Few single decisions will affect how a senior’s later years play out more than those around Medicare-related health care insurance. For many, it is a simple matter of affordability: how much money is available to supplement what Original Medicare provides. For those with disposable income, the decision is between the cost of premiums and the amount of uncovered medical bills they will face.
While decisions can be course-corrected, how well you make that first decision at your one-time-only initial Open Enrollment Period (around your 65th birthday) is critical: no insurer can deny you coverage for any reason then, not even for pre-existing conditions. These simplified guidelines for selecting Medicare Supplement Insurance might help.
‘Original Medicare’ is made up of Part A (Hospital Insurance) and Part B (Medical Insurance) and pays for about 80 percent of Medicare-eligible expenses.
Once we turn 65 and have signed up for Medicare Part B, we have choices:
- We can do nothing more and pay out-of-pocket for whatever Original Medicare does not;
- We can choose a Medicare Advantage Plan (Part C) from private insurers that contract with Medicare to cover our Part A and Part B, plus other benefits, but with restrictions such as networks and required referrals; or
- We can purchase Medicare Supplement Insurance (also called ‘Medigap’) which is private health insurance that supplements Original Medicare by paying for some of the ‘gaps’ in Medicare coverage, like coinsurance, copayments and deductibles. (Note that prescription drugs are covered under Medicare Part D as a separate private insurance.)
A deductible is an amount you must pay out-of-pocket before your policy begins to pay. Coinsurance is a percentage, such as 20 percent, that you may have to pay as your share of a service after you pay any deductibles. A copayment is a set dollar amount you may have to pay for a service or supply, say $20 per doctor’s visit.
By choosing the Medigap option, Medicare first pays its share of the Medicare-approved amounts for eligible health care services. Then your Medigap policy kicks in by paying its share, also directly to the provider. (How much of your expenses Medigap picks up depends on which Medigap plan you choose. The more your plan picks up, the higher the premium.) After that, you get billed for anything left unpaid.
Choosing a Medigap plan is pretty straightforward. Unlike with other insurances, the private Medigap insurance providers have no input on what to cover, or on what doctor or hospital you can use. Medicare determines that. Medigap simply helps pay what Medicare does not, like a straight accounting function.
In total, there are ten standardized plans (plus one variation) to pick from, but the number of plans available to you depends on the state where you live. Regardless who sells it to you or where you live, each plan provides the identical benefits and covers a different combination of coinsurance, copayments and deductibles. (The exceptions are Massachusetts, Minnesota and Wisconsin: they each have their state plans.)
Plans are identified by letters (A through N). What each plan covers is best explained in this Medicare-provided table:
How to compare Medigap policies.
What is the best selection process? You decide how much of the ‘gap’ you want your plan to pay, and you pick the plan that does that. You check to see who offers that plan in your state and you contact the insurance providers online or by phone to get rates for that plan. Maybe you adjust your plan choice based on what you can afford. Then you buy the policy either directly from the insurance company or a local insurance broker.
Without Medicare Supplement Insurance, or Medigap, a senior is responsible for the 20 percent of Medicare-eligible expenses that Medicare does not pay, plus any coinsurance, copayments and deductibles. There is no upper limit on how much that could total, so a senior with a chronic illness or who has a serious accident could easily incur financially devastating medical bills.
Medigap generally does not cover long-term care (such as care in a nursing home), vision care, dental care, hearing aids, eyeglasses or private-duty nursing. Those remain your financial responsibility unless you buy other independent insurances.
As for what Medigap does cover, for an expense to be covered, it must fall within what is accepted by Medicare. Also, the service provider (doctor or facility, for example) must accept what is called ‘Medicare assignment,’ which means they agree to be paid Medicare-approved rates for services. It is your responsibility to confirm that they do agree to that by asking each time you begin a relationship with a new provider.
While it sounds complex, it becomes second nature once you have defined what plan you choose and start using it. Besides, the peace of mind a Medigap plan can bring is well worth sorting it all out.
The best feature of Medigap plans is their degree of standardization and regulation. ‘Cost’ and ‘customer service’ are usually the only differentiating factors between similar Medicare Supplement Insurance policies sold by different insurance providers. Because the benefits of each government-standardized plan must be the same no matter which provider you buy it from, you do not have to worry about what is in the plan.
However, Medigap insurance providers have the freedom to decide which plans to offer in which states, what extra 'goodies' they want to throw in and how much to charge for each plan. They are only constrained by some minimum protections of insured seniors set at the Federal level, plus some others set at the state level.
The cost of the Medigap plan you ultimately select will likely be a major decision-making factor. (An apples-to-apples comparison of the premiums quoted by various providers for the same lettered Medigap plan will provide the information you need.) As for the service aspect, you want to check how easy it is to enroll, what plans they offer in your state, how quickly coverage begins and how easy it is to access their customer support.
The government has already mandated some other features you would want to know about before buying a Medigap policy. For example, you can go to any doctor in the U.S. who accepts Medicare assignment. Insurers cannot require a health exam or underwriting if you purchase your policy during your Medigap Open Enrollment Period. All plans are automatically renewable, regardless of health, as long as premiums have been paid and you did not lie on your application. However, you will want to check things like whether the insurer offers multi-policy discounts, how quickly it processes claims and what resources are available to you to help with your purchasing decision.
About the only time you are guaranteed issuance (regardless of physical condition) is during your Medigap Open Enrollment Period, around your 65th birthday. (You may postpone that period if you have coverage elsewhere and you choose to delay the transition to Medicare.) During that special enrollment period, companies cannot turn you down or charge a higher premium because of your health record or any pre-existing condition. The insurance provider cannot require underwriting. This unique opportunity should not be taken lightly.
Any change you make outside of that initial period (either changing plans within the company or moving to a new company later) gives the new provider the right to deny you coverage, increase your premium or delay coverage for pre-existing conditions for up to six months. While there are some exceptions, you are best served by making the right choice from the outset.
Fortunately, if you feel you have to make changes, you can apply for such changes without giving up your existing policy, so you have a fallback position if you are denied elsewhere or if the offer is unacceptable to you.
It makes sense to stick to better-known, stronger insurance companies whenever possible. Not only do they tend to pay out claims faster, but their financial strength also reduces the risk of the disruption you would experience if your insurer fell on hard times.
Ultimately you want to ‘price shop’ your chosen plan. If you find similar pricing for that plan from different reputable providers, then look at what other fringe benefits they might be offering.
Two areas are worth examining when selecting Medigap plans: age-friendliness and heal-related value.
First, let's look at the age-friendliness of Medigap plans: how they set their premium prices is what counts, although most people never ask about it. There are just three methods. While companies may have their preferred method, some states mandate the methods insurers can use, which means companies can be overridden. You need to ask about your state. Here are the three methods:
- Community-rated, where everyone is charged the same premium, regardless of age. What you are quoted at age 65 is the same as a 77-year-old will be paying for that plan in your state at that moment. These plans are said to be the least expensive overall, but they may be more expensive than others in the earlier years to average out the older and younger participants.
- Issue-age-rated, where the premium is determined by your age when your policy is first issued. That sets the benchmark price, which does not go up due to aging, but instead increases with inflation. Issue-age rating is a reason not to change plans or companies later on if it can be avoided.
- Attained-age-rated, based on the age you have reached, where the premium is relatively low when you are younger, but goes up with each year as your age progresses. Overall, this method results in the greatest cost over time.
Community-rated pricing is the most attractive of the three and should be your choice if it is available with the plan and insurance provider you choose.
Regarding health-related value, when you are ill you want to know you have the best possible insurance coverage. The better the coverage, the lower the risk of unpleasant surprises when your health care requirements get more complicated.
Of all the available plans, Plan F is the one that provides the greatest coverage. It is also the most popular, making up nearly 60 percent of the Medigap policies written in 2016. While it has the highest premium, your coinsurance, copayments and deductibles will all be covered. Plan F even covers ‘excess charges,’ which only occur if a doctor does not accept Medicare assignment.
Why would you go to a non-participating doctor? You know your doctor participates in Medicare and accepts assignment. But say, for example, that your doctor sends you somewhere for testing. You may assume that doctor will also accept assignment. Unfortunately, all too often you only discover that doctor was non-participating when you are billed out-of-pocket for 15% of the Medicare-approved amount for the service. (Plans F and G both protect you from such unexpected charges.)
Once you decide you want to supplement your Original Medicare Part A and Part B with a Medigap policy to limit or avoid out-of-pocket expenses entirely, the premium you will pay falls into place by defining a few key factors:
- How much coverage you want of coinsurance, copayments and deductibles;
- Which of the A-through-N plans provides that coverage;
- What licensed insurance providers in your state provide that plan; and
- Among those that do, how much will they charge for it.
Remember that insurance providers are free to charge what they want for each plan, so it is worth your while to check various providers.
The premium you pay for your Medigap policy is in addition to the monthly Part B premium you pay to Medicare.
While doing your research, be certain to ask each insurance provider what discounts it offers to its quoted premium. It might offer discounts for women, nonsmokers or being married; for paying a year’s premiums in advance; for paying by electronic funds transfer; for carrying multiple insurance policies or having multiple Medigap policyholders in one household.
To obtain information on what plans are available in your state, go to Medicare’s search page: Medicare Plan Finder.
Cost is the most important factor in selecting an insurance provider for the Medigap policy you want, considering that the benefits offered for that plan are identical regardless which provider is selling you that policy. Other factors involve how easy it is to work with that provider.
Cost: Each insurance provider decides what it wants to charge for whichever plans it decides to offer in each state. Finding the best deal requires contacting several reputable insurance providers that offer the plan of your choice and obtaining a quote. Be certain to request all possible discounts the provider makes available.
Ease of enrollment: Some insurance providers make it easier than others to enroll in their plans. They should offer at least online and telephone options. Some offer in-person enrollment by appointment and others have offices with independent agents available to help you sign up.
Coverage: While all Medigap plans are available to all licensed providers, each provider decides which lettered plans to offer in each state. If you know for certain what plan you want, it is easy to identify which providers offer it in your state. Providers with a wide range of plans may make it easier to change plans in the future without having to face underwriting as you would if you had to go to another provider.
Waiting period: Services are available immediately if you are purchasing your Medigap plan during your Medigap Open Enrollment Period. If you are purchasing the plan later on, outside of that period, your provider could require up to a 6-month delay in coverage of any pre-existing condition.
Customer support: The more means of communication and the longer the hours a provider offers, the better. Means could include online chat, email, phone and in-person. Some providers also offer phone access to a registered nurse 24/7.
The government determines several of the other factors you want to consider when selecting a Medigap plan.
Doctor restrictions: There are no networks involved in Medigap plans and no required referrals to see specialists: you can see any doctor in the U.S. who accepts Medicare assignment. Some plans even provide limited medically necessary emergency care outside the country.
Health exams: Health exams are not required for enrollment. In fact, if you enroll during your Medigap Open Enrollment Period, you cannot be rejected for health reasons. After that period, a provider can require that you go through underwriting and can decline your application or put restrictions on its coverage of pre-existing conditions.
Renewal: Any of the standardized Medigap policies is guaranteed renewable regardless what health problems you might have. Your insurance provider cannot cancel your Medicare Supplement Insurance as long as you stay enrolled, pay your premiums and were honest on your application.
Other differentiating factors include:
Multi-policy discounts: Along with other discounts, some providers will offer a percentage off the premium if two people in the household are on Medigap or if you have other insurance policies with that provider.
Claim turnaround: How quickly a provider processes a claim is important if you happen to have paid out money for which you are awaiting reimbursement.
Decision-making assistance: Some companies provide extensive resources to support seniors as they make this important insurance decision. These can include online videos and downloadable guides, in addition to the typical online and telephone support.
Final considerations: Your Medigap Open Enrollment Period lasts for six months and starts on the first day of the month in which you are (1) formally enrolled in Medicare Part B, and (2) are age 65 or older. This is the best time to buy your Medigap policy.
Think about your health care needs today and, as best you can, what they might be in the future. The resulting information should help guide which benefits you want your selected plan to cover since it might be difficult for you to change Medigap policies at a future date.
You are free to discontinue your Medigap coverage at any time. If you decide to do so, you need to write your insurance provider directly asking to cancel your policy and then confirm that it has indeed been canceled. Your insurance agent cannot cancel a policy for you.
To become a true student of Medigap plans, one of the best resources is Medicare's free publication "Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare.