What is Medical Gap Insurance and is it Worth it?

Cathy Jakicic
April 28th, 2020 April 28th, 2020 |
Read time: 7 minutes
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In recent years, in an effort to control rising premium costs, many employers have opted for plans with higher deductibles and out-of-pocket costs, resulting in their employees experiencing higher costs should they need healthcare services.[1]

According to the vice president of human resources for the Society for Human Resources Management (SHRM) in a 2016 Wall Street Journal interview, “Even if you select the best plans your company offered, you are still not safe from encountering some major expenses.”[2]

Employers are increasingly offering other financial and insurance products such as health reimbursement accounts (HRAs) and supplemental gap health plans to try to address the issue of increasing out-of-pocket costs.

In the remainder of this blog post, we’ll talk more about:

  • What medical gap insurance is
  • What it may cover and how it works
  • How much gap plans may cost and who they’re good for
  • The difference between supplemental medical gap policies and “Medigap” plans

But first, let’s take a closer look at premium and deductible costs.

Premiums and Deductible Costs

Those with employer-sponsored group health plans tend to have it a little easier since their employer picks up some of their monthly premium costs. But as previously mentioned, health insurance benefits from your workplace is not a guarantee against high costs, especially when you actually use healthcare services.

In fact, in 2018 about 18.4% of people under 65 with employer-sponsored health plans experienced high out-of-pocket costs, high premiums or both.[3]

Individuals buying their own coverage can face even higher costs.

According to Kaiser Family Fund (KFF), the average U.S. 2020 individual Marketplace monthly plan premium was $462[4] (for the second-lowest cost silver (benchmark) premium for a 40-year old).

The average unsubsidized deductible for a plan with combined medical and prescription drug at the silver level in 2020 was $4,544.[5]

That means that, without an ACA premium tax credit or cost reduction (even before factoring in cost sharing, coinsurance, and copays), an unsubsidized individual in 2020 could be responsible for at least $10,088 in health insurance deductibles and premiums.

It should be noted that most people that obtain health plans from the ACA Marketplace do qualify for some form of assistance, a premium tax credit and/or cost-sharing reduction, to help reduce premiums and out-of-pocket costs.[6]

With just 40% of Americans able to cover an unplanned $1,000 expense, many families may find themselves in a precarious financial situation if they experience an accident or illness.[7]

If you don’t have savings set aside, one option to help manage these out-of-pocket costs is medical gap insurance.

Gap insurance can be used to supplement an individual ACA-qualifying health plan or an employer’s group plan by providing additional benefits if you experience a covered injury or illness.

What is gap health insurance?

These plans are also sometimes called “metal gap insurance” because they can “fill the gaps” in individual healthcare spending that may be left by bronze and silver ACA plans, which often come with lower premiums but higher costs when you need care.[8]

Medical gap insurance is a type of supplemental insurance so isn’t considered ACA-qualifying coverage.

This type of insurance works alongside your major medical policy (but the two policies do not coordinate) to pay a lump sum benefit (rather than a percentage) of covered costs.

What other healthcare or financial coverage gaps may you have?

Learn More About Coverage Gaps

How does gap insurance work? (Examples)

When you’ve experienced a covered accident or illness, a medical gap plan will pay benefits according to the details of your specific policy. That said, here are a couple of examples to illustrate how gap policies may pay out benefits.

Example 1: Cancer

You have a gap policy with a $7,500 maximum benefit limit for qualifying accidents and critical illnesses, as well as an ACA silver-level health plan with a $4,500 annual deductible.

If you’re diagnosed with a covered critical condition whose treatment costs will likely well exceed $7,500, such as life threatening cancer, your gap policy will pay out the benefits in full and be exhausted after that. If you then fracture a bone later in the year, even if it’s a qualifying injury, those costs will not be covered by your gap policy because the gap benefits were previously exhausted.

However, your gap benefit covers your entire ACA deductible amount, which helps you gain access to your policy’s benefits for the cancer treatment without having to pay that deductible from your personal checking or savings account.

Example 2: Fractured Finger

You have a gap policy with a $7,500 maximum benefit limit for accidents and critical illnesses. You fracture a finger, a qualifying injury on your policy, and it costs $2,000 to treat it. Your gap policy will pay up to $2,000 and you’ll have $5,500 in gap benefits remaining for the policy year. These benefits can still be used if you experience another covered accident or illness.

You can use the $2,000 towards you major medical deductible, copays, or to help with other costs associated with your treatment that may not be considered essential health benefits or covered by the ACA.

What does gap health insurance cover?

Medical gap plans provide limited-benefit coverage for healthcare services that typically result from a critical illness or accident, in other words, unplanned or emergency care. The types of conditions gap plans may cover include but are not limited to:

  • Broken bones
  • Heart attack
  • Stroke

Medical gap benefits can typically be used to cover a range of expenses, including:

  • Major medical deductible until you can access your policy’s benefits
  • Major medical coinsurance and copayments until you reach your annual out-of-pocket maximum
  • Major medical monthly premiums
  • Prescription medications
  • Any non-covered healthcare expenses such as from out-of-network, complementary or integrative providers
  • Living expenses such as groceries, housing, transportation, etc.

Different gap policies have different coverages and exclusions, so it’s important to review any policy you’re considering closely to make sure it meets your needs, and if you have specific questions, contact the carrier to get answers before applying.

Learn more about medical insurance deductibles.

How much do gap plans cost?

Generally speaking, a person even with limited means could afford to spend $50 a month on gap insurance that may help them cover a high deductible. Your specific costs will depend on your age, gender, where you live and the level of benefits you choose.[9]

Find out how much a medical gap policy could cost you by requesting a quote.

Get a Gap Insurance Quote

Who might benefit from gap insurance?

Whether or not a medical gap plan is worth it for you depends on your healthcare needs and your financial situation. You may benefit from a gap health plan if you:[10]

  • Have a major medical plan with a high deductible and other out-of-pocket costs, whether from an employer or the ACA Marketplace
  • Don’t have access to funds from a regular savings account or health savings account (HSA)
  • Have a narrow network health plan, which increases the chances you may need to obtain healthcare services outside of your plan’s network and pay more

What about “Medigap” Coverage?
Medigap is not the same as supplemental medical gap insurance. Those 65 years old and older who are on original Medicare may want to consider supplemental Medigap coverage to help with the costs of:[11]

  • Copayments
  • Coinsurance
  • Deductibles

Some Medigap policies also cover services that original Medicare doesn’t cover, like medical care when you travel outside the U.S.[12]

Medigap policies generally don’t cover long-term care, vision or dental care, hearing aids, eyeglasses, or private-duty nursing.[13]

A Medigap policy is sold by private companies. Learn more about Medigap coverage.

Other Cost Savings and Supplemental Benefits Plans

If you’re concerned about high cost-sharing with your major medical plan, whether it’s a high deductible or coinsurance, there are some other products that may provide additional benefits or cost savings in certain situations.

Hospital Indemnity Insurance

A hospital indemnity policy pays a fixed benefit at set intervals, such as per day, week, month, visit or event, rather than a percentage of the bill, for covered hospital stays and services.

Like a gap plan, it is typically purchased to supplement an ACA-qualifying health plan. Also, like gap insurance, the monthly premium for a hospital plans will typically depend on the level of benefits you select, your age, gender and health status.

Compare costs and coverages for hospital insurance.

Get a Hospital Insurance Quote

Telemedicine, Health and Medical Discounts

You may be able to get additional savings on some of the healthcare costs associated with recovery from an accident or critical illness, such as:

  • Prescription medications
  • Home-use medical supplies
  • Healthcare specialists like chiropractors and occupational therapists
  • Complementary and integrative specialists like massage therapists

And telemedicine can mean additional convenience as you can access board-certified physicians from the comfort of your home for minor conditions like urinary tract infections, cold, and flu via virtual doctor’s office visits. Medical discounts and telemedicine are not health insurance.

Get additional discounts for yourself or your whole family today.

Get Telemedicine and Medical Discounts

Summary + Next Steps

If you’re looking for additional benefits for unexpected healthcare costs not covered by your major medical plan, then medical gap insurance may be worth considering, especially if you have a major medical plan with high cost-sharing and don’t have access to much savings.

Hospital insurance, telemedicine and other health and medical discounts may also be options to consider.

To learn more, determine which plans are available in your state, and get a quick and easy quote, call 888-855-6837 to speak with a licensed agent or get a gap quote online (it just takes a minute).

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Originally Published On November 9th, 2015
Independence American Insurance Company and/or Madison National Life Insurance Company, Inc. may underwrite the products referenced on this website. Legal Disclaimers.

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