Recently one of our attendees on our New to Medicare webinar asked this:
“Is there any downside to having no supplemental coverage? Is Medigap necessary? What are the risks if I choose to have just Medicare Parts A, B, and D?”
You might be wondering this yourself. Are Medicare supplements worth it?
I understand why you ask. When Americans reach retirement age and start their Medicare coverage, many are shocked to realize that Medicare is not free. If you didn’t know to save for Medicare Part B premiums during your retirement, you may find that money is tight.
However, going with just Original Medicare and no supplemental coverage is not wise.
The gaps in Medicare are substantial, leaving you to pay for expensive deductibles and 20% of all your outpatient coverage. If you don’t have a Medicare Supplement plan, often referred to as Medigap coverage, or a Medicare Advantage Plan, you’ll have to come up with the difference yourself.
So are Medicare supplement plans worth it? Yes, they are. Let’s look at how they can help you.
The Good News
The best thing about your options for covering the gaps in Medicare is that there is something for everyone no matter what your budget is. We have Medigap plans which cost a bit more but have full coverage. Then we have Medicare Advantage plans which in some counties can cost as low as $0 for the plan itself.
Let’s look at a few basic facts so you can judge if you need a Medicare Supplement plan or if a Medicare Advantage plan is right for you.
Covering the Gaps in Medicare Parts A and B
Just like with your current insurance, Medicare has deductible, copays and coinsurance for which you are responsible. Medicare Part A covers up to 60 days of hospitalization, but you pay a deductible of $1316 in 2017.
If you are in the hospital longer than 60 days, you begin paying an expensive daily copay for your hospital care. If you are in the hospital 150 days, your hospital coverage runs out altogether.
Your cost-sharing under Part B is similar. You are responsible for paying your Part B deductible, which is $183 in 2017. Then Part B Medicare only pay 80% of approved services. This means you are responsible for paying 20% of all your doctor visits, your ER visits, blood tests, X-rays, surgeries, durable medical equipment and even high-priced things like chemotherapy.
It gets worse:
There is no cap on your 20% like you’ve had on your prior insurance plans. You pay that forever. Paying 20% of the cost of a knee replacement will hurt a lot. But it will pale in comparison to paying 20% for the treatment of an illness like cancer.
Even for smaller items like CT scans, your 20% can be a burden.
How a Medicare Supplement Plan Can Help
Medicare supplements plans were designed to fill the gap in your medical coverage left by Medicare. You need a Medicare supplement to provide you peace of mind, knowing that if the unexpected happens, you won’t have your credit ruined because of unpaid medical bills.
Medicare supplements take care of things like co-payments, deductibles, and coinsurance that you are responsible for, and some plans even cover you if you travel outside of the United States.
There are 10 standardized Medicare supplements Plans (A, B, C, D, F, G, K, L, M and N) and one high-deductible plan. Most Medigap plans are guaranteed renewable for life meaning that if you pay your premium, you are covered and cannot be denied coverage because of any health issues or because of your age.
Once your Medicare plan has paid its part, your Medigap coverage will pay most of what’s remaining for any Medicare-approved charges. You can see any doctor that participates in Medicare, too, which is one of the best features about Medigap plans.
The Medicare Supplement with the Most Coverage
Plan F pays 100% of all out-of-pocket expenses. If you are looking for a comprehensive plan that will pay for everything, this one is it.
Here are a few of the benefits that a Medigap plan can help pay for:
- Medicare Part A coinsurance hospital costs after initial Medicare coverage is exhausted
- Medicare Part B copayment
- Blood (first 3 pints are free)
- Hospice care (coinsurance or co-payment)
- Skilled nursing facility care (SNF) coinsurance
- Part A and Part B Deductibles
- Foreign travel emergencies
- Part B excess charges
- Preventive care coinsurance (Medicare Part B)
I should note that Plan G and Plan N are also very popular sellers at our agency. These plans offer lower premiums than Plan F, and you do a little bit of cost-sharing on the back end of your policy.
Many people don’t mind paying the Part B deductible out of pocket in return for the lower premiums that Plan G and Plan N can give them. For a closer look at the comparison between Medicare Plan F and Plan G, visit this post I wrote for Forbes.
I’ll mention that Plan F will be phased out in 2020. Here at our agency, we’ve seen many people interested in enrolling in Plan F now so that they will be grandfathered into that plan once 2020 rolls around.
That’s one strategy, but looking at Plan G is a good idea. You can save on premiums and have the confidence that your plan is not being discontinued anytime soon. You can learn more about this in my post: Is Plan F Going Away?
As soon as you reach 65 and are eligible to apply for Medicare, you are also eligible to purchase a Medicare Supplement policy. You will be given a ONE-TIME open enrollment period to enroll in any Medigap plan with no health questions. Your open enrollment period is the first six months from the first day you signed up for Medicare Part B.
During open enrollment, you can sign up for any supplemental plan and you are guaranteed coverage. They cannot turn you down because of pre-existing medical conditions.
After the open enrollment period ends, Medigap companies will require you to answer health questions on future applications, and you may be turned down. This makes open enrollment the best time to sign up for a Medigap plan.
Open Enrollment vs Annual Election Periods
Don’t confuse your Medicare Supplement Open Enrollment with the Annual Election Period in the fall. The period that runs from October 15th – December 7th every year is for changing your Part D drug plan or Advantage plan.
Here’s what it’s NOT:
It is NOT a time when you can apply for any Medigap plan and get approved without having to answer health questions. No annual period for that exists. Your only period to do that in most states is the one-time 6-month window that I mentioned above.
In a couple of states of like California and Oregon, there is an annual 30-day period when you can enroll in a Medigap plan without health questions, but ONLY if you already have a Medigap plan and are switching to an equal or lesser plan. It does NOT apply to people who want to switch from no coverage or Medicare Advantage coverage over to Medigap coverage. That kind of switch generally requires you to complete a full application with health questions.
Each Medigap insurance company sets their own rates. You can compare plans based on their premiums. Be sure to also look at the plan’s history of rate increases. You want to enroll with a carrier that has competitive rates now and a low rate trend.
Here at Boomer Benefits, we have a software that shows us both pieces of information for every carrier in your county. We can also see financial ratings, which is another factor you want to consider when choosing a plan.
Now we’ve learned that Medigap plans are very comprehensive, so it stands to reason that they cost more than the other type of coverage. So you may be asking yourself “What if I can’t afford a Medicare supplement?”
Fortunately, there’s another option. Let’s take a look at Medicare Advantage plans and learn what they do to help you cover the gaps in Medicare.
Medicare Advantage Plans
For those who may find that the premium for a Medigap plan does not fit within their budget, a Medicare Advantage Plan is a good alternative. In fact, these plans were specifically created to provide Medicare beneficiaries like yourself with an alternative to Original Medicare + Medigap.
Medicare Advantage Plans are sometimes referred to as “Part C” plans. One popular feature of Medicare Advantage plans is that most include coverage for prescription drugs (Part D). These plans pay instead of Medicare (as opposed to after Medicare, as Medigap plans do). When you join a Medicare Advantage plan, Medicare pays that plan to deliver your care.
Medicare Advantage Plan Types
Medicare Advantage plans generally have networks of providers that accept their plan. That network might be just in one or two counties or occasionally we see them include a whole state. You agree to treat with those providers according to the plan’s rules.
The most common types today Health Maintenance Organizations (HMOs) and Preferred Provider Organizations (PPOs). Standard HMO plans require you to see only providers in their network, except in emergencies. This is more restrictive than a PPO plan, so we often find that Medicare HMO plans costs less than Medicare PPO plans, but not always.
There’s one other type of plan too.
In some areas, you may find plans called Medicare PFFS plans. These usually have a small network with a feature that allows doctors outside the network to treat you. You must notify the doctor up front about your coverage, and he can treat you if he is willing to accept the plan’s payment terms and conditions.
This made PFFS plans popular with folks that like to travel, such as RV groups.
However, a few years back Medicare began phasing out PFFS plans in any counties where at least two HMO or PPO providers were operating. We don’t find as many available these days.
You Continue to Pay for Part B on Medicare Advantage
Now pay attention because I’m going to share with you the MOST common misunderstanding about Medicare Advantage plans:
Enrolling in a Medicare Advantage plan does not replace what you pay for Part B.
You must continue to be enrolled in both Medicare Parts A and B before you can join a Medicare Advantage plan in your area. I’ve seen a number of people over the years get this wrong. They enroll in Medicare Advantage and then they disenroll from Part B.
Guess what happens?
The Medicare Advantage plan then kicks them out. You must be enrolled in both Parts A and B and live in the plan’s service area to join a Medicare Advantage plan.
I think what throws people off is that in some areas there are some Medicare Advantage plans with what we call a $0 premium. This means you don’t pay for the plan itself, but it doesn’t mean you get out of paying for Part B.
How can any plan offer a $0 premium, you ask?
Remember, the plan is being paid by Medicare to deliver your care….to take on your risk. So, the insurance company operating the plan can set the monthly premium at whatever they want. They set the premium as low as possible to attract people like you to their plan.
Even if an insurance company offers a Medicare Advantage plan for $0, it does not mean the plan is free. The insurance company can adjust the plan’s premium each year. It could be $0 this year and $20/month next year, etc
The Benefit of No Health Questions
Medicare Advantage plans have another feature that is attractive. They ask only one health question, so they rarely turn anyone down for coverage. People who suffer from End-Stage Renal Disease are not eligible for Medicare Advantage.
However, you can only enroll in Medicare Advantage plans at certain times of the year.
This prevents people from just waiting until they get sick to get coverage. If you don’t enroll in a Medicare Advantage plan during your initial enrollment window, then you will have an annual chance to do so each year in the fall from October 15th – December 7th. This is called the Annual Election Period.
If you get sick in February, and you can’t get into a Medicare Advantage plan until next year, you could spend a great deal between February and December. So, if you like the idea of Advantage plans, enroll in one before you need it.
Final Thoughts on Whether You Need a Medicare Supplement
So, you may have been asking yourself: Do I need Medigap coverage? Is Medigap necessary?
The answer is: Not for everyone, because some will choose Medicare Advantage.
But are Medicare Supplement plans worth it? YES.
Because we have many options for covering the gaps, there is no need to run around without supplemental coverage. If you find yourself asking whether you really need a Medicare supplement, ask yourself if you can afford to pay 20% of a $50,000 knee replacement or 20% of eight weeks of cancer chemotherapy.
If you are like most of us, you can’t pay that much out of pocket. So yes, then you need a Medicare supplement or Medicare Advantage plan.
A Medigap plan or Medicare Advantage plan is a wise investment to protect you from catastrophic medical spending.
Regardless of your current financial situation, there is sure to be a plan that will fit your budget and medical needs. We have certified agents to guide you through the process of choosing the best plan to fit your needs.