Reviewing the New Medigap Policies

All the hoopla over health care reform overshadowed a change in Medicare Supplement Plans. The biggest changes in years for these plans took effect in June 2010 but have received little notice.

Participants in traditional Medicare often buy Medicare Supplement plans, or Medigap policies, to cover some of the costs not covered by Medicare, such as deductibles, copayments, and care that simply isn’t covered by traditional Medicare. Medigap policies were standardized in 1992 in response to studies indicating that seniors were buying a number of Medigap policies with overlapping coverage and holes in coverage and that they didn’t really know what they were receiving for their premiums. The federal government allowed only 10 types of policies to be offered. The original standardized policies, labeled A through J, held until 2006. The Part D Prescription Drug plan prohibited Medigap policies from offering drug coverage, which was offered under policies H, I, and J.

Then, policies K and L were introduced. These policies have the same basic coverage of some of the other policies, but coverage doesn’t kick in until higher deductibles are incurred. The deductibles are limited by federal law and are increased each year for inflation. High-deductible versions of policies F and J also were introduced. The high deductibles result in lower premiums.

Sweeping changes now are taking place. The 2009 policies are summarized in the box. Here are the highlights of how they changed on June 1, 2010:

? Policies E, H, I, and J are discontinued, including the high-deductible version of J.

? At-home recovery and preventive care benefits are removed from all policies that had them.

? The benefit for “excess charges” in policy G is increased from 80% to 100%. Excess charges are the difference between the maximum amount Medicare will pay for a treatment and the maximum doctors are allowed to charge patients.

? A hospice benefit is added to policies A through G.

? Plan F has a high-deductible version with a $2,000 deductible.

? Policies M and N are added. These offer benefits similar to D with higher copayments and deductibles. The result is expected to be premiums between 77% to 92% of those under standard policy D or 70% to 85% of policy F. These policies are supposed to be an alternative to Medicare Advantage for those who face higher premiums, lower benefits, or discontinued plans under the Advantage changes.

Insurers are allowed to continue all the old policies as long as they want, and you can continue a current policy as long as the insurer offers renewals. But no new sales are allowed, and that could be a problem. No new sales mean the existing pool of policyholders is closed and will age. As current policyholders age, premiums are likely to increase more than in the past. You may want to consider buying a new policy during the next open enrollment before the premium spiral begins.

Preventive care was dropped from the policies because traditional Medicare now covers most of it. At-home recovery was dropped because it was complicated and few people filed claims for it.

The open season for Medigap plans starts later in the year, so you have time to study the changes and decide what you want to do.

First, decide if you want traditional Medicare or Medicare Advantage. Most seniors who choose traditional Medicare also choose a Medigap plan and perhaps a Part D prescription drug plan. The combination provides benefits similar to an Advantage plan.

Before making a choice, look at more than the premiums. Copayments, deductibles, and coverage limits matter as much. This is especially true when you have a chronic condition that requires a lot of doctor visits or treatments. Those small copayments for each visit can add up. Policies F and G appear to be the most popular.

You also may want to consider the rules for upgrading Medigap policies before buying one. If you already have a Medigap policy, you have the right to replace it without a health screening or a new waiting period for 30 days each year following your birthday. However, you are only entitled to a Medigap that has the same or less benefits than the Medigap plan you have now. For instance, if you have a Medigap Plan B you can replace it with another Plan B or Plan A, but you aren’t guaranteed to move up to a Plan C or Plan F. The insurer can require a health screening and decline coverage if the results are unsatisfactory.

Because the new standardized plans are different than those people have today, the old standardized plans can be replaced as follows during the 30 days following your birthday beginning June 1, 2010:

? Plans A, B, C, D, or F can all be replaced with the same lettered plan

?  Plans E and H can be replaced with Plan D

?  Plan I can be replaced with Plan G

?  Plan J can be replaced with Plan F

?  High deductible plans F and J can only be replaced with high deductible Plan F.

The Medicare web site has tools that let you compare different plans online. You also can get the same information over the phone from Medicare. You also might want to read the free booklet 2010 Choosing a Medigap Policy, available free on the Medicare web site. For a personal consultation, you can locate a financial planner who gives Medicare advice or visit your local Area Agency on Aging.

June 2010.