All about Medigap insurance coverage

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If you just turned 65 — or will get there sometime this year — and you will be enrolled in Medicare Part B, this is the ideal time to shop for Medicare supplement insurance. Also known as Medigap insurance, these policies are sold by private insurance companies to fill in some gaps in the health care coverage you get from Medicare.

During a six-month open enrollment period that begins on the first day of the month in which you are 65 or older and enrolled in Medicare Part B, your right to purchase Medigap insurance is guaranteed, no matter the condition of your health. You also can’t be required to pay more for coverage of certain health conditions during open enrollment. This was true long before President Barack Obama signed the health care reform bill into law.

Your first step in assessing your Medigap insurance needs is to understand your out-of-pocket costs under Medicare. These expenses range from your deductible, co-insurance and co-payments under Medicare Parts A and B to the cost of blood.

The health care reform will bring some additional preventive care benefits under Medicare. For example, starting in 2011, enrollees will receive free annual wellness visits and will no longer incur co-payments for cancer and diabetes screenings.

ABCs of Medicare

Medicare Part A covers inpatient hospital care, skilled nursing facilities and some home health care. The benefits start once you’ve paid your Part A deductible, which for 2010 is $1,100 for the first 60 days of hospitalization, plus an additional $275 per day for days 61 through 90 and $550 per day for days 91 through 150. You are responsible for all costs beyond 150 days.

Medicare Part B is an optional premium-based plan that covers physician services and outpatient hospital care. You must be enrolled in Part B to be eligible to purchase a Medicare supplement plan. For new enrollees in 2010, the Plan B monthly premium is $110.50 for individuals earning $85,000 or less and couples earning $170,000 or less. Those with higher incomes pay Part B premiums ranging from $154.70 to $353.60 per month.

“Because (the Part B premium) gets withdrawn from (your) Social Security (check), many people aren’t aware of it, but it’s certainly part of the total expense that you’re paying for your health care,” says Heidi Michaels, a senior specialist with the Dyste Williams insurance agency in Minneapolis.

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.