All about Medigap insurance coverage

Medicare imposes a $155 annual deductible on Part B enrollees, after which it pays 80 percent of the Medicare-approved amount for health care services.

That brings up another major gap that Medicare participants often forget about when comparing supplemental policies. The difference between what the health care provider charges you and what Medicare approves is called an excess charge. If you choose a supplemental plan that doesn't cover those costs, you won't be closing your Medicare gap completely.

"When Medicare first started, it covered 80 percent of what the doctor charged," says Brian Gray, owner of Brian Gray Insurance Services in Costa Mesa, Calif. "The Medicare supplements were all the same back in those days: They paid the missing 20 percent. As time went by, Medicare was running out of money, so Medicare approved less of the amount (charged). ... There are only three (Medigap) plans that pay 100 percent of what's missing."

What Medigap covers
All Medigap plans pay 100 percent of your Medicare Part A co-insurance and 100 percent of your Medicare Part B co-insurance for preventive care, at least 50 percent of your Part B co-insurance or co-payment for services other than preventive care, and at least 50 percent of the first three pints of blood for a transfusion. The plans vary according to whether and how much they pay of other costs such as the Part B deductible, Part B excess charges and foreign travel emergencies.

Come June 1, 2010, when the federal government's reshuffling of its standardized Medigap plan categories takes effect, the number of such plans will be down to two.

Currently there are 12 lettered plan categories. Until June 1, only Plans F, I and J will pay 100 percent of Part B excess charges. After that, the excess charge benefit of Plan G will increase from 80 percent to 100 percent, but plans I and J will be eliminated.

State coverage varies

If you live in Massachusetts, Minnesota or Wisconsin, you don't have to contend with such a complex bowl of alphabet soup. Those states have pared their Medigap plan offerings down to two or three.

Even if you live in one of the other 47 states, until the restructuring actually takes effect, there's no need to try to master the new maze, says Laura Mutsko, a Certified Senior Advisor and owner of Mutsko Insurance Services in Willoughby, Ohio. If you're in the market for a plan, you can still choose from what's available now since the changes will only apply to plans sold after June 1.

Medigap premiums are set using one of three methods. Community-rated plans charge the same premium to everyone regardless of age. Issue-age-rated plans charge lower premiums for younger purchasers and will not raise prices because of your age (but they can impose hikes due to your claims history or cost-of-living increases). Premiums for attained-age-rated plans are based on your current age, so they go up as you get older.

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