Medicare Supplement Policies

If you read the article on What Medicare Does Not Cover you know that Medicare has gaps.

Deductibles, coinsurance and limitations on coverage means a beneficiary may still pay a significant part of his or her medical bill even after Medicare pays its share. One way beneficiaries can meet these costs is with Medicare Supplement insurance (also referred to as Medigap). These policies are issued by private insurance companies. Medicare beneficiaries are not required to purchase a Medigap policy but most do. If your (or your spouse’s) former employer provides you with retiree health insurance you may not need a Medigap policy. If you participate in a Medicare Advantage Plan, you also may not need a Medigap policy.

In this article you will learn the basics of Medigap policies and how to select the best policy for you.

The Basics

There are nine Medigap policies from which you may choose. The plans are identified by a letter. The plans available are: A, B, C, D, E, F, G, K and L (there are plans H, I and J but these are no longer sold). All the benefits under a policy identified as a Plan A must be the same even though sold by different insurance companies. Congress mandated which benefits must be provided by each plan to help consumers avoid confusion when selecting a policy.

If the policy benefits are the same, does it make sense to shop for a policy? After all, if I decide to buy a Plan C policy, what difference does it make which insurance company I choose? Remember, we said the benefits under the Plans are standardized, not the price! It does pay to shop around, because the prices do differ. A Plan C from one company may cost more than from another insurance company. Part of the reason has to do with how the policies are priced in the first place – we’ll discuss that later.

Filling the Gaps

Plan A is the basic Medigap policy. It is typically the least expensive and fills in the fewest gaps. As you move up to Plan B, Plan C, etc. more gaps are filled but the Plans become more expensive. Plans K and L, however, are slightly different. These Plans fill in gaps at only 50% (Plan K) and 75% (Plan L) of the cost. But they offer a benefit none of the others do – they place a cap on your out of pocket expenses. After you have paid $4,440 (Plan K) or $2,220 (Plan L) in total out of pocket costs for covered medical expenses, the Plan pays 100% of any additional costs for the year.

As an example, let’s look at Plan A compared to Plan B. Plan A is the most basic Plan covering only:

• Part B coinsurance (the 20% of covered expenses not paid for by Medicare);
• Blood transfusions (it pays for the first 3 pints of blood).

By moving to Plan B you have the same coverages as Plan A PLUS payment of the Medicare Part A deductible. Is the extra cost of a Plan B worth the added coverage? If you are reasonably healthy and don’t expect frequent hospitalizations, it may not be worth it. In 2008 the Part A deductible is $1,024 for each benefit period.

In general, as you move from Medigap Plan A to B through Plan G you pick up additional coverage. In exchange, the monthly premium increases. Note that Plans H, I and J are no longer available for purchase as of January 1, 2006. If you owned a policy before that date, the policies are still available.

Plans K and L operate a little differently. These Plans offer a cap on out-of-pocket expenses. In 2008, the caps are $4,440 and $2,220 respectively. In exchange for this cap (which can be important if you have high medical expenses), Plan K pays for 50% of the deductibles and coinsurance while Plan L pays 75% of those costs.

As you shop for a Medigap policy keep in mind your health care needs and your budget – consider how much coverage you can comfortably afford.

For example, by moving “up” to Plan B from Plan A you gain coverage for the Medicare Part A deductible. Ask yourself; is the added coverage worth the added cost? The Part A deductible in 2008 is $1,024. If you are reasonably healthy and don’t expect to be in the hospital, the added cost of a Plan B Medigap policy may not be worth it. However, if you Plan on foreign travel during the coming year, it may be worthwhile to move from Plan A to Plan C.

Let’s look at some of the more popular Medigap policies and compare the coverage provided:

Coverage	Plan A	Plan C	Plan D	Plan F
Part A Deductible		X	X	X
Part B Deductible		X		X
Part B Coinsurance	X	X	X	X
Skilled Nursing coinsurance		X	X	X
At-Home Recovery			X
Blood Transfusion (first 3 pints of blood)	X	X	X	X
Foreign Travel		X	X	X
Doctors’ Excess Charges				X

Here are some other things to keep in mind about Medigap policies:

• Medicare SELECT Medigap policies offer a two tier payment system. If you use hospitals or doctors who are part of the plan’s network, the policy pays the full benefits. If you use a provider outside the network, the policy pays reduced benefits. In exchange, the cost of such Medigap policies is usually cheaper. If you are considering such a policy, make sure your doctor and/or hospital of choice is in the network.
• Some Medigap policies are “high deductible” meaning you pay more of the first dollar costs in exchange for a lower premium. Whether or not a high deductible plan makes sense for you depends on your health – if it is reasonably good and you anticipate low health care costs in the coming year, the plan may make sense.

For additional information

Go to www.medicare.gov.