Understanding Medicare Supplement Plans

You’ve been inundated with advertising for the array of Medicare-related programs, for it is annual enrollment time. In recent months we reviewed Medicare Advantage plans, original Medicare, and Part D prescription drug coverage. In this visit, we review Medicare Supplemental coverage (or Medigap) policies.

Many people who are covered by original Medicare also select a Medigap policy. Original Medicare is estimated to cover only about half the medical expenses of the typical beneficiary. There are premiums, deductibles, copayments, coverage limits, and care that isn’t covered. You can pay for these yourself or choose to have some of them covered through a Medigap policy.

Medigap policies are sold by private insurers. While there are federal standards, they are minimal. Medicare does not review the policies, and the states are the main regulators. The federal rules require a Medigap policy to fall into one of 10 standardized policy categories based on its coverage. Insurers offer standardized coverage and compete on price, service, financial strength, and other factors. (Massachusetts, Minnesota, and Wisconsin have their own standardized policy definitions.) In some states SELECT policies offer lower premiums in return for requirements to use hospitals and doctors in the insurer’s network.

The categories are labeled A through L. A is the most basic plan, providing the least coverage. Coverage increases with F through J progressively covering many of the premiums, co-payments, and deductibles along with services Medicare doesn’t cover. Plans K and L are versions of plans F and J with deductibles of $2,000 or more and lower premiums. The most frequently-purchased policy probably is Plan C.

Selecting a Medigap policy is relatively easy.

Review the material on Medicare’s web site or its Medicare and You book describing the different types of policies. Decide which category of coverage interests you, or narrow it down to two or three policy types. Then, shop among insurers. Policies from different insurers can be researched and compared on the Medicare web site or by calling Medicare. Most states have an Area Office on Aging that can help you navigate policy choices.

Be sure to shop for a policy, because premiums differ significantly between insurers. Many insurers depend on marketing to draw in customers who won’t compare policies. Though you should shop around and compare premiums, don’t buy only on premiums. Consider the insurer’s financial stability and customer service reputation. Also, ask about its history of premium increases. You don’t want to buy a policy this year only to face a dramatic premium increase next year.

When deciding which type of plan to consider, there are some guidelines that might be helpful.

? Medicare’s reimbursement rates to doctors are notoriously low, and not all doctors accept them. Plans F, G, I, and J pay the difference when your doctor doesn’t accept Medicare’s rates. But don’t assume even these policies will cover the full cost of any doctor you want to see. The policies usually restrict their reimbursements to doctors in their networks.

? Some Medigap policies cover prescription drugs. You might find cheaper, better coverage through a Part D prescription drug policy and a Medigap policy that doesn’t cover prescription drugs. See last month’s visit for details about Part D policies. (You aren’t allowed to buy a Medigap policy that covers prescription drugs when you have Part D coverage.)

? Unless you travel outside the U.S. a lot, coverage for care while on foreign travel probably isn’t worth the expense. You could buy a specific individual policy when you travel overseas.

? Check for coverage limits, such as dollar limits and coverage only for care delivered by providers in the insurer’s network.

The main reason to buy a Medigap policy is certainty. Without Medigap, the amount you will pay for medical care will depend on the amount and types of care you need during the year. With a Medigap policy, you pay the premiums and know which gaps in Medicare will be covered.

RW December 2009.