Medigap: How Medicare Supplement Insurance Works

What Medigap does

Traditional Medicare — Parts A (hospital) and B (outpatient/physician) — leaves beneficiaries responsible for deductibles, coinsurance, and copays, and unlike Medicare Advantage, it has no annual out-of-pocket maximum. Medigap, formally Medicare Supplement Insurance, is private coverage sold to fill those gaps: the Part A hospital deductible, Part A and skilled-nursing coinsurance, the 20% Part B coinsurance, and — depending on the plan — Part B excess charges and foreign-travel emergency care. Its statutory basis is Section 1882 of the Social Security Act (42 U.S.C. §1395ss).

Medigap has no relationship to Medicare Advantage beyond mutual exclusivity: a beneficiary chooses either Traditional Medicare paired with Medigap and a standalone Part D drug plan, or a Medicare Advantage plan. Insurers are barred by statute from knowingly selling a Medigap policy to someone enrolled in Medicare Advantage.

How the market got standardized

Medigap predates most of its regulation. In the 1960s and '70s, an unregulated market of private supplemental policies drew documented abuses — a 1978 House Select Committee on Aging report titled it "a national scandal." The 1980 Baucus Amendment set the first federal minimum standards, adopting NAIC model rules on a voluntary basis, but enforcement remained weak.

The 1988 Medicare Catastrophic Coverage Act (MCCA) would have added catastrophic protection directly to Medicare, reducing the need for Medigap — but beneficiary backlash against its financing surtax led to its repeal within a year. That repeal, per HHS's Office of Inspector General, became "the greatest stimulus to further Congressional action to regulate Medigap insurance." The result was the Omnibus Budget Reconciliation Act of 1990 (OBRA 1990), which required every Medigap policy sold after July 1992 to match one of ten standardized benefit packages — originally labeled A through J — designed by the NAIC. Under standardization, a given letter covers identical benefits no matter which insurer sells it; competition runs on price and service, not benefit design. Three states with pre-existing systems of their own — Massachusetts, Minnesota, and Wisconsin — were granted waivers and still standardize differently today.

The 2003 Medicare Modernization Act, which created Part D, barred new Medigap policies from covering drugs (some older plans had) and added two cost-sharing plans, K and L. A subsequent NAIC revision, effective mid-2010, retired Plans E, H, I, and J to new buyers and added Plans M and N — producing the current active roster: A, B, C, D, F, G, K, L, M, N.

The most consequential recent change came from the 2015 Medicare Access and CHIP Reauthorization Act (MACRA). To curb the "moral hazard" critique of first-dollar coverage — the idea that fully insulating beneficiaries from cost-sharing removes any price signal at the point of care and drives higher utilization — MACRA barred the sale of any Medigap plan covering the Part B deductible to beneficiaries newly eligible for Medicare on or after January 1, 2020. Because Plans C and F both cover that deductible, they closed to new buyers that year in every state, waivered or not. Existing C and F policyholders, and anyone eligible for Medicare before 2020, could keep or still buy them.

The plans, and why Plan G took over

Every non-waivered state uses the same ten lettered plans, each bundling a fixed set of benefits:

With Plan F closed to new enrollees, Plan G — identical except it doesn't cover the Part B deductible — became the default choice. Per AHIP's April 2026 report using year-end 2024 NAIC and California DMHC data, Plan G held 43% of enrollment (up from 39% in 2023) versus 33% for the shrinking, closed-to-new-buyers Plan F pool, with Plan N a distant third at roughly 10%. Together, F, G, N, and the waivered-state plans account for 93% of all Medigap enrollment.

Underwriting, rating, and where the real variation lives

Unlike Medicare Advantage, which CMS regulates and guarantees nationwide with no health underwriting, Medigap is federally standardized but state-regulated — and underwriting is where the state-level variation actually bites.

Federal law guarantees one protected window: a one-time, six-month Medigap Open Enrollment Period starting the month a beneficiary is both 65+ and enrolled in Part B. Inside that window (and a set of narrower guaranteed-issue trial/qualifying events), insurers can't deny coverage, charge more, or exclude pre-existing conditions based on health. Outside it, insurers in most states may medically underwrite — deny coverage or price on health status. Four states go further: Connecticut and New York require guaranteed issue year-round; Massachusetts and Maine require it through defined annual windows. A growing list of others (Utah, Virginia, Wyoming, Delaware, and more, mostly enacted 2024–2026) have added "birthday rule" laws letting existing policyholders switch plans annually near their birthday without new underwriting.

Pricing follows one of three methods, and states differ on which they allow: community-rated (same premium regardless of age), issue-age-rated (premium locked in at the age of purchase), and attained-age-rated (premium rises as the enrollee ages — cheapest at first, often priciest later). Per KFF, nine states require community rating for those 65+; most states permit any method. Average monthly premiums in 2023 (KFF, NAIC data) ran about $217 across all enrollees — $164 for Plan G, $274 for the older, sicker Plan F risk pool.

Federal guaranteed-issue protection also doesn't extend to Medicare's under-65 population — those who qualify by disability or ESRD, about 12% of all beneficiaries. Only 7% of under-65 beneficiaries hold Medigap, versus 46% of those 65+, and where insurers do offer coverage to this group, premiums run several times higher.

Where the debate stands

The first-dollar coverage question is the live one. MedPAC, CBO, and academic researchers have argued for years that Medigap's near-complete cost-sharing coverage removes price signals and drives higher Medicare spending — MACRA's 2020 closure of Plans C and F was the first legislative response. CBO's December 2024 deficit-reduction options revisit the idea directly: restricting Medigap alone is scored at $116 billion in savings over 2025–2034; combined with a uniform Medicare cost-sharing structure and an $8,500 out-of-pocket cap, $129 billion. The Committee for a Responsible Federal Budget cites a related CBO estimate of $165 billion for a broader version. None of this is enacted; MedPAC itself has done preliminary work on Medigap design and the under-65 access gap but has not issued a formal recommendation.

Two other fronts are active. States are moving faster than the federal floor on guaranteed-issue rights — the birthday-rule wave — while a 2024 HHS rule reinterpreting ACA Section 1557 nondiscrimination protections may reach Medigap's underwriting practices for the first time, though its scope remains unsettled pending guidance and possible litigation. And Medigap premiums themselves have been rising unusually fast: early-2026 Plan G rate filings from major carriers ranged from roughly 12% to over 26% increases, sharpening the stakes of who can and can't switch plans without underwriting.