Private Insurance

About 87% of beneficiaries enrolled in fee-for-service Medicare programs have supplemental medical insurance. Many types of private insurance are available to the elderly; most are a form of Medigap insurance, which pays for some or all of Medicare deductibles and co-payments. Most Medigap insurance is purchased individually from private insurers, although employers may provide it to retirees.

Congress has restricted Medigap insurance to a basic plan with 9 possible expansions. No plan may duplicate Medicare benefits. The basic plan covers hospital co-payments, coverage for 100% of Medicare Part A-eligible expenses after Medicare hospital benefits are exhausted (ie, 365 days beyond the total hospital benefits lifetime limit provided by Part A), and Part B co-payments. The expansion plans, which have higher premiums than the basic plan, may provide additional coverage in a skilled nursing facility and may cover the Part A and Part B deductibles, a percentage of the cost of outpatient prescribed drugs, preventive medical services, and short-term home-based help with ADLs during recovery from an illness, injury, or surgery.

Very few private insurance policies cover services such as long-term home health care or long-term nursing home care. However, some private insurers offer long-term care insurance. According to America's Health Insurance Plans, Americans have purchased 9.16 million long-term care policies from the inception of the market through the end of 2002 and estimates indicate that about 10 to 20% of the elderly can afford these policies. Approximately 80% of all long-term care insurance policies were sold through the individual market. In 2002, private insurance paid for approximately 10% of national long-term care expenditures, and the percentage of such expenditures covered by private insurance is expected to slowly increase. However, how long-term care will be financed in the future is unknown: whether the elderly or their families will pay the relatively high premiums required, whether people will enroll in programs covering long-term care at younger ages when premiums are lower, or whether more services will be covered in new government programs.

Out-of-pocket expenditures constitute about 1/3 of annual long-term care costs (not including informal services provided by family members and friends). A large proportion of these expenditures occur as the elderly person spends down to qualify for Medicaid.

This topic was last updated May 2005.