Medicare covers a lot, but it doesn't pay for everything. Image: Medicare.
Tens of millions of Americans benefit from Medicare after they turn 65, but one potentially surprising fact about Medicare is that the program doesn't cover all of your healthcare expenses. With substantial copayments and other charges left uncovered, many Medicare participants turn to Medicare supplemental insurance, also known as Medigap coverage, to help get the full protection they need. Most people have numerous options for choosing Medigap policies, so it's important to know how to select the right one for you. Let's take a look at three of the most important things you need to know to find the right Medigap coverage for your particular situation.
1. Different categories of Medigap plans offer different types of coverage.
Throughout most of the nation, Medigap policies are standardized into 10 separate types of plans. Each plan is identified by a letter of the alphabet, and each one covers different expenses that standard Medicare doesn't cover.
For instance, Plan A policies cover the required coinsurance and hospital-cost payments under Medicare Part A, as well as hospice care. They also cover copayments and coinsurance for medical visits under Part B. However, they don't cover the expense of skilled nursing facilities or the deductibles for Part A or Part B. By contrast, Plan F policies cover all the expenses Plan A policies take care of as well as the ones listed above that Plan A policies don't pay for. You can see the full list here at the Medicare website, showing each of the plan categories and what they do and don't cover.
Keep in mind that more comprehensive coverage will cost more. The most popular plan choices are Plans C and F, which are on the more comprehensive end of the spectrum. Regardless of which plan you like best, it's essential to make sure you compare the same category of policy when you compare premiums across different health-insurance companies, or else the figures you get will be misleading.
2. Insurance companies can choose from three ways of pricing their policies.
It surprises many people that different health-insurance providers charge widely disparate premiums for what is essentially the same Medigap coverage. The reason often has to do with the method an insurer uses to set prices for Medigap policies.
Medicare allows insurers to price Medigap policies using one of three methods. The community-rated method charges the same premium to everyone in a particular location regardless of their age. Issue-age-rated policies charge you an amount based on the age at which you first get coverage, which tends to benefit those who get their Medigap coverage when they're relatively young and penalizes those who are late to join. Both of these policies don't change their policy pricing as you get older, but the attained-age-rated policy does, resetting premiums each year. This results in lower premiums early in retirement, but they'll steadily rise because of age even if loss experience remains the same.
3. Make sure you coordinate prescription drug coverage with your Medigap policy.
Many retirees like having coverage for prescription drug costs under Medicare Part D. Many Medigap policies also include prescription drug coverage, so to avoid double-paying for identical coverage, you have to coordinate what your Medigap policy covers with what any other available insurance will pay for.
Usually, handling Medicare Part D is as simple as talking with your Medigap insurer and saying whether you need a Medigap policy with or without drug coverage. Keep in mind, though, that if you decide to go beyond your Medigap insurer to get separate Part D coverage, the Medigap drug coverage will get removed from your policy, and you won't be able to get it back.
To make a smart comparison, you'll need to find out how much your Medigap insurer charges both with and without drug coverage, and then look at what you'd pay for separate Medicare Part D drug coverage of your own. Then, you can figure out which combination best fits your particular healthcare needs in retirement.
As important as Medicare is in helping people cope with the financial implications of healthcare costs in retirement, a Medigap policy can be essential to protect your assets to the greatest extent possible. Finding the right Medigap coverage is a great way to make sure you'll be able to afford all the healthcare you need in your golden years.
