit period past a 150-dayhospitalization, and
• three pints of blood, unless replaced duringforeign travel.

• a coinsurance amount of $97 for each day you arein the facility more than 20 days and up to 100 days for any one benefit period
• anything for a stay of more than 100 days.

• the $100 yearly deductible
• 20% of the Medicare approved amount
• 15% above the Medicare approved amount ifprovider does not accept assignment
• routine examinations and testing
• treatment that is not considered medicallynecessary
• vaccinations and immunizations
• prescription medication that you can administeryourself
• general dental work
• routine eye and hearing exams, and
• glasses or hearing aids.

• 20% of the approved cost of durable medicalequipment or approved non-skilled care
• anything for non-medical personal care services.