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Everything you ever need to know about...

MEDICARE SUPPLEMENTS 101


By Regina Lopez-Torres, Licensed Medicare Agent

Special to Suddenly Senior

If you are one of over 40 million Americans currently on Medicare chances are that its structure and benefits is a book with seven seals to you.

Getting to the bottom of all those deductibles and co-payments as well as knowing what an "allowable" charge is and what is not can be downright confusing. The entire program is complex and probably what one would expect from a government agency. With that said, this article will focus on Medicare Supplemental coverage and how to protect your heard earned assets from going down the drain with a catastrophic hospital bill.

Although there are alternatives to so-called Medigap policies, such as managed care (HMO's), those require an entire article by themselves and will not be addressed in detail here.

A BRIEF HISTORY

Medicare was established under Title XVIII of the Social Security Act of 1965. The purpose is to provide a health insurance program to various eligible Social Security recipients. In 1973 people with disabilities were also added to Medicare. The program is administered by the Center for Medicare/Medicaid Services formerly known as Health Care Financing Administration or HCFA.

Medicare Part A (Hospital insurance) is covered by part of the Social Security Tax (FICA) and as you know a percentage of your income (7.65% if employed, twice that if unemployed) is earmarked for this benefit. Today the ratio of workers paying Social Security taxes to retirees drawing benefits is 3.3 to 1. In other words, for every person drawing benefits, just over 3 people are paying into the system. As baby boomers retire this ratio is expected to worsen. By 2030, primarily because retirees will be living longer, this ratio is expected to drop to 2.1 workers per retiree.

Medicare Part B (Medical coverage, physician and outpatient services) is a voluntary program which is financed using various government revenues. Each participant is required to pay a monthly premium ($54 for 2002) which is set annually by the federal government. Part B only pays for 80% of approved charges and also has an annual deductible ($100 in 2002). There is the word – ?approved charges?. This is where it can get confusing for most folks so let's tackle this one.

Let's say that this is January and you're visiting your physician for the first time this year. If your doctor accepts Medicare assignment he or she will accept payment in full from Medicare for services rendered. If the bill sent to Medicare was for $100 but Medicare decides the approved charge is only $75 Medicare will pay nothing (remember this is your first visit?) and you will end up paying the full $75 which is then applied to your $100 deductible. On your next visit, Medicare would pay 80% of that $75 charge minus the remaining deductible of $25 ($35) and you would end up paying the rest ($40). All visits after that are split 80/20. If on the other hand your physician does not accept Medicare assignment (a rare occurrence but it does happen) he will bill you 15% of anything Medicare won't approve – on top of the 20% you already have to pay. He can never charge you more than that.

Medicare Part B covers some preventative care such as annual mammograms and semi-annual pap smears; it will also cover colorectal and prostate cancer screening, diabetes services and supplies, annual flu shots and glaucoma screenings. All of these may be subject to the 20% co-pay under Part B. To find out all charges covered under this plan visit www.medicare.gov for detailed information. Prescriptions are not covered under either Part A or Part B and although lobbyists are hammering away at this it may be a long wait, so don't hold your breath.

Which leads us to the paramount question: "Just how much can I end up spending out of pocket without any supplemental coverage?" Good question and I will address this in depth in the following table.


Medicare Part A

Hospital Coverage Hospital Coverage You Pay
1-60 days Most confinement $812.00
Cost after
Benefit period starts over every 60 days Potential annual out of pocket $4,939.67
61-90 days $203.00 per day
Potential out of pocket $23,954.00
151 days or more Nothing You pay 100%
Skilled Nursing Facility 20 days $101.50 per day
After 20 days and up to 100 days Potential out of pocket $8120.00

With all those fancy numbers it is evident that your out of pocket expenses could sky-rocket into the unmanageable realm. Since we would all prefer to remain with our feet planted firmly in our homes and divert second and third, or even reverse mortgages, let's explore the options then.

The nitty-gritty of Medicare Supplemental Coverage (Medigap)

These types of policies are basically broken into ten standardized plans – plans A through J. Each insurance company that offers these types of insurance policies carries the same benefit, although premiums can vary greatly from company to company and by age group and location. It is absolutely imperative that you do your homework before deciding on a particular carrier, never jump into something because Uncle Joe down the road had a policy with company XYZ. What was good for him may not be good for you. Also, not all insurance companies will offer all plans. Some may only sell plan A, B and F, while others may sell only A, C and G – check with the agent or company first. Prescription benefits are not part of any plans except H through J.

Plans A and B
– these offer basic coverage and are the least expensive. All insurance companies must offer plan A which covers your Part A co-insurance amount, the cost of 365 extra days of hospital care during your lifetime after Medicare coverage ends, the Part B co-payments (your 20%) and the first three pints of blood every year. Plan B also covers your Part A deductible ($812 see above). If you continue to work and feel you need supplemental coverage then Plan A should do the trick.

Plans C, D and E – are basically identical in that they all offer Skilled Nursing Coinsurance (stays over 20 days see table above), the Medicare Plan A deductible ($812) as well as Foreign Travel Emergency benefits. Plan C includes the Part B deductible ($100). Plan D includes an at-home recovery benefit and plan E includes preventative care, which incidentally Medicare now pays for so this coverage is actually redundant.

A word on Foreign Travel Emergency benefits. If you travel to Greece and break your leg you are still required to pay for all care out of pocket first. Once back home turn your bills in to your carrier for reimbursement, make sure to keep all receipts. If you never travel outside of the US this benefit is really not necessary unless you prefer to be pro-active and have it just in case one of your kids decides to give you a 2-week cruise to the Bahamas.

Plans F and G – These, again, are almost identical, except that plan F will cover your part B deductible ($100) and 100% of excess charges (remember assignment vs. non-assignment?); plan G will not cover this deductible and only 80% of excess charges. Both plans include the foreign travel benefit as well as the redundant at-home recovery benefit. These types of plans are a good choice if your prefer to see a specialist instead of the family physician for certain ailments, most specialist will not accept assignment and you will be billed for the difference. If you want to make sure that all contingencies are planned for then plan F is probably the right choice for you since it will cover all out of pocket expenses, except prescriptions.

Which leads me to the Cadillac's of Medicare Supplements, plans H through J. I will address each one of these individually instead of groups, although each of these includes the foreign travel benefit (see note above).

Plan H – covers all basic benefits (see Plan A), skilled nursing coinsurance (above 20 days), the Part A deductible ($812) and a basic drug benefit with a $1,250 limit. This means your supplement will only pay up to that amount for prescriptions and you'd be out of pocket at least the same amount. If you are taking a rather expensive medicine, such as Lipitor for example which currently runs about $432 for 90 days, you can easily spend that benefit limit for one prescription alone annually. Get all your prescriptions together and add up what you pay out of pocket before deciding on a policy with this benefit; it may not be worth the extra premium.

Plan I – Identical to plan H except that it includes 100% excess charges and at home recovery. The drug benefit is the same as well - $1,250.

Plan J –
The flagship of Medigap policies. Pays for absolutely everything included in all the other plans and has a prescription drug benefit limit of $3,000. You would have to have over $6,000 in prescription costs to reap benefits of this one and premiums are hefty – in some areas up to $500 a month or more!

Now that you've decided which benefit you need we are down to the finish line – decisions, decisions, and decisions. Which company should you chose to provide supplemental coverage for you? Again, do your homework before you do anything else. There are a few steps you can take you make an informed decision

  1. Contact your state insurance department for a list of companies licensed to do business in your state.
  2. Check on the financial stability and performance of the company that interests you. Insurance companies are rated on a scale from A to F by independents such as A.M. Best, Standard & Poor's and Weiss Ratings. Look for companies that carry A's with all three of these. You can check insurance company ratings at www.ambest.com as well. Explanation from one extreme to another:

    A rating – company has strong capitalization as a cushion against the impact of unexpected losses; follows a strong investment policy in terms of safety and liquidity, had a strong profit performance during the past five years and has good results on stability – in other words, it offers excellent financial security.

    D rating – means the company demonstrates significant weaknesses which could negatively impact policy holders, generally liquidity and stability is weak and you may want to look for a safer company
  3. Ask the company whether their policies are "attained age" or "issue age". Attained age policies will increase your premium every time you have a birthday, which could mean you end up paying a 100% increase in premiums in as little as 5 years. Insurance companies will offer these types of policies what seems to be dirt cheap when you are 65 and it may very well be a good deal for the first year or two. However, the premium increases in subsequent years are not worth sticking around for. Look for issue age type policies which place you in an age group. Your premiums will never go up just because you have a birthday and if there is a premium increase it is spread out over the entire base of policy holders. These increases can be anywhere from 3% on up but may not occur very often.
  4. Ask about renewability. Is the policy guaranteed renewable or does it include a clause that will allow the insurance company to drop you like a hot potato when you get seriously ill? It won't say this in so many words but watch for legalese and fine print.
  5. Find out if the company is restrictive with regards to doctors. Do you have to choose a primary physician and stay within a network? Once you venture outside of the network the policy may not pay any benefits – so check and be sure you can see any doctor you want, anywhere in the country.
  6. Ask how claims are handled. Do you have to do any paperwork or is it entirely handled by the company? Preferably you want a company that does electronic claims filing. By late 2003 all companies are required to do this so you may as well find one that already has all the kinks worked out of the system.
  7. Does the company offer other benefits such as prescription discount cards, mail-order prescriptions, vision, eye and dental discounts as well as vitamin or chiropractic discounts? These discounts can vary from provider to provider but can save you up to 40% in some cases. Call around the pharmacies and ask for prices on the same prescriptions – compare, compare, compare!
  8. Who do you contact if you have questions or concerned? Are you required to call a faceless 1-800 operator in Texas while you live in Georgia? Or, will you have a personal agent you can contact locally to help you? Personal agents often provide a better response time and 9 times out of 10 the agent that sells you the policy will stay with you as long as he or she is with the company.

The final decision will always lie with you and what you can afford. As mentioned earlier premiums can vary from company to company although plans A through J are the same wherever you go. What gives your potential carrier the upper hand will be value, financial stability, excellent customer service, fast payment of claims and a genuine desire to help you. I suggest steering clear of companies that cannot deliver on one or all of these aspects. You may contact me at medicare101@aol.com for any questions that this article may have brought to mind.

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