When you turn 65, you'll have an important decision to make regarding your healthcare alternatives: You can choose to sign up for either original Medicare or a Medicare Advantage plan. And if you choose original Medicare, you'll have a second decision to make: whether to get a Medigap policy.
What is Medigap?
Medigap, also known as Medicare Supplement Insurance, is health insurance offered by private insurers to help pay for Medicare Part A and Part B expenses. These plans must adhere to one of the 10 coverage templates developed by Medicare. That means an enrollee in a Medigap Plan L, for example, has the same coverage as every other Plan L enrollee, regardless of which company provides their policy. However, while coverage will be identical from one provider to another, premiums can differ radically -- so it's a good idea to compare several providers to find the lowest rates.
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Medigap basic benefits
Each of the different Medigap plans, from Plan A to Plan N, is required to provide certain benefits. Plans C through G all offer the same basic benefits; the other plans have different benefits, ranging from Plan A (the most basic benefits package) on up. Medigap plans typically offer extra coverage for hospital expenses, nursing-home costs, and Medicare Part B coinsurance costs. The specific benefits included with each plan are listed on the Medicare website.
What Medigap doesn't include
Medigap won't help you pay for prescription drugs, long-term care costs (aside from the first 100 days in a nursing home), vision or dental costs, or devices like hearing aids and eyeglasses. You can get a Medicare Part D plan (in addition to Medigap) to cover your drug expenses, but if you expect to have high expenses in the categories listed above, you're probably better off with a Medicare Advantage Plan than with a Medicare-plus-Medigap package.
Medigap or Medicare Advantage?
Unless you're in superb health, going with original Medicare alone can be very expensive. So the question becomes whether to choose original Medicare plus Medigap or a Medicare Advantage plan (a.k.a. Medicare Part C).
The benefits of Medicare Advantage include drug-coverage options (most Medicare Advantage plans include some help with prescription costs, saving you from the need for a separate Part D policy), a cap on patients' annual out-of-pocket costs, and access to vision and/or dental coverage.
Arguments in favor of Medigap include a broader choice of doctors (Medicare Advantage plans are typically network-based, and choosing an out-of-network doctor can be very expensive), the ability to see specialists without a referral, and, in most cases, lower out-of-pocket costs. Medigap plans typically cover most or all of the expenses that original Medicare doesn't. Medicare Advantage plans have out-of-pocket maximums that require you to hit a certain level of expenses each year before they cover 100% of the rest; out-of-pocket limits vary by plan but can be as high as $6,700 per year.
All told, folks with major medical problems are usually better off with Medigap because the lower out-of-pocket costs more than make up for the higher premiums if you have lots of medical expenses. Further, Medicare Advantage plans vary by area, so if the available policies don't look right for you, or if their in-network providers don't suit your needs, then that's another good reason to get a Medigap plan. Otherwise, you'd probably save money with a Medicare Advantage plan versus Medigap.
Choosing a Medigap plan
Medigap Plan F is the most comprehensive of the 10 options, covering almost everything that original Medicare doesn't. It will even pay the 15% excess charge that doctors who don't fully accept Medicare slap on Medicare patients. Unsurprisingly, Plan F is also the most popular of the Medigap plans. But on the other hand, Plan F enrollees pay for the extra coverage with slightly higher premiums. If you're willing to accept a low level of coverage in exchange for the lowest possible premiums, consider Plan A or Plan K.
You can see the full list of plans, providers, and premiums available in your ZIP code by using the Medigap search on the Medicare website.
Other considerations
You may be surprised to hear that not everyone is guaranteed Medigap coverage. Providers can turn you down for pre-existing conditions if you wait to enroll more than six months after you turn 65. Thus it's wise to make plans and consider policies in advance so you'll be ready to enroll within the six-month grace period.
Also, different insurance providers and plans use different methods of setting premium prices. Community-rated plans are priced the same regardless of your age, which means they're typically more expensive early on but become the cheapest policies as you age. Issue-age-rated policies are priced based on your age when you enroll, and premiums won't go up as you get older, except for a basic cost inflation increase. Attained-age-rated policies start out with low premiums, but the premiums can climb significantly as you age, making them the most expensive over the life of the policy.
Before you sign up for any Medigap policy, find out which pricing system it uses -- and think long and hard before choosing an attained-age-rated policy.
