Tips for Choosing a Medigap Plan

Excertps from October 2013 Senior Spirit Newsletter

Seniors getting close to the eligibility age for Medicare are bombarded with appeals from insurance companies—both in their mailboxes and on their computers. For those who already have the health plan, the busy time comes during Medicare's Part D (drug) and Part C (Advantage Plan) open enrollment period, which runs from October 15 to December 7. Each year, you can switch from Original Medicare to a Medicare Advantage plan or from one Medicare Advantage plan to another, or from one Part D to another, with the new coverage to commence on January 1.

Deciding which plans are best is not an easy decision because the choices are many and complex. To demystify the process, older adults can get help from guidebooks, classes and their insurance agents. Keep in mind that Medicare was never intended to completely pay for seniors’ medical costs. Basically, Medicare pays for 80 percent and you pay 20 percent. Over the years, more options have become available to fill in the gaps, with private companies offering ways to mitigate costs.

Choosing Between Original and Advantage

The first choice you need to make is whether to go with the Original Medicare Plan, in which the government directly pays for hospital and medical care (Parts A and B, respectively), or to use the Medicare Advantage Plan (Part C), in which the government pays a private health network (such as an HMO or PPO), which often covers Parts A, B, and D (prescription drugs).

With the Original Medicare Plan, you still must pay for copayments, coinsurance and deductibles. For example, Medicare requires a $1,184 deductible for the first 60 days of a hospital stay and 20 percent of the cost of Part B services such as doctor visits, outpatient treatments and laboratory tests. To cover these costs, you have to get supplemental insurance from a private insurance company. These plans are called a Medicare Supplement or Medigap policies.

The majority of Medicare users stick with the Original Plan, because they can choose their own health care providers rather than having to stay within the HMO network, which doesn’t work if you’re traveling outside of the HMO network. However, because HMOs carefully control costs, the Advantage Plans are often cheaper than the Original Medicare Plan.

Options for Medigap Plans

Choosing the Original Medicare Plan (in which the government directly pays your health care provider) opens a whole host of options. Supplemental plans, also known as Medigap, are confusingly named Plans A–N, although totally different than the Medicare Parts A–D. This is where most people’s eyes start to glaze over and you start wondering why someone couldn’t have chosen different names for all the plans.

Medigap policies come in 10 standardized benefit packages labeled as the letters. Each plan offers a different set of benefits, fills different gaps in Medicare coverage and varies in price. (Be aware that Medigap policies never cover long-term, vision or dental care; hearing aids; eyeglasses or private-duty nursing.) Some insurance carriers offer some of the plans but not all of them. Although premiums vary between carriers, each company conforms to the Medicare definition of that plan. That is, Plan C will always be the same no matter which insurance carrier you use.

The difference among plans has to do with how much each company pays for deductibles, coinsurance and copayments, and some plans offer to pay for emergency medical care while you are traveling in a foreign country. For example, Medigap Plans B, C, D, F, G and N cover the hospital deductible for each benefit period, while Plans K, L and M cover part of it. If you have to stay in the hospital, this benefit usually saves you money. Buyers need to carefully review insurance carriers’ offers, because premiums for the same plan can vary more than $100 per month.

The most popular plan is F, which pays for pretty much everything Medicare doesn't, including the 15 percent excess charge from doctors who don't accept Medicare as payment in full. Plan C is the next most popular. Plans M and N, the two newest options, are cost-sharing plans that have cheaper premiums, making them appealing to healthier retirees who don't use as much health care (“How to Choose a Medigap Supplemental Policy,” Huffington Post). If, however, you live in Massachusetts, Minnesota or Wisconsin, you have different standardized Medigap plans that you can buy.

Different Methods to Determine Premiums

If all that’s not confusing enough, insurance companies have three methods of determining the cost of a Medigap policy premium. A policy that looks inexpensive when you first buy it at age 65 could end up being the most expensive when you hit 80, so it’s important to figure out what is best for the long haul. The three types are:

1. Attained-age: Premiums start low but increase as you get older.
   
2. Issue-age: Premiums increase with inflation rather than age. These policies may start out a little more expensive than attained-age policies but generally have fewer rate increases over time.
   
3. Community-rate: The same premium is charged to everyone, regardless of age. Issue-age and community-rated policies will usually save you money in the long-run (“How to Choose a Medigap Supplemental Policy”).

The best time to first enroll for Medigap is the three-month period before you turn 65, the month you turn 65 and the three-month period after turning 65 . During this seven-month period, insurance carriers must accept you without underwriting; that is, they must enroll you no matter your state of health and whether you have a pre-existing condition. After this seven-month period, you can enroll with (or change) different carriers every year, but insurance companies can reject you for any health reason.

The main differences among insurance companies are premium amounts and kind of service you get. Prices also vary between tobacco and non-tobacco users, for different zip codes and for city and rural areas. You can count on premiums going up as you get older.

How to Find the Best Plan

Beyond the costs, how do you choose a reputable insurance company? “Ask your doctor,” says Mickey Batsell, an insurance agent and Certified Senior Advisor®. “Does he or she have any experience with certain companies?” You’re looking for candid feedback.

Medicare provides information on the different types of plans. You can call Medicare at 800-633-4227 and ask them to mail you a free copy of the "Choosing a Medigap Policy" guide (publication 02110) or go online to www.medicare.gov.

Different organizations offer their own advice. Consumer Reports ranks health insurance plans nationwide. You can use the tool to choose a plan category such as private HMO or PPO, or Medicare HMO or PPO. Then, choose your state and customize your search to compare plans' scores and their performance in measures such as consumer satisfaction and providing preventive services.

AARP has lots of information and several guides, including one just for baby boomers.

Your State Health Insurance Assistance Program (SHIP) or state insurance department can give you information on your state's rules, as well as provide free counseling about Medicare, Medigap and Medicare Advantage. SHIPs are federally funded programs and not connected to any insurance company or health plan. SHIPs were established to help beneficiaries with plan choices, billing problems, complaints about medical care or treatment and Medicare rights.

To view this article from Senior Spirit, visit Senior Spirit Medical News - October 2013.


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