How to Deal with Medigap Premiums
Premiums for Medicare supplement insurance are climbing again. Insurers report premium increases of 10% and more. For some policies, the premiums will increase over 40%.
The sharpness of the increase depends on your state and the type of policy you have. The highest premium increases are for Medigap policies covering prescription drugs. Of the 10 standard Medigap policies, only three (the H, I, and J policies) cover prescription drugs. The amount of coverage varies from state to state. In Wisconsin, Medigap has to cover 80% of some drug costs greater than $6,200. Wisconsin has increases of 24%.
Clearly, seniors who are likely to need medicine are opting for drug cover-age, while other seniors are not. This negative selection means insurers have fewer seniors over which to spread the cost of the coverage. Because of this, few insurers even offer the drug options. In my area, only the AARP policy and Trigon Blue Cross/Blue Shield offer any prescription drug coverage.
One option is to switch to a health maintenance organization (HMO) for your medical care. Medicare HMOs were a great deal for seniors as recently as two years ago. But changes in Medicare reimbursements caused many HMOs to stop participating in Medicare. Those that continue to participate raised costs and reduced benefits. While you should check out any HMOs offering Medicare plans in your area, keep in mind that the plan might not be offered in another year.
Another option is to buy only a basic Medigap policy or none at all. You’ll save some premiums and self-insure for some of your costs. Here’s how to decide if this route is for you.
The chart shows a summary of the different Medigap policies and the costs they cover that Medicare doesn’t. Details of each cost can be found in Your Medicare Handbook, available free through www.medicare.gov or most Social Security or state aging agency offices.
Take a good look at the items covered and estimate what your likely or even maximum out-of-pocket costs will be.
For example, if you are in the hospital for more than 60 consecutive days in a benefit period, you make a coinsurance payment for the 61st through 90th days of $198 per day. As the first line in the chart indicates, a Medigap policy will cover these coinsurance payments.
That coinsurance can total $5,742. But the odds of any one person incurring that amount in one year are low, especially in this age when hospitals try to discharge patients as quickly as possible. If you are relatively healthy and have enough savings to cover the expense if necessary, you might conclude that you’d rather save the premiums.The maximum expense might seem a once-in-a-lifetime possibility that justifies self-insurance instead of paying annual premiums. Someone who has chronic illnesses or injuries or bad genes and spends a lot of time in the hospital might be better off with Medigap.
Work your way through the list of covered items and estimate your maximum and likely out-of-pocket costs for each item. You might conclude that some or all of the coverage is valuable. Or you might conclude that the coverage isn’t cost efficient for you. It might be wiser for you to save cash that would to go the Medigap premiums for self-insurance and for the cost of prescription drugs.
If you decide on a Medigap policy, shop around. The Medicare website has a Medicare Compare feature that is a great starting point. My website also can help with the details in its archive and with links that point you to insurance shopping sites.
Click here to link to a chart summarizing different Medigap policies.
