Two different things, one name
When someone says supplement they may mean two products that work in opposite ways. Nearly every problem in this category comes from confusing them.
- Medicare Supplement, or Medigap. A private policy that exists only alongside Original Medicare and pays the copays, coinsurance and deductibles Medicare leaves uncovered. It pays doctors and hospitals directly.
- Indemnity insurance. A standalone policy, of the accident, hospital or critical illness type, that hands a fixed cash amount to you when the covered event happens. It has nothing to do with your health plan.
The difference in one sentence
Medigap lowers the hospital bill. Indemnity lowers nothing: it puts money in your hand for whatever you need. One fixes the medical bill and the other fixes the rest of your life while you recover.
Medigap: standardized by letter, with a door that closes
Medigap plans are standardized by law and identified by a letter. That has a huge advantage: the same plan gives exactly the same benefits no matter who sells it.
The only things that change between carriers are the price and the service. It's one of the few clean comparisons in insurance, because you're comparing the same product.
- You need Original Medicare. You must be in Part A and Part B. With an Advantage plan you can't have it.
- It doesn't include prescriptions. Part D is bought separately.
- You have a protected window. During the six months starting when you're 65 with active Part B, no carrier can decline you or charge you more for your health.
Why timing matters here
Outside that window, in most cases the carrier can look at your medical history and decide whether to accept you and at what price. It's one of the few moments in insurance where waiting carries a concrete cost.
Indemnity policies pay you, not the hospital
They run on different logic. They don't negotiate with anyone or cover percentages: they pay a pre-agreed amount when something specific happens, and that money reaches your hands to use however you want.
- Accident. Pays based on the type of injury or the care received after a covered accident.
- Hospital. Pays for the admission and sometimes for each day you're inside.
- Critical illness. Pays a lump sum on a covered diagnosis, such as cancer, heart attack or stroke.
Their value shows up in what no health insurance pays: the deductible you have to front, gas to get to the hospital, someone to look after the house, or simply the weeks you can't work. That's why they pair well with high-deductible plans.
What neither of them does
This part is worth being crystal clear on, because it's where the costly misunderstandings happen.
- Neither replaces health insurance. An indemnity plan alone is not health coverage, however convincing the ad sounds.
- Neither covers prescriptions generally. For medications you need Part D if you're on Medicare, or a health plan that includes them.
- You don't get paid twice for the same thing. Holding two similar policies doesn't mean collecting double, and often just means paying two premiums.
The right order
Solid primary medical coverage first. Then, and only then, look at whether a supplement makes sense for the gaps that remain. The other way around is paying for a safety net with no floor beneath it.
