Supplemental insurance is additional insurance you can purchase to help pay for services and out-of-pocket expenses that your regular major medical health insurance doesn't cover.
Some supplemental insurance plans will pay for the out-of-pocket cost-sharing that goes along with your health insurance plan (ie, deductibles, copayments, and coinsurance), or for medical services that your health plan doesn't cover at all, such as dental and vision costs.
Other supplemental plans may provide you with a cash benefit paid out over a period of time or given to you in one lump sum. The cash can be used for:
- Covering lost wages
- Transportation related to your health condition
- Expenses for things like food, housing, childcare, etc. that need to be paid while you're recovering
This article will explain the different types of supplemental health coverage and how you can decide whether they're a good fit for your circ*mstances.
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Do You Need Supplemental Health Insurance?
Whether or not you need supplemental health insurance depends on a lot of different factors, such as what your current health insurance covers and how high your deductible is. Although many supplemental policies are not overly expensive, duplicate coverage may be unnecessary for many people.
Generally speaking, if you're enrolled in Medicare, you can get the full coverage you need by:
- Purchasing a standard Medigap policy plus a Medicare Part D prescription drugs plan and possibly a stand-alone dental/vision plan (If you're under 65 and enrolled in Medicare due to a disability, Medigap plans might not be available to you, depending on where you live.)
- Enrolling in a Medicare Advantage plan (most of which include Part D coverage and dental/vision coverage)
Medicare is discussed in more detail below. But if you don't have Medicare, your first step is to determine whether you and your family are fully protected with a regular health plan. If you think you need supplemental insurance, ask yourself the following questions:
- If you (or a family member) become seriously ill or get into an accident, will your current health plan cover the care you'll need? If not, you should probably consider other health insurance options. Open enrollment is your opportunity to do this.
- Do you have a way to cover the out-of-pocket costs you would owe under your current health plan on top of being sick and/or out of work for an extended period?
- How likely are you or your family members to be in a serious accident or develop a major illness?
- Does the extra cost of the supplemental insurance policy make sense over time?
When looking at that final questions, ask yourself:
- How much you'd pay in premiums over the course of a year or a decade
- How likely you are to use the plan (the more specific its limitations, the less likely you'll be to use it)
- Whether it would make more sense to stash that money in a separate account and use it to cover out-of-pocket medical costs. If the plan has a fairly low payout amount that's capped regardless of the cost you'd incur, you might find that it makes more sense to "self-insure" by saving the premiums yourself. But you'd need a backup strategy if you ended up needing to pay extensive medical bills soon after starting to grow your savings.
- Is your employer subsidizing the cost of the supplemental coverage? If so, enrolling might be a good way to boost your health coverage without having to pay the full cost of the premiums yourself.
There's no one-size-fits-all answer, as it depends on your circ*mstances and the specific policy you're considering.
Additionally, before purchasing a supplemental policy, be sure you understand its limitations and benefits. For example, it may not cover all the expenses you expected it to, it may impose waiting periods before payments start, or it may contain limits based on how much you paid and for how long.
It is important to understand that supplemental insurance is not regulated by the Affordable Care Act. This means that an insurer can deny coverage based on your medical history, impose limits on pre-existing conditions, and cap benefits at fairly low levels.
Medigap: Medicare Supplemental Insurance
One of the most common types of supplemental insurance is Medigap, which is sold by private insurance companies to people enrolled in Original Medicare. (Medigap plans cannot be paired with Medicare Advantage plans).
Original Medicare, which includes Part A hospital insurance and Part B medical insurance, covers many, but not all, health-related services and medical supplies. Things not covered by Original Medicare include:
- Prescription drugs (you need Medicare Part D for drugs unless you have drug coverage from a current or former employer)
- Custodial long-term care
- Dental care
- Basic vision care
However, even for the medical services that Original Medicare does cover, you still have some cost-sharing expenses:
- A deductible for inpatient care under Medicare Part A
- Daily coinsurance, if you're in the hospital for more than 60 days, or a skilled nursing facility for more than 20 days (Medicare will cover up to 100 days, depending on the circ*mstances, but there's an out-of-pocket cost for days 21-80.)
- A deductible plus coinsurance for outpatient and physician care, under Medicare Part B
You can purchase a Medigap policy to cover some or all of those deductible and coinsurance costs that you'd otherwise have to pay yourself under Original Medicare. Without supplemental coverage, these costs can add up, especially if you need extensive outpatient services (such as kidney dialysis) and have to pay Medicare Part B's unlimited 20% coinsurance for all of it.
Note that the only Medigap plans that cover the Part B deductible—Medigap plans C and F—are available only to people who became eligible for Medicare before 2020. Those plans can no longer be purchased by newly-eligible Medicare beneficiaries. But plans can still be purchased that cover the rest of the out-of-pocket costs under Original Medicare.
If you have Original Medicare but lack Medigap coverage, there's no limit to how high your out-of-pocket costs can be. By contrast, Medicare Advantage plans cap out-of-pocket expenses (including the cost of prescription drugs as of 2024) without the need for supplemental insurance.
But Advantage plans tend to have higher out-of-pocket costs than you'd have with Original Medicare plus a Medigap plan. Medicare Advantage plans also tend to have more limited provider networks, and generally impose prior authorization requirements for a range of services.
Medigap plans don't cover costs for services that Original Medicare doesn't cover at all, such as custodial long-term care or dental services. One exception: Some Medigap plans pay 80% of the cost of emergency care you may need while traveling outside the U.S., which is only covered by Original Medicare in very limited cases.
If you're enrolled in Original Medicare (Parts A and B) and have a Medigap policy:
- Medicare will first pay its share of your covered healthcare costs.
- Your Medigap policy will then cover the rest, up to the limits of the plan.
Without Medigap (or other supplemental coverage, such as an employer-sponsored plan or Medicaid), there is no cap on how high your Original Medicare out-of-pocket costs can get, which is why most Original Medicare beneficiaries maintain some type of supplemental coverage.
The Medicare Part B deductible tends to increase from one year to the next (it's $240 in 2024) but remains much lower than out-of-pocket costs under many other types of health insurance. And it's much lower than the Medicare Part A deductible that applies if a person needs inpatient care (the Part A deductible is $1,632 in 2024).
If you became eligible for Medicare on or after January 1, 2020, none of the available Medigap plans cover the Part B deductible. If you already have a Medigap plan that covers the Part B deductible, you can keep it. If you were Medicare-eligible before the January 2020 cut-off, you can still apply for them. (In most states, medical underwriting is used if you apply for a Medigap plan after your initial six-month enrollment window ends.)
Other Common Types of Supplemental Insurance
Although Medigap is a common form of supplemental medical coverage, it's only available to you if you have Original Medicare coverage.
There are many other types of supplemental health coverage that are available to people who have other types of health insurance. Your employer may offer them as a voluntary benefit, or you can purchase a plan directly from an insurance company.
Adult Dental and Vision Coverage
Dental and vision care are generally not included in health plans for adults.
Original Medicare doesn't cover routine dental and vision (but most Medicare Advantage plans do) and most commercial health insurance plans don't, either.
To get dental and vision coverage, you can enroll in a separate plan that covers dental and/or vision care. Employers often offer this as a supplemental coverage option for employees, with the employer paying a portion of the premiums.
If you don't have the option of employer-sponsored dental and vision coverage, you can purchase coverage through the private insurance market.
Adult dental plans can often be purchased through the Marketplace (exchange) during open enrollment or a special enrollment period. In most states, adult vision coverage cannot be purchased through the Marketplace, but some state-run exchanges offer it.
Alternatively, adult dental and vision plans can be purchased directly from an insurer.
Children's Dental and Vision Coverage
The Affordable Care Act requires individual and small group plans to provide coverage for pediatric dental and vision services. Insurance companies may incorporate dental and vision into a medical plan or offer them as a separate plan.
One important point to note about stand-alone pediatric dental coverage: If you purchase it through the exchange/Marketplace in your state, the coverage must conform to the ACA's essential health benefits rules, which means there will be a cap on out-of-pocket costs and no benefit limits. But if you purchase a stand-alone dental plan outside the exchange, the policy can (and almost certainly will) have benefit caps, even for children.
Critical Illness Insurance
Critical illness insurance, also known as disease-specific insurance, is meant to ease the financial burden of a serious illness such as cancer.
These policies may provide a lump-sum cash benefit to help you pay for additional costs that are related to your illness but not covered by your regular health plan or disability coverage. The money can then be used to pay for various expenses, including:
- Deductibles (out-of-pocket costs, including deductibles, can be up to $9,450 for a single person in 2024 on most health plans, assuming care is received in-network; supplemental coverage can help to offset this cost)
- Out-of-network specialists
- Travel and lodging when treatment is far from home
- Experimental treatments
- Childcare and household assistance
- Normal living expenses, such as car payments, utility bills, and groceries
Critical illness plans generally have a very specific list of diagnoses that will trigger a payout. If you get seriously sick with something that isn't specifically listed on your policy, the plan won't pay you anything—even if you incur substantial out-of-pocket costs as a result of the illness.
It's important to understand exactly how the policy works before you purchase it so you're not caught unaware in a tough situation, expecting a payout from your critical illness plan and then not receiving one.
Accidental Death and Supplemental Accident Plans
Two kinds of accident policies are available, including accidental death and dismemberment insurance (AD&D) and supplemental accident insurance. They're often combined and sold together. The benefits vary from state to state due to local insurance regulations.
An AD&D policy will pay you a lump-sum cash benefit if you're the named beneficiary of someone who died in an accident. These policies may pay smaller amounts if the person didn't die but lost a limb, went blind, or became permanently paralyzed.
AD&D insurance does not pay for any deaths related to illness, suicide, or natural causes.
Accident medical insurance, also known as an accident indemnity policy or a supplemental accident policy, may pay for medical costs resulting from an accident or injury. Some of these policies may also pay for extended home care services and travel and lodging expenses for family members.
Some accident supplements will just reimburse you up to a pre-determined flat amount ($5,000, for example) if you have medical claims resulting from an accident.
Accident supplement policies are popular with healthy people who have high-deductible insurance plans, defraying upfront premium costs while providing a "backup plan" in the unlikely event of a calamity. The money can then be used to pay the health insurance deductible.
Having an accident supplement in addition to an HSA-qualified high-deductible health plan does not interfere with your eligibility to make pre-tax contributions to a health savings account (HSA).
Hospital Indemnity Insurance
Hospital indemnity insurance, also known as hospital confinement insurance, provides a cash benefit if you're confined to a hospital due to an illness or serious injury.
The cash benefit, doled out either in one lump sum or as daily/weekly payments, might not start until after a specified waiting period.
Similar to other types of supplemental insurance, hospital indemnity coverage is meant to help you pay for services and needed items not covered by your regular health plan.
There are also fixed indemnity policies that pay up to a specified amount for various outpatient services and inpatient care. As is true for all supplemental policies, these plans are not adequate as stand-alone health coverage, as they can leave you with unlimited out-of-pocket costs in the event of a serious medical condition.
Summary
Supplemental health coverage can be a useful addition to major medical coverage. Depending on the plan, it may cover some or all of the out-of-pocket costs that a person would otherwise have to pay. Or it might provide coverage for services that simply aren't covered by the major medical plan at all, such as dental and vision care. However, supplemental health insurance may not be necessary, depending on the scope of your major medical coverage and your specific circ*mstances.
Supplemental insurance is never intended to stand alone as your only health coverage. Supplemental insurance is just that: a supplement.
Before signing on the dotted line, make sure you fully understand the benefits and limitations of the policy. If you don't, contact your state's insurance department with questions, or to get a referral to a consumer advocate or helpline.
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