Mar
11

Keeping your Medigap plan affordable
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Medigap premiums are becoming a real strain on the monthly budgets of seniors – but before letting a policy lapse read Fred and Lois’ story below. There are ways to reduce your (or your parents’ or grandparents’) monthly Medigap premium and still keep the coverage needed! Call Jim Sullivan with any questions.

 

Fred and Lois

 

Fred and Lois live on a modest retirement income. Their monthly income includes Social Security and a $1,700 withdrawal from their $500,000 retirement nest egg. Fred is 85; Lois is 78. Each owned a Plan F standard Medicare supplement (Medigap) policy issued by the Blue Cross Blue Shield company located in their state. For Fred, the monthly premium was $281; Lois’ monthly policy cost was $261 for a combined cost of $542.

When the monthly cost of their Medigap policy was added to their Medicare Part B and Part D premiums, they were spending well over $800 a month on their health coverage. Both are relatively healthy. Their only medical expenses during the year were twice annual visits to their doctors and a low cost generic prescription drug that Lois takes.

Due to the expense they dropped the policies several months ago. Only in passing did they mention it to their son who called us at Core Capital Solutions concerned about their decision. While the son understands his parents live on a tight budget, he is worried that dropping the Medigap policy would leave them vulnerable should either of them have a serious illness and need to spend time in a hospital or skilled nursing facility. He asked our opinion and for any alternatives we might offer.

We agreed with the son that he should be concerned. In addition to various co-payments Medicare participants are responsible for; there is no upper limit on the amount of Medicare cost-sharing expenses a beneficiary could incur. Unlike private health insurance policies, Medicare does not have a maximum out of pocket (OOP) to limit a participant’s loss.

We recommended that the parents look at alternative Medigap policies. Specifically, they might want to consider a high deductible version of Plan F or Plan N.

We constructed a chart comparing the monthly premiums:

Plan

Monthly Premium - Fred

Monthly Premium - Lois

Plan F - Standard

$281

$261

Plan F – High Deductible

$90

$83

Plan N

$197

$183

 At a meeting set up later with Fred and Lois, we pointed out that the Plan F high deductible costs $191 less per month for Fred and $178 less per month for Lois – representing annual premium savings of $2,292 and $2,136 respectively. The high deductible Plan F is similar to the standard Plan F except the participant must pay $2,000 of covered health care expenses before the Medigap plan will pay. While this may seem daunting, we pointed out that the savings in annual premiums exceeds the potential out of pocket costs for both Fred and Lois. In addition, the high deductible Plan F will provide the same protection should either, or both, incur high health care expenses during the year. The high deductible Plan F works as a catastrophic health care plan.

Plan N also offers a lower monthly premium, saving Fred $84 per month and Lois $78 per month. There are four differences between standard Plan F and Plan N:

  1. There is a $20 co-pay for each doctor office visit.
  2. Unlike Plan F, Plan N does not pay the annual Part B deductible ($162 in 2011).
  3. There is a $50 co-payment due for a visit to the emergency room (this is waived if the participant is admitted to the hospital).
  4. Plan N does not pay for a doctor’s “excess charges” that can be imposed. Doctors who do not accept Medicare assignment.

 Fred and Lois both opt for high deductible Plan F.

Fred asked if he or Lois could be turned down when they apply for coverage. Normally, yes, we responded. Because Fred and Lois dropped their policies voluntarily, they do not have “guaranteed issue” rights that apply to Medigap policies under certain circumstances. In this case, however, the insurance company selected does issue policies without asking any health questions.

As Medigap insurance premiums and out of pocket health care expenses increase, older adults are struggling with paying for their health care. At Core Capital Solutions we can assist our clients – and their parents and grandparents - understand how Medigap policies work, the risks they cover and how a little comparison shopping can make the policies more affordable.

Written by Life after 65.