Supplemental Coverage

Because traditional Medicare has no out-of-pocket cap, most beneficiaries obtain a second source of coverage. Understanding who holds what is essential for reading any comparison between traditional Medicare and Medicare Advantage.

Who holds what

Among people in traditional Medicare in 2023, 87 percent had some form of supplemental coverage:

• Medigap, 43 percent, or 12.2 million beneficiaries
• Employer-sponsored retiree coverage, 29 percent, or 8.2 million
• Medicaid, 14 percent, or 4.0 million
• Another source, 1 percent

That leaves 3.5 million people, 13 percent of traditional Medicare beneficiaries, with no additional coverage and therefore fully exposed to uncapped coinsurance.

How Medigap works

Medigap policies are standardized. There are “10 different types of Medigap policies (labeled A through N), each having a different, standardized set of benefits,” so plans with the same letter cover the same things regardless of insurer, and competition runs on price and service rather than benefit design.

The enrollment rules are where the consequences sit. Federal law provides “a one-time, six-month Medigap open enrollment period for beneficiaries ages 65 and older,” during which insurers cannot deny coverage or price it on health status. Outside that window, federal guaranteed issue protections apply only in limited circumstances, including “specified ‘trial’ periods, such as the first year that adults ages 65 and older are in Medicare Advantage.” Only “four states, Connecticut, Massachusetts, Maine, and New York, require Medigap insurers to offer policies either continuously throughout the year or once per year” without medical underwriting.

Worth remembering: this asymmetry is one of the least understood facts in Medicare, and it quietly shapes the whole market. Enrolling in Medicare Advantage is easy every year during open enrollment. Returning to traditional Medicare with the supplemental coverage that makes it financially safe may not be, because after the trial period a Medigap insurer in most states can decline an applicant or charge more based on health. The choice is easy to enter and, for someone who has since become sick, potentially hard to exit. Any analysis of Medicare Advantage enrollment growth that treats the decision as freely reversible each year is missing this.

Why it matters for interpreting evidence

Comparisons between traditional Medicare and Medicare Advantage are frequently confounded by supplemental coverage. A traditional Medicare beneficiary with retiree coverage from a former employer faces different incentives, and often different health status, than one with nothing. The evaluation course covered why unmeasured differences between groups undermine causal claims, and supplemental coverage is one of the largest such differences in this literature.

Key takeaways

• Among traditional Medicare beneficiaries in 2023, 43 percent had Medigap, 29 percent employer coverage, and 14 percent Medicaid.
• 3.5 million people, 13 percent, had no supplemental coverage at all.
• Medigap plans are standardized as letters A through N, so the differences among insurers are price and service.
• Guaranteed issue applies during a one-time six-month window and certain trial periods, and only four states require it more broadly.

Sources

• KFF, A Snapshot of Sources of Coverage Among Medicare Beneficiaries (opens in a new tab)
• KFF, Key Facts About Medigap Enrollment and Premiums for Medicare Beneficiaries (opens in a new tab)