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9

Fall Into the Medigap

When it comes to providing basic coverage for medical facilities and treatment, Medicare gives you a good financial foundation for your medical care during retirement. As a previous series of articles discussed in more detail, Medicare covers a large percentage of medical care expenses, whether you need inpatient hospital care or just a visit to your doctor's office. For those who have had to fight to maintain private health insurance coverage during their working years, Medicare eligibility represents the light at the end of the tunnel that they hope will make getting medical care both easier and more affordable.

However, Medicare isn't a perfect system. Most importantly for the majority of seniors, it doesn't cover the entire cost of your care. Even if you have some other insurance through a current or former employer, the combination may still leave you with gaps in your coverage. For seniors who can't afford the risk of having to pay a percentage of their own medical expenses, Medicare supplemental insurance, also known as Medigap, can address their concerns and help them deal with a big threat to their financial stability.

Covering the gaps
Medigap policies are health insurance policies issued by certain private insurance companies, including UnitedHealth Group (NYSE: UNH  ) and Aetna (NYSE: AET  ) . Although the federal government doesn't offer these policies directly, it sets the standards that insurance companies must follow in structuring their policies and benefits. The primary purpose of Medigap coverage is to give seniors additional protection to fill in the areas in which standard Medicare doesn't provide full coverage. In general, if you want to buy a Medigap policy, you must first have Medicare coverage under both Parts A and B.

In considering whether to buy a Medigap policy, it's important to understand that Medigap won't fill in all the gaps under Medicare Parts A and B. For instance, while prescription drug costs aren't covered by original Medicare, they also aren't covered under Medigap policies; instead, the new Medicare Part D provides prescription drug coverage.

It's also important to recognize that the recent changes and additions to Medicare law have created significant changes to the Medigap policies that already exist. For example, before prescription drug coverage became available under Medicare Part D, there were certain types of Medigap plans that offered limited coverage for certain drug costs. As a result, you may see references to Medigap policies with drug coverage, but you won't be able to enroll in them. Only those seniors who already had drug coverage in their Medigap policies qualify as grandfathered exceptions; the general rule for new enrollees in Medicare is that Medigap policies do not include drug coverage, and seniors who want that coverage must look to Medicare Part D and its provisions for separate prescription drug plans.

The alphabet soup of Medigap
The Department of Health and Human Services has defined 12 standard types of Medigap policies that are available to residents of 47 states. Each of these types is assigned a letter, so you'll see the policies referred to as Plan A, Plan B, and so on through Plan L. Each of the 12 standard plans offers a different set of benefits. In general, the greater the level of benefits, the higher the cost.

Residents of Massachusetts, Minnesota, and Wisconsin might consider themselves lucky, as they have fewer different options to analyze. Massachusetts and Minnesota have just two plans, while Wisconsin has a single plan. However, those who live in Minnesota and Wisconsin also have to consider a variety of optional policy riders that closely resemble some of the benefits you'll find in the standard policy types in other states. Because each state has its own insurance department and bureaucracy, the way in which federal and state authorities influence Medigap plans includes some unusual local variations.

Depending on where you live and the number of insurance companies that serve your area, you may or may not be able to find policies of a particular type. There's no requirement that any insurance company has to offer Medigap policies of every type; if a company wants to specialize in a particular types of policy, it has the option to do so. The primary requirement for insurance companies offering Medigap coverage is that if they offer a certain type of policy, then the policy has to provide the particular benefits specified by DHHS for that policy type.

Unfortunately, choosing the best Medigap policy for your particular situation is harder than just throwing a dart at an eye chart and picking whatever letter you hit. Instead, you have to analyze the various options included in the plans that are available to you. The second part of this article goes into more detail about the various plan types and the benefits they offer.

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For information on just about every aspect of retirement planning, you can count on The Motley Fool and its Rule Your Retirement service. You'll find everything you need to make informed decisions that will help you enjoy your golden years in comfort and confidence. See for yourself with our 30-day free trial.

Fool contributor Dan Caplinger can only wish he had coverage as good as Medigap policies provide. He doesn't own shares of the companies mentioned in this article. The Fool's disclosure policy is a lifelong commitment to you.


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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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