How to Choose a Medigap Insurance Policy

Quick summary

Medigap supplemental insurance policies are sold by private insurance companies to fill some of the gaps in medical expenses that Medicare Part A and Medicare Part B don't pay. Your parent might be thinking about getting one of these medigap policies for the first time, either at age 65 or later. Or she might already have a policy but is thinking of changing to a different one that she's eligible for. In either case, you and your parent should know about some important differences among policies in order to make a good choice.

What is Medigap insurance, and does my parent need it?

Medicare Part A and Part B together pay only about half of all medical expenses for seniors. Medigap insurance policiesfill some of these gaps by covering some costs and services that Medicare doesn't.

A Medicare Part C managed care plan, also called Medicare Advantage, is another way to fill gaps in Medicare payments. If your parent is enrolled in a Medicare Advantage managed care plan, she does not also need a medigap insurance policy.

Is there any government regulation of what medigap insurance policies cover?

The federal government regulates what medigap insurance policies cover. Only 12 types of policies, known as Plans A through L, are offered. Every policy issued within any one of these 12 plans provides the same coverage as every other policy within that plan, no matter which insurance company issues it. Still, other terms besides coverage -- such as when the policy will begin paying, and how the insurance company goes about raising premiums over the years -- differ from policy to policy.

It's worth spending the time to compare the plans with your parent. And once she understands which plan might be best, decisions about those other terms require careful attention to the policy's fine print.

What are the standard medigap insurance policy plans?

There are 12 standard medigap insurance policy types, called Plan A through Plan L. Any medigap policy offered by any insurance company must fall into one of these 12 plans, covering the same medical services as all other policies in the same plan. If your parent doesn't already have a medigap policy, she's actually limited to only nine plans; that's because Plans H, I, and J used to offer prescription drug coverage and are no longer available to new buyers. Also, in Massachusetts, Minnesota, and Wisconsin, some medigap plans have a few extra options. If your parent lives in one of these states, the state's department of insurance and the insurance company offering the policy can explain that state's plan differences.

All medigap policies, in every plan type, include three basic coverage elements: They all cover the Medicare Part Ahospital coinsurance amounts, plus 365 additional hospital days after Medicare coverage runs out. Every plan pays all or some of the Medicare Part B20 percent coinsurance amount for doctor bills and other outpatient medical care. And every plan pays some or all of the cost of the first three pints of transfused blood, which Medicare does not pay.

This downloadable PDF shows the other Medicare "gaps" in payment covered by the various medigap plans. "Yes" indicates coverage of the gap and "No" indicates that coverage is not provided by that medigap plan. [Remember, Plans H, I, and J are no longer sold to new buyers.]

What medigap insurance coverage makes the most sense for my parent?

Choosing the best medigap insurance plan depends on a number of factors. You can help your parent weigh them by making a list of available policies and comparing them side by side, including their initial costs, their coverage, how soon after purchase coverage begins, and the terms under which premiums can be raised. Here are some important things to consider:

• Long-term budget. Policies from plans with more coverage cost more. But even virtually identical policies from different companies can have very different premiums, so it's important to shop around. Remember, your parent may have this policy for many years, so what she can afford depends not just on her current finances but also on her likely income and assets down the road. That means you'll need to consider hikes inpremiums over the years, not just the initial premium.

• Doctor charges. A big cost not covered by Medicare is the 15 percent a doctor may charge above the amount Medicare approves for a particular visit or service. Many doctors accept "assignment" of the Medicare-approved amount as the full amount they charge. But if your parent regularly sees one or more doctors who do not accept this assigned amount, then a policy from Plan F or G -- which covers a doctor's excess charges -- may make good sense, even though the premiums are higher.
• Foreign travel. Medicare pays nothing for medical expenses outside the United States. If your parent regularly travels abroad, a policy with coverage for medical expenses outside the country -- Plans C, D, E, F, G, H, I, or J -- can be a big plus.
• High total expenses. If your parent has a chronic or serious condition that entails high medical bills, a policy from Plan K or L may make good sense. These policies pay only 50 (Plan K) or 75 (Plan L) percent of covered expenses -- but there's a yearly cap on out-of-pocket medical expenses (for Plan K, it's $4,440; for Plan L, $2,220). Once your parent's expenses reach that cap, the policy pays 100 percent for all further covered medical services. The security of this set figure can be a real comfort when care and costs begin to mount.

Do any medigap insurance policies pay differently for different providers?

A few medigap policies, called "Medicare Select," offer a two-tier payment system, something like a managed care plan. These policies maintain a network of participating hospitals, doctors, and other medical providers. If you receive care from one of the network providers, the policy pays full benefits. If you get care from a provider outside the network, the policy pays a reduced amount. Because of these limitations, Medicare Select policies are often a bit less expensive than comparable policies without the two-tier payment system. If your parent's regular doctors and other providers, including the hospital she would normally use, are within a Select policy's network, and the network has a substantial list of other nearby providers, then a Select policy may be a good bargain.

What should my parent know about medigap insurance policy premiums?

The amount an insurance company charges for a particular policy when your parent first buys it isn't the only thing to know about that policy's premiums. The other is the terms under which the company may later raise those premiums -- which you can be sure they'll do. Policy provisions regarding premium raises come in three basic varieties:

• Level premiums. This is the best type of policy term concerning premium hikes. These premiums go up only when the insurance company raises premiums on all policies of the same type your parent has, and only as much as the state insurance department or commission allows. This means that market forces plus state regulation will keep premiums somewhat in check.
• Attained age. These policies base premiums entirely on your parent's age. The company charges the same amount to everyone of the same age with the same policy, regardless of when they buy the policy. As your parent ages, the premium goes up by a set amount -- yearly for some policies, in five-year increments for others (when your parent reaches 70, 75, 80, and so on). These policies tend to have lower premiums than comparable policies for people at age 65 but higher premiums as policyholders get older. If your parent is considering a policy with an attained age term, ask an insurance company representative to show you the premium costs for current policyholders at the next two age increments above your parent's. The percentage raise in these premiums will tell you what you can expect when your parent reaches these ages.
• Issue age. The initial premium for one of these policies would be determined by your parent's age when she first buys it. From then on, your parent's premium would be the same as for anyone else who first buys the premium at the same age. That means the premium won't automatically rise when your parent reaches age plateaus (such as age 65, 70, or 75), as it would in "attained age" policies. The premium will steadily rise but may be held in check somewhat because the insurance company will keep the price competitive in order to attract new buyers.

Does my parent's medical condition affect medigap coverage?

Almost all policies have a "preexisting illness exclusion." This sets a time following the policy purchase during which there's no coverage at all for any medical condition your parent was treated for within some period just before buying the policy. Six months before and after buying the policy is the standard exclusion period. A shorter exclusion period usually means a higher premium.

Regardless of your parent's medical history or current medical condition, if she has "guaranteed enrollment" in medigap, she can buy any policy sold in her state. Or she may have limited guaranteed enrollment in certain but not all policies, if she lost her existing coverage with a Medicare Advantage managed care plan. If she doesn't have any guaranteed enrollment, either because she waited too long to buy her first medigap policy or because she's now switching policies, an insurance company may refuse to sell her a policy or may charge her higher premiums because of her medical history. The company could ask to examine her medical records and even have her undergo a physical exam by an insurance company doctor.

How can I help my parent look for a medigap insurance policy?

One place to begin looking is the Medicare website, which offers a link called "Medicare Personal Plan Finder." By entering your parent's state and zip code, you'll get information about medigap policies available where your parent lives. This is just a starting point, however. You always need to get detailed information about a policy directly from the company that issues it.

Some insurance agents sell medigap policies. But they aren't always knowledgeable about policy details and usually know about only a few policies from one or two insurance companies. So, while an agent might alert you to a good policy, don't restrict your shopping just to the agent's list. And never rely on what an agent says about a policy's terms. Always get a copy from the insurance company and read it carefully yourself.

Organizations that cater to seniors sometimes advertise or "sponsor" medigap policies. These offers sometimes come with frills, such as an organization newsletter. However, the organizations aren't truly sponsoring the policies -- nor do they guarantee the policy's quality, add anything to its terms, or take responsibility to pay claims. It's the insurance company, not the organization, that issues the policy, sets the terms, and pays -- or doesn't pay -- the claims.

If you have difficulty comparing one policy with another or have questions about a specific policy, you can get free expert help from your local nonprofit State Health Insurance Assistance Program (SHIP) or Health Insurance Counseling and Advocacy Program (HICAP). You can find the phone number under SHIP or HICAP in the white pages of the phone directory.