It’s a mad, mad Medicare system: Part 4

Our author and Medicare Guinea pig, Glenn Tornell, cynically predicts that your mailbox is more likely to be filled with Medigap offers than with birthday greetings as you near age 65. Photo by Dave Arntson

Here’s a perfect gift for a 65th birthday:
a paper shredder.

Before you hit that magical Medicare age, you’ll be subjected to a tsunami of birthday greetings from some of your best buddies in the insurance industry. They know where you live and they want your business.

Assuming you know the basics of Medicare Part A & B, you also understand that Medicare doesn’t pay for all your medical expenses. There’s the rub: All this mail you’ll get is aimed at selling you insurance to cover what Medicare insurance doesn’t.

Basically, outside of copays and deductibles, Medicare pays about 80 percent of your hospital and doctor bills, leaving you responsible for the other 20 percent. At the outset, that sounds pretty decent. And it is. Unless you need a coronary bypass, for example. That will cost you $61,800, according to Healthcare Blue Book, a free guide to fair healthcare pricing.

Do the math. Without a Medicare supplement plan, you’d be on the hook for more than $12,000 – and that’s after you’d paid Part A & B deductibles and copays. Can you afford that risk?

Check the same site for the cost of other operations at a hospital near you. You’ll be flabbergasted. No wonder nearly two out of three bankruptcies stem from medical bills.

Medicare’s alphabet soup

For years, the federal government has been trying to help citizens figure out how to deal with the “gap” between what Original Medicare covers and the actual costs enrollees can expect. Unfortunately, they thought the solution was a healthy dose of the alphabet.

Having divided Original Medicare into Part A and Part B, Congress decided to give enrollees alternatives to the gap-riddled “original recipe” by adding a prescription drug program labeled Part D – and then topped it all off with Part C, which gives seniors an entirely different set of coverage and price options. (I’ll get into Medicare Advantage in my next column.)

It’s not surprising, then, that folks are confused when they see Medigap plans that are again alphabetized. Today, there are TEN standardized Medicare supplement plans: A, B, C, D, F, G, K, L, M and N. Until June 2010, there were 12 Medigap plans (Plans A-L) but plans E, H, I and J are no longer sold, and in 2010, Medigap added Plans M and N.

It’s all pretty confusing. Most seniors I’ve talked to have to think twice when you ask what kind of Medicare coverage they have. I asked my neighbor – a woman in her early 70s, who’s had 22 operations in her life – what she thought about her Medicare coverage. She didn’t know what coverage she had, but she knew she liked it.

“Since I’ve been on Medicare I’ve had five major operations,” she said, “and I haven’t paid a cent for anything. And there’s been hardly any paperwork.” (Turns out she has a Medigap plan, which costs her less than $150 a month.)

Medigap basics

If you can remember one thing – that Medigap Plans A-D are completely different from Medicare Parts A-D – you’re on your way to unraveling the complexities of Medigap.

OK. It’s not all complex:

First, you pay a private insurance company a premium each month in addition to your Part B premium. Each policy covers only one person. Easy enough.

If you have a Medigap plan, you can visit any doctor or hospital in the United States that accepts Medicare, without pre-certification or pre-authorization. No network restrictions. So the top specialists in the country are within reach. And if you move to another state, your Medigap plan follows you.

Also simple? Bureaucratically, Medigap plans are easier to deal with. Doctors or hospitals submit their claims to Medicare. Medicare pays its part, then sends the balance to the supplement company to pay the rest. In other words, Medigap pays after Medicare pays. The result: less paperwork for everyone.

And some good news? Your Medigap policy is guaranteed renewable even if you have health issues. But also, if you want to cancel your policy, it’s a simple matter of contacting your carrier.

Each Medigap plan comes standard

Kudos to the federal government for at least trying to ensure consumers won’t get a sketchy Medicare supplement plan. They achieved this through the aforementioned “standardized plans.” This means that, regardless of carrier, each plan must have the same basic benefits.

Each of the 10 standardized plans offers a combination of benefits and deductibles. Plan A offers the least, while the most recommended and comprehensive – Plan F – covers just about everything Medicare doesn’t, including Plan A & B deductibles and co-pays.

The combinations run from the basic – additional hospital coverage after Medicare benefits run out – to less basic. (If you plan to travel, you should know that six of the 10 plans cover foreign travel emergencies, covering 80 percent of emergency care outside the United States.) You can compare them all at medicare.gov.

One benefit you won’t find in Medigap: prescription drug coverage, which was removed from Medigap coverage starting in 2006. (Look for that coverage through Medicare Part D or through a Medicare Advantage policy.)

And here are a few more really important caviats:

First, not all of the companies that offer Medigap plans offer all of the plans – and not all types of Medigap policies are available in every state.

Also, if you seek Medigap coverage in Massachusetts, Minnesota and Wisconsin, you should know policies there are standardized differently. Definitely read this overview (Pages 42-44).

In addition, you may be able to purchase a Medicare SELECT policy in certain states. These plans are still standardized, but may have lower premiums. The catch? A SELECT plan may require you to use only certain health care providers.

Make sure the price is right

Because Medigap plans are standardized and pay the same benefits, you’d expect the price to be the same from any carrier, right? Well, you’d be wrong. What you pay now AND in the future depends on how your plan carrier has set premiums.

• If your plan premium is community rated (or no-age-rated), you generally play the same premium as everyone else, regardless of your age. Still, your premium could go up over time because of inflation or other factors.
• If your plan premium is issue-age rated (or entry-age rated), your price is based on your age when you buy the policy and isn’t increased as you age. Your premium could increase due to inflation and other factors, however.
• If your plan premium is attained-age rated, your price is determined by your age and it increases as you age. And again, your premium can also increase due to other factors.

It’s up to you to ask your carrier. Definitely contact more than one when you’re considering plans and ask each one how it sets premiums. Or, you can contact your State Health Insurance Assistance Program. (The list of phone numbers is on pages 47 and 48.)

The bottom line? Medigap offers plenty of options to make up for Original Medicare’s shortcomings. But you’ll need to do your homework. Choosing a Medigap Policy is a great place to start.

And if you read it online, you won’t have to use your dandy new shredder.

Next in the series? Part 5: Free gym memberships, dental care and ‘zero premiums’? Is Medicare Advantage the Cadillac of coverage?

Tags: medicare advantage, Medicare supplement insurance, Medigap, original medicare, out of pocket, prescription drug coverage

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