Medicare beneficiaries and their counselors sometimes need help in the process of choosing a Medigap policy; these are also called “Medicare supplement” policies.
Specifically, I have done an extensive analysis of the availability and costs of the new structure of Medigap policies which went into effect in June, 2010. I will provide some practical guidance so that beneficiaries can more knowledgeably assess the different policies to choose from, and then select the one most appropriate for their individual circumstances.
There is no need to go into explaining the structure; this is all spelled out in Managing Your Medicare, on page 157. Through the CD that comes with that book, you can access a “2011 Medigap Standard Policies Worksheet” to help guide you through the process of selecting a Medigap policy during this current year. (Click on the “check for any updated forms” button on the introduction screen to the CD.)
To bring the Medigap chapter (Chapter 10), “Finding the policy that works for you” up-to-date, now that we have had some experience with the new structure, I will discuss the changes. And, as indicated above, it is based on a detailed review of the new Medigap policies offered for sale, and their current prices. More specifically, I looked at the Medigap policies available in a mix of ten states, and, in each state, examined which companies sold which letter policies and at what rates. (These states were Alabama, California, Colorado, Florida, Nebraska, New Hampshire, New York, Texas, Virginia, and Washington, so you can see I picked some large, medium and small states from all areas of the nation. My blog, www.managingyourmedicare.blogspot.com, has some detailed information on the Medigap policies currently available in each of these states, and you may wish to look at it if you happen to live in one of them.)
Before I present the results, you should be aware that the basic purpose behind the restructuring of the Medigap polices (which, as I said, took place in June, 2010) was to get beneficiaries more involved in seeing what their care was costing and to offer policies that, for a lower premium, would get beneficiaries to pay for more of their services. In other words, the policy makers believe that beneficiaries overutilize the Medicare Program when they are relatively well protected against the costs of medical services, and the new policies tend to make them pay some of these costs, and thus, hopefully, reduce overutilization. More specifically, they introduced two brand-new policies, “M,” where you have to pay half of your inpatient deductible, and “N,” where you have to pay co-payments of $20 for a doctor visit and $50 for an emergency room visit. And, of course, the “F-High Deductible” and the two catastrophic policies, “K” and “L,” were retained, as well as a number of other, more old-fashioned policies, but others of these were dropped. In addition, they tinkered with some of the benefits, but if you are new to Medigap these changes in themselves shouldn’t really concern you. Just be sure you are looking at the new definitions, and be aware that if your spouse bought a policy before June 2010, its benefit structure will be different than yours.
You will note that I haven’t provided any specific prices for policies; this is because they can vary hugely state-to-state, partly because of state mandates, such as using a community rating system (where everyone pays the same premium, regardless of age or condition), and partly because of substantial differences in Medicare utilization and pricing. Just as examples, the average minimum price for a basic “A” Medigap policy for a 65-year old in Alabama is currently $1,296, while this is almost double, $2,489, in New York City. (New York is a community-rated state.) On the other hand, a “B” policy for a disabled beneficiary under 65 in Alabama averages $3,316 per year, but is slightly less, $3,272, in New York City! So you can see the inconsistencies.
Not every insurance company sells each Medigap letter policy. (Interestingly, I have never found a company that offers each and every one of the different policies.) While each has to sell the “A” or basic policy, and either a “C” or an “F”, the actual pattern of which policies are sold by companies is pretty clear. Specifically:
- “A” and “F” policies are the most widely available.
- Next in availability are “B,” “C,” “F-Hi,” “G” and “N.”
- Much less available are “D,” “K,” “L,” and “M.”
As I point out in the book, you probably have a better chance of getting a well-priced policy by sticking to the more widely available options than not.
The Mechanics of Choosing a Medigap Policy
My best advice is that, if at all possible, go to your state insurance commissioner’s website and download or print out or have them send you (some of them have attractive, helpful booklets) the cost of and information on each and every policy that can be sold to you. Make this as individualized as possible, that is, it should pertain to your age, gender, location in your state, any affiliated group you belong to, your tobacco use, etc. And be sure to keep any notations with the policies, for example, that they are SELECT, or guaranteed issue, or attained-age, whatever. If it is not already in this form, put all this in a table or spreadsheet like this, and include the contact information (both their phone number and website) for each company:
Click on the image to enlarge the table.
However, you need to look very carefully at these websites, because many states have not fully reworked their displays of information since the Medigap structure changed, and sometimes they are incomplete or arranged illogically. For example, the data on the special “F Hi-Deductible” policies may be mixed in with regular “F” policy data, or it may be tacked on at the end, next to the policy “N” data, making comparison with a regular “F” policies a bit more difficult. (You can reach your state’s insurance commissioner’s website by going to www.naic.org and clicking on their “States and Jurisdiction Map,” and then on your state. And if, shame on them, it don’t have this available, you might try your SHIP (State Health Insurance Counseling Program); their numbers are in the contact information that comes on the CD with the book, and are also on the back of your Medicare and You booklet.)
As I point out in Managing Your Medicare, a number of factors are taken into account in pricing your Medigap insurance, such as if you use tobacco, your gender, whether your Medicare claims are automatically sent to your Medigap insurer after Medicare pays them (“crossed-over”), and many others. Some states are good at summarizing this information on their websites, and some aren’t. If you can’t access this easily, you may have to talk to a company or agent to pin this information down.
You now have all the basic data you need to choose a Medigap policy. You can now take the “2011 Medigap Standard Policies Worksheet” and use the paragraphs below to start picking out the letter policies and companies that are attractive to you and writing them in the top portion of that worksheet.
And, while this is a little tedious, you should have some idea in mind about how the various letter policies are priced in relation to each other. While this data is a little uneven, the pattern may help you. This shows, in general terms, how much the various letter policies cost in relation to the “A” or basic policy.
Approximate Cost of a Policy Compared to an “A” or Basic Policy
* “M” polices are priced very inconsistently, but run very roughly what an “A” costs.
The table can be put another way, which is more helpful when comparing between letter policies:
If an “A” or Basic Policy Cost $100 a Month, Then These Will Cost About:
* very roughly
These guides are not only helpful for comparisons, but also in reviewing policies. If you find one which costs way above this pattern, it’s probably a bad deal, but if it runs way below, it may well be a good deal.
The table will also help you spot inconsistent prices. For example, “C” policies don’t cover excess Part B charges, which “F” policies do. So you would expect that “C” policies would usually cost less, but, as you can see in the table, they don’t. Perhaps this is because “F” policies are more widely available. Competition helps. So if you are looking for a “C” policy (perhaps you live in a state which does not permit practitioners to charge above the Medicare approved amounts), make sure your policy is priced below an “F” one.
Talking Points on Choosing a Policy
My experience in counseling Medicare beneficiaries is that they have been though a lot in life, and if you can just give them some “talking points,” that is, make some helpful comments about the options they need to consider, they use these as take-off places to help think though and talk through their issues and choices, and then arrive at a good decision. So here are some talking points about the various Medigap policies. They won’t tell you which letter policy to buy, and, within that, which insurance company to choose, but they will give you some help working though all this. And they do incorporate my analysis of what is actually out there.
- The analysis shows that if you are a man and live in a state where some policies have different prices for males and females, and some don’t (such as Florida), you may get a better deal with a unisex policy, as in general, females pay about 4% less for Medigap policies than males.
- It also shows that SELECT policies, in very general terms, run about 15 to 20 percent less compared to “regular” or “standard” or non-SELECT policies, so these may be able save you substantially over the long term. But always remember, you are locked into a your Medigap insurance company’s network of hospitals and often physicians and other providers, and you should carefully check with your health care providers to see if they are part of this network.
- And you should be aware, that if you buy an attained-age-rated policy that as you age the premium will increase. It currently appears that the increase will be about 15 to 20 percent more when you hit 70, and then about that much more again as you hit 75. So if you so get one at 65, before you buy, look at the increase in rates for the out years, and look for another company if they are much more than these percents. This is an exception to my rule of getting information specific to your current circumstances; you really need to look ahead for when you reach 70 and 75. And remember that if you do get an issue-age-rated or a community-rated policy, they will go up too, but only based on medical inflation, not age. It will take a few more years of experience with these new lettered policies to look at what medical inflation will do to their prices.
And here are some “rules-of-thumb” talking points:
- The only thing “F” pays the “C” doesn’t is excess Part B charges. So, as indicated above, if you live in a state that doesn’t permit these, and don’t travel often to a state that does, do think of buying a “C,” but you may be able to find a cheaper “F.”
- The only thing “B” pays which “A” doesn’t is the Part A inpatient deductible (which is $1,132 in 2011). You can think your probability of being hospitalized is about 25% – so would you want to pay much more than $300 a year for this? On the other hand, coming up with $1,132 at one time may be hard, and of course, you can be subject to this more than once in a year. (Remember that you generally have to pay the Part A inpatient deductible again if you are hospitalized more than 60 days from your last hospital or Skilled Nursing Facility stay.)
- “F-Hi” – the “F High-Deductible” – pays everything the same as the regular “F” policy except you are subject for a $2,000 annual deductible (and this goes up each year). So if you choose this option, look for an “F-Hi” policy which costs substantially less that an “F” one. You won’t find one that costs $2,000 less per year from the same company, but do look at this spread.
- The only thing “C” pays that “B” does not is the Part B deductible ($162 in 2011, it goes up most years) and foreign travel. My analysis shows that most of the “C” policies are priced more than $162 per year than the “B”s, so unless you make very extensive use of foreign travel, these generally are not a great deal.
- “M” pays the same thing as “D” except only one-half of the inpatient deductible (This is $566 in 2011.) So again, think of your chances of being hospitalized and consider it if the premium you would pay for an “M” is worth this. My review shows that because so few of these are sold, that “M”s don’t look like a good deal, but you may find one in your state. “N” policies looks like attractive deals, but when you compare these to “D” policies, you have to pay co-payments of $20 per office visit and $50 for an emergency room visit. Can you find an “N” which is enough lower than a “D” to cover these co-payments, and still save you some premiums?
And always ask your physicians, local hospital, and other providers you use if they will work with a company you are considering for your Medigap insurer. As indicated above, this is especially critical if you are looking at a SELECT policy.
As you go through the table which, of course, you have made specific to your individual circumstances, you will begin to see attractive prices for the letter policies in which you are most interested. And as you spy these out, and note them on your worksheet, you will have the contact information to check further on these policies. Remember you‘ll probably have a Medigap for the rest of your life, so it pays to do some good homework up front to get the very best policy and deal for you. Good Luck!