In part one, we learned about Original Medicare – what it pays, and more importantly, what it doesn’t pay. In part two we will discuss Medigap plans – AKA Medicare Supplements. As of this writing, there are 11 Medicare supplements available. Plans A, B, C, D, F, High Deductible Plan F, G, K, L, M, and N. They are labeled in the order in which they were introduced. So, plan A is the oldest and N is the newest. The most important thing you need to remember is that these plan are standardized. That means that we are comparing apples to apples from company to company. A plan F from company 1 is identical in benefits to a plan F from company 2 and a plan G from company 3 is identical in benefits to a plan G from company 4. The difference will be in the price you pay for it in the form of premiums and the strength, service, and track record of the company.
The older plans (A-D) are rarely bought these days and offer less benefits than the newer plans. And, because they are older, they will have more claims experience than the newer plans. In other words, they have older, sicker people in them that cost the companies more money. To remain profitable, the companies have to charge higher premiums for these older plans than for newer plans that may have better benefits but less claims experience.
A Medicare supplement’s only job is to pay your share or a portion of your share of the Medicare bill. Medicare always pays first and Medicare sets the prices for services. This means that there are no doctor networks. You can go to any doctor or hospital that accepts original Medicare. There is no requirement for the provider to be contracted with the supplement company. In fact, in most cases, the provider does not even bill the supplement company, they bill Medicare and Medicare bills the supplement. This is called the crossover. This is why providers much prefer original Medicare over Part C. They don’t have to deal with the insurance companies. You also will not need referrals to see specialists. And because there are no networks, there are no geographical boundaries. Your plan will work exactly the same anywhere in the US. Some supplements even provide some foreign travel coverage.
Another thing you will not have with Medicare supplements is what is known as Managed Care. What that means to you is that, for the most [part, what the doctor orders I what you get, with few exceptions. Medicare approves just about anything that is deemed medically necessary. There is no need to get a pre-approval or preauthorization from the insurance company. If Medicare pays, the supplement is obligated by law to pay your share.
One big caution here is for what are called diagnostic procedures. Diagnostic procedures and tests are things the doctor orders when there nothing wrong with you, or they don’t know what is wrong with you and are just guessing. Most diagnostic procedures fall under the preventative testing category. A good example is a colonoscopy. The current medical guidelines say that if you are over a certain age and have no risk factors, you only need a colonoscopy about every ten years. Well, that is about how often Medicare likes to pay for colonoscopies. Some people have risk factors and so their doctor may order a colonoscopy every three or five years. Without the proper supporting justification, Medicare may decline to pay for these earlier screenings. You will want to make sure your doctor’s office is doing a good job on the front end to prevent any delays is having a claim paid. In the rare event Medicare declines to pay for a service, it is usually resolved by having the doctor’s office resubmit the claim with more documentation supporting medical necessity.
So, which plan should you buy? That depends on how much risk you want to take. Remember, all insurance is, is a way to transfer risk from yourself to somebody else. In this case, the risk you have is with all of the Medicare deductibles and copays and coinsurance. The more risk you transfer, the more premium you pay.
Plan F is the most comprehensive. It pays 100% of your share of the Medicare bill. So, with a plan F you have essentially no risk. Therefore, the plan F is the most expensive of the newer plans (for this discussion, we will not consider plans A-D). But being the most comprehensive does not necessarily make it the best value. You see, premiums are called premiums for a reason. The insurance company is taking all of the risk and they are going to charge you a pretty penny for that.
Plan F is the most popular, but only because it is the easiest for lazy insurance agents to sell. “Buy this plan F from me and you’ll never pay a penny in out of pocket expense”. That may be true, but what they don’t tell you is that if you are willing to share in the risk, even just a little bit, you can usually save more on premiums than the actual dollar amount of the risk you are taking.
Look at it this way – If you bought a plan F and the premiums are $1644 per year. That is your total health care cost for the year (excluding Rx). But if you bought a plan G for $1100 a year your only other cost would be the $166 Part B deductible. After you have paid the deductible, the plan G works just like a plan F. So, $1100 + $166 is $1266. A savings of $378 per year over the plan F. This is why I think plan F is such a ripoff. Plan N and plan K are the only others I would consider based on a person’s high risk tolerance. But for now, plan G seems to be the best value for your money.
There is no open enrollment season for Medicare Supplements. You can change plans any time you wish – the one catch to that being that if you are over 65 ½ and not coming off of a retirement or employer health plan you will be subject to medical underwriting. You will have to answer a series of health questions, and, based on your answers to those questions, you may be declined.
You need to make a very well informed decision now, when you have the chance, to select the best plan and company, because this may be the plan you have for the rest of your life. Though the benefits are the same, some companies rates and track records are better than others. That’s where I come in. I keep track of all the companies’ rates and rate increases, as well as their time in the business and reputations. I can help you select the best plan from the best company that will be the best for you for the longest time.
That’s enough for now. There is certainly more to learn about Medicare Supplements, but we’ll save that for another time. In our next article, we will discuss Medicare Part C also known as Medicare Advantage. This is where it starts to get complicated. Stay tuned.