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Medicare Supplemental Insurance: Medigap: Choosing a plan that fits your needs

www.AgingOptions.com

If original Medicare is

chosen, enrollees may need to purchase Part

D as well.

Medicare Supplemental Insurance (also called Medigap) helps con-sumers cover the financial “gap” created between Medicare Part A and Medicare Part B insurance plans. This white paper will

help clarify what a Medigap policy covers, who might benefit from hav-ing the policy and how to make an educated purchase of a Medigap policy.

Medicare is a federal health insurance program for individuals 65 and older and for some younger individuals with disabilities. Everyone is automatically enrolled at age 65 and is thereafter covered by a broad spectrum of protections against the high costs of acute care services under these four parts of Medicare:

Types of Medicare Coverage

Part A (hospital insurance): Covers inpatient care in hospitals and helps cover skilled nursing facilities, hospice and home health care. Most people 65 and older are automatically eligible for Part A based on their own or their spouse’s work history that includes at least 40 quarters of paying Medicaid taxes while working. Part A does not have any premiums.

Part B (physician and outpatient coverage): Helps cov-er doctors’ and other health care providers’ services, hospital outpa-tient care, durable medical equipment and home health care.

Part A and Part D together make up original Medicare, which covers benefits on a fee for service (FSS) basis.1

Part C (Medicare Advantage plans): The private equivalent to Parts A and B, Medicare Advantage also frequently covers prescription drug (Part D) and may include extra benefits. Consumers are protected by law from purchasing a Medigap policy and Medicare Advantage plans at the same time.

Part D (Prescription drug coverage): Offered by Medicare approved private insurance companies. Part D covers the cost of prescription drugs and may lower the cost of the drugs and protect against higher costs. Part D is usually not needed if a Medicare Advantage plan is chosen. Otherwise, if original Medicare is chosen, enrollees may need to purchase Part D as well if their Medigap plan does not cover prescription drugs (Medigap policies sold before Jan. 1, 2006 may have coverage). Medicare will not allow enrollees to have a Medigap plan with prescription drug coverage to be joined with a Part D plan.

1. Medigap: A Primer. Congressional Research Service: CRS Report for Congress. Carol Rapaport. September 2012.

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Medigap Plans

However, there can be significant costs associated with copayments, deductibles, and services not covered by Medicare (but not prescription drugs nor for deductibles associated with Medicare Prescription Drug Plans) so in addition, there is a private supplemental insurance known as Medigap. Because Medigap policies can be confusing to consumers, one question Medicare enrollees have concerns about is whether they should invest the time and energy into deciding on a Medigap plan or go without. In 2008, about 17 percent of Medicare beneficiaries purchased a Medigap policy. That number is low because many beneficiaries received coverage through employer-sponsored plans. Only 10 percent of Medicare enrollees chose to go without any sort of supplemental insurance policy. The plans come with such original names as Plan A, Plan B and so forth all the way to Plan N with Plan A being the most basic plan and each successive letter offering greater coverage. (Plans E, H, I and J are no longer sold but consumers who already have those plans can keep them.) Most plans cover the deductible from Part A and the Part B coinsurance. Some also cover benefits not covered by Medicare.

Private insurers sell Medigap policies but the government sets the plan details so that there usually isn’t any difference between any of the plans known as Plan A policies and so forth with the exception of plans sold in Massachusetts, Minnesota and Wisconsin. (For more information on Medigap policies in those states see pages 42-44 of 2013 Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare.) Plans can be broken into three types: Standardized Plans, Waiver State Standard Plans and Pre-standard Plans.

Standardized Plans

Plan policies created after July 1992 were required to conform to one of 10 uniform benefit packages mandating some cost sharing be paid by enrollees. These plans differ with respect to benefits deductibles, cost sharing and other features. Because the prices can go all over the board, Medigap plans confuse many consumers. For instance, monthly premiums can differ between plans by hundreds of dollars ranging from $50 to several hundred dollars depending on which plan you choose and where you live. In 2010, 44 percent of enrollees who chose to go with a Medigap plan chose Plan F.

2. Medigap: A Primer. Congressional Research Service:CRS Report for Congress. Carol Rapaport. September 2012.3. Medigap: A Primer. Congressional Research Service:CRS Report for Congress. Carol Rapaport. September 2012.4. Centers for Medicare & Medicaid Services, Choosing a Medigap Policy: A Guide to Health In-surance for People with Medicare, 2013. http://www.medicare.gov/Pubs/pdf/02110.pdf. 5. Ultimate Guide to Retirement. CNN Money. http://money.cnn.com/retire-ment/guide/retirementliving_healthcare.moneymag/index9.htm?iid=EL6. American’s Health Insurance Plans, Trends in Medigap Coverage and Enrollment, 2011, May 2012.7. Centers for Medicare & Medicaid Services, Choosing a Medigap Policy: A Guide to Health Insurance for Peoplewith Medicare, 2013. http://www.medicare.gov/Pubs/pdf/02110.pdf.. 8. Assistant Secretary for Planning and Evaluation, U.S. Department of Health and Human Services,9. Variation and Trends in Medigap Premiums, ASPE Report, December 2011, p. 15, http://aspe.hhs.gov/health/reports/2011/MedigapPremiums/index.shtml10. American’s Health Insurance Plans, Trends in Medigap Coverage and Enrollment, 2011, May 2012.


Plans F through Plan L use a different type of cost sharing than their predecessors. These fast growing Medigap plans include new standards that contain enrollee cost-sharing requirements. The downside for consumers is that Plan K, Plan L and Plan M can make an enrollees’ health cost highly variable (and therefore hard to budget for) depending on the type of health services they use. Plan K and Plan L do not completely cover the costs of deductibles, coinsurance and copayment but they cap out-of-pocket spending. Plan M covers 50 percent of the Part A deductible and does not cap out-of-pocket spending. Plan N returns to a higher degree of predictability and as a result is growing rapidly in number of new enrollees. Plan N covers the Part A deductible but includes cost-sharing for certain physician visits and up to $50 copay for certain emergency room visits.10 Plan L covers 75 percent of the Part A deductible, Part B deductible and Part B coinsurance and has an out-of-pocket limit.

Waiver State Standard Plans

The three states mentioned above (Massachusetts, Minnesota and Wisconsin) offer standard Medigap plans but are exempt from standardized plan revisions. Individuals that purchase plans in one of these three states may keep their plans if they move out of state.

Pre-Standardized Plans

As changes have occurred to Medigap provisions, early purchasers have been grandfathered in to allow them to keep their policies. Some of these enrollees continue to have plans created before the enactment of policies from the 1990s.

Consumer Protections

One reason to buy a Medigap plan is that it can keep your from being turned down for health reasons should you decide later that you need it. Federal law provides strong consumer protection but that protection is especially strong during the month individuals turn 65. At that time consumers are protected against: wait periods extending beyond six months for pre-existing conditions; insurance premiums based the individual’s health; and protection against refusal to sell any policy that the insurer offers.11 If consumers miss the opportunity to buy a Medigap policy they may find it difficult to buy a policy at all or their options may be limited. They may also find that their costs have risen.12 There are no13

10. American’s Health Insurance Plans, Trends in Medigap Coverage and Enrollment, 2011, May 2012.11. Medigap: A Primer. Congressional Research Service: CRS Report for Congress. Carol Rapaport. September 2012. 12. The Best Time to Enroll in a Medigap. Supplemental Insurance for Original Medicare (Medigap). Section VII b. April 2013. www.Medicare Interactive.org

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government contributions towards Medigap premiums.13

Insurance requirements for selling Medigap

Insurance companies selling Medigap policies must make Plan A available. If they offer any other plan in addition to Plan A, they must also offer either Plan C or Plan F.16

Plans D and G purchased after June 1, 2010 are different from plans with the same name that were purchased prior to that date.

Plans E, H, I and J are no longer sold but enrollees who currently have those plans may remain with those plans.

Consumer requirements for buying Medigap

Medicare enrollees looking to buy Medigap must purchase Part A and Part B. There is no advantage to buying a Medicare Advantage Plan with Medigap and as a result, the only way you can have one (either a Medigap policy or a Medicare Advantage Policy) and purchase the other is if the enrollee is planning to change his or her policy before coverage ends. The insurer may require the enrollee to put it in writing.

The private insurer will charge a separate monthly premium from any premium you are paying Medicare for Part B.

Plan beneficiaries buy policies only for themselves so that for instance spouses cannot share plans.

Not all insurers sell policies in all states. For Washington state, check with the Office of the Insurance Commission website at http://www.insurance.wa.gov/your-insurance/health-insurance/medicare/documents/medicare-supp-plans.pdf for approved Medigap plans.

12. Medigap: A Primer. Congressional Research Service: CRS Report for Congress. Carol Rapaport. September 2012.Medigap: A Primer. Congressional Research Service: CRS Report for Congress. Carol Rapaport. September 2012.13. Ultimate Guide to Retirement. CNN Money. http://money.cnn.com/retire-ment/guide/retirementliving_healthcare.moneymag/index9.htm?iid=EL14. Centers for Medicare & Medicaid Services, Choosing a Medigap Policy: A Guide to Health Insurance for Peoplewith Medicare, 2013. http://www.medicare.gov/Pubs/pdf/02110.pdf.15. Centers for Medicare & Medicaid Services, Choosing a Medigap Policy: A Guide to Health Insurance for Peoplewith Medicare, 2013. http://www.medicare.gov/Pubs/pdf/02110.pdf.16. Centers for Medicare & Medicaid Services, Choosing a Medigap Policy: A Guide to Health Insurance for Peoplewith Medicare, 2013. http://www.medicare.gov/Pubs/pdf/02110.pdf.

Note: Consumers, who opt to purchase a Medicare Advantage Plan (Medicare Part C), will not benefit from a Medigap policy14 and insurance companies generally can’t sell Medigap policies if enrollees already have coverage through Medicaid or a Medicare Advantage Plan.15


Insurance companies do not automatically cancel an enrollee’s policy. This can be two-sided. Insurance companies cannot cancel a policy even if the enrollee has health problems as long as the enrollee continues to pay his or her premium and alternately if the enrollee wants to drop the policy he or she must do so by writing the insurance company.

Enrollees who have original Medicaid and an insurance plan through some other means such as an employer or union, have the right to purchase Medigap Plan A, B, C, F, K or L if they do so within 63 days of that coverage expiring. As verification that their previous coverage has expired and that he or she was covered, enrollees must provide copies of any written documentation as proof.

Comparing Medigap costs

Often the exact same policy is offered for substantially higher premiums from other insurance companies. So to get an accurate idea of costs, consumers should compare one company’s Plan C with another company’s Plan C. Enrollees can find out which insurance companies sell policies in their area by going to www.medicare.gov/medigap. If additional help is needed, the Office of the Insurance Commissioner provides resources as well. One of those resources is the Washington state Statewide HealthInsurance Benefits Advisors (SHIBA). Unbiased volunteers with that program can be reached at 1-800-562-6900. They can answer questions relating to Medicare and health care choices, find affordable health care coverage and evaluate and compare health insurance plans.17

Costs can be variable depending upon if the insurance company offers any discounts, uses medical underwriting or charges a different premium if the purchase is outside the normal open enrollment period, or offers a high deductible plan. If the plan is a Medicare SELECT policy that requires enrollees to use specific providers within their network, the costs might be less there as well.

It’s important to ask how a potential insurance company sets prices. The greatest difference in the cost of premiums lies in the way that the policies are priced. Consumers at the age of 65 should be aware that the least expensive policy may in fact turn out to be the most expensive policy over time depending upon how premiums are rated. Policies can be priced in 3 ways18 :

Community-related-Premiums are not based on age so the price of the insurance plan may is the same for every policy holder and may increase but it won’t be as a result of the age of the enrollee.

Issue-age-rated-Premiums are based on the age the enrollee initially buys

17. http://www.insurance.wa.gov/about-oic/what-we-do/advocate-for-consumers/shiba/about-shiba-services/index.html18. Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare. http://www.medicare.gov/Library/PDFNavigation/PDFInterim.asp?Language=English&Type=Pub&PubID=02110

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the policy making policies for early insurers less expensive than for those who buy later in their life. Premiums increase based on inflation and other factors but not because of the age of the enrollee after the initial purchase.

Attained-age-rated-Premiums are based on the current age of the enrollee. This type of insurance may be the least expensive initially but as time progresses they can be the most expensive.

How to buy a Medigap Policy

The premiums for Medicare Advantage plans are generally lower than Medigap coverage plus a Part D prescription drug plan but there are more limitations. Some individuals are savvy shoppers and are intimately familiar with using the internet for research. For those people a Medicare Advantage plan may offer a better value but for people looking for a simple solution, Medigap on top of traditional Medicare is the way to go even if at the present they don’t need the extra coverage. That’s because the penalty later on may prevent them from having that option when they most need it.

Find a policy. It’s tempting to look at policies on a year-by-year basis. However, it may not be possible to change policies later on if a health crisis occurs. For this reason, enrollees should decide which benefits are necessary or desired and then decide which of the standardized Medigap Plans meets those needs.

Determine which insurance company offers the benefits desired. An enrollee should find out which insurance companies sell Medigap policies in the enrollee’s state. As mentioned above that information can be found at www.medicare.gov/medigap or visit the Office of the Insurance Commissioner for the appropriate state. For Washington that site can be found at http://www.insurance.wa.gov/your-insurance/health-insurance/medicare/what-is-medicare/medigap-plans.html. While on that site look for information such as complaints against insurance providers. Enrollees should check on the financial strength of the insurance company from rating services such as TheStreet.com/Ratings, standardandpoors.com/ratings and ambest.com/ratings.19 As a final measure, enrollees should ask family members and acquaintances for their input.

Call around. During the six-month period beginning the first month an enrollee is eligible for Medicare and has purchased Medicare Part B, enrollees can sign up for any Medigap policy. This is referred to as the Medigap Open Enrollment Period. At other times enrollees have Guaranteed Issue Rights (see Consumer Protections above). If the enrollee falls into either category, they should notify the insurance company when they call to ask questions and compare costs.

19. Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare. http://www.medicare.gov/Library/PDFNavigation/PDFInterim.asp?Language=English&Type=Pub&PubID=02110


Medicare.gov recommends enrollees ask these questions:

Verify that they are still licensed to sell insurance in the enrollee’s state.

Check to see if the insurance company still sells the plan letter the enrollee is interested in.

Check to see if the insurance company uses medical underwriting for that particular policy if the enrollee is neither in his or her Medigap

Open Enrollment Period nor has Guaranteed Issue Rights.

Determine the waiting period for any pre-existing conditions.Ask which rating system the insurance company uses.

Provide age of the enrollee and ask for costs. If the rating system the company uses is attained-age, ask how frequently the premium increases due to age.

Ask about any premium increases due to inflation or other reasons for the last three years.

Ask about any discounts.

Ask about charges for automatic claim processing.

Buy the Medigap policy. Insurance companies must provide enrollees with a clearly worded summary of the policy they are selling. If something is confusing, ask questions. Read the policy carefully. Then fill out the application including any medical questions completely (insurance companies do not however have the right to ask any questions about the enrollee’s family history or the right to ask the enrollee to take a genetic test). Enrollees who purchase a policy after the open-enrollment period are subject to penalties and possibly higher insurance premiums.

Pay the insurance company directly for the policy or if paying an agent, get a receipt with the insurance company’s name address and phone number as a record of the transaction.

Insure that coverage begins on the date needed (generally the first of the month after application).

Policies should be received in 30 days or less. Contact the insurance company if it isn’t. If more than 60 days has expired, contact the Office of the Insurance Commission.

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Some find the process of selecting insurance policies annually to be a daunting task. As a result, despite price differences that have nothing to do with actual benefits, people often choose their policies based on name recognition, the fact that they have the policy already or any number of factors that have nothing to do with what they are receiving in benefits. For those people, it may make sense to make use of an insurance broker.

Finally: a word of caution. Medicare plans and Medigap plans change each year. What used to work, might no longer work or the enrollee may end up paying for benefits that aren’t needed or that aren’t enough or the benefit simply costs too much. Don’t cancel a current policy until a new policy is under usage. Medigap policy coverage needs to last for the 30-day free look period, meaning that at least for one month it will be necessary to pay two premiums. Be aware that insurers may require a waiting period for pre-existing conditions if the enrollee has had the policy for less than six months. Insurers may also deny coverage for benefits that don’t exist in the plan currently in existence; they may also charge higher premiums or outright refuse to sell a policy. 20

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20. Changing Medigap Supplemental Policies. Jan. 25, 2010. Patricia Barry. AARP Bulletin.

Note: For easy access to Medicare’s chart showing the benefits of each of the 10 plans, please see page 10 or go to http://www.medicare.gov/Publications/Pubs/pdf/02110.pdf Page 11.

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