Summary: Medicare provides valuable and extensive health care coverage for 40 million elderly and disabled beneficiaries. Nevertheless, significant gaps leave some beneficiaries vulnerable to sizeable out-of-pocket expenses. Medicare provides no limit on out-of-pocket spending and no coverage for most outpatient prescription drugs. Most beneficiaries have supplemental coverage that helps to fill Medicare coverage gaps and pay some out-of-pocket expenses. Privately purchased Medigap policies are a widely available source of supplemental coverage. The other sources--employer-sponsored policies, Medicare + Choice plans, and Medicaid--are not available to all beneficiaries. Medigap policies help to fill in some of Medicare's gaps but also have shortcomings. In 1999, premiums paid for Medigap policies averaged $1,300, with more than 20 percent going to administrative costs. Medigap plans typically cover Medicare's required deductibles, coinsurance, and copayments but do not fully protect beneficiaries from potentially significant out-of-pocket costs. Medigap policies offering prescription drug coverage can be inadequate because beneficiaries still pay most of the cost and the Medigap benefit is capped.
