Think You Can't Afford Medigap? Think Again

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Whenever I am consulting with a Medicare beneficiary about how they want to structure their benefits, the same concerns come up over and over again.

Usually, the beneficiary is first and foremost concerned about having access to all of the physicians that they want. Original Medicare generally speaking allows the beneficiary to see whichever provider they want.

The second is they want to know how much they will spend for the services that they use throughout the year. Original Medicare usually covers 80% of all Part B medical expenses. What about the other 20%?

While a Medicare Advantage plan can convert that 20% co-insurance into easy to digest co-pays, that often comes at the expense of physician access. Medicare Advantage plans are structured to utilize plan networks by design, and even if one chooses to go with a PPO plan, the out-of-pocket costs are much higher when a patient chooses to go out of network.

This is why I almost always suggest a Medicare Supplement (Medigap) plan for those who can afford it. However, most people don’t believe that they can afford it. A lot of them are wrong.

The most popular Medicare Supplement plan sold is the Plan F. This is the most comprehensive Medicare Supplement and generally pays for all of the out-of-pocket expenses associated with Original Medicare (in layman’s terms, it comprehensively covers the 20% of the 80/20 co-insurance).

These plans (in the Gulf Coast area of Florida) typically cost $180-$200 for a 65 year old female, and $200-$220 for a 65 year old male per month. For a couple who is turning 65 together, the idea of the $134 Part B premium each plus almost $400 for a Medicare Supplement plan for the pair seems astronomical. That’s almost $8,000 a year for Medicare coverage. While I would personally argue that $8,000 a year for comprehensive medical coverage with no deductible or out-of-pocket expenses for two people in a high-risk pool is fair, it’s simply too much money for many people.

Which is where we introduce the High-Deductible Plan F (HDF). It is simply an F plan that requires a deductible to be satisfied before the comprehensive benefits kick-in. The deductible for each of these plans is set every year, but for 2018 the deductible was $2240. While that does seem like a lot of money to pay before the plan pays claim, let’s break down the premiums.

A HDF plan (in the Gulf Coast area of Florida) typically $45-$65 a month for a 65-year old female and $55-$70 a month for a 65 year old man. That’s about $1800 a year less in premiums for both genders.

Deductible in this instance is somewhat of a sticky word. This little known plan is a bit of a misnomer in my opinion. Deductible in the traditional sense that we think of it with other lines of insurance (think Group Health, Homeowners, Auto) means that it’s what we have to pay before the insurance kicks in. However, Medicare Supplements work in tandem with Original Medicare. A person covered under an HDF Medigap policy is still only paying 20% for all covered services. To me, a more accurate name would be to call it an OOPF as it more closely resembles the Out-of-Pocket Max of traditional health insurance.

I’ve always been a proponent of the idea that low or no deductibles are not the best use of premium dollars (whether I’m working with Homeowners and Auto Insurance or Medicare). If you are a relatively healthy individual, most years you would not reach your deductible, saving money in premiums for services that you are not using. For a married couple $4,400 a year for comprehensive medical care at an 80/20 coinsurance with a $2,240 out-of-pocket cap starts to seem a lot more reasonable and affordable.

So why isn’t this type of plan pushed or sold nearly as much as the more popular standard Plan F? I don’t wish to be a cynic, but I think a lot of it has to do with how brokers (like me) are paid.

CMS has eliminated compensation bias for Medicare Advantage plans by standardizing how much insurance carriers are allowed to pay brokers for enrolling members into their plans. For example, I am paid $228 per year for each member I enroll in an MA/MAPD plan, regardless of which carrier or plan the member enrolls in.

CMS does not regulate Medicare Supplement commissions. Most carriers pay a percentage (somewhere between 12-18%) of the premium paid for any Medigap plan sold. For example, if I were to enroll someone in a Medigap Plan F at $190 a month, I would earn $342 for the first year they were enrolled in the plan. If I were to enroll that same person in a Medigap HDF plan at $60 a month, I would earn $108 for the first year they were enrolled in the plan. As a broker, I truly believe that a good majority of us do try to put the people who work with us first, and do what is in their best interest. However, it is naive to believe that compensation does not impact our decision making and the conversations that we have with these same people.

It’s uncomfortable, it truly is, but I try to be as transparent as possible when the conversation turns towards my compensation, because it tends to nudge all parties towards fairness and the best results for everyone.

Again, I wish not to be a cynic. It’s just easy as a broker to stick someone in a Medicare Advantage plan when the initial Medicare Supplement conversation enters the “I can’t afford something like that” territory. Sometimes Medicare Advantage plans work better than Supplements/Medigap plans for beneficiaries. It is foolish to argue that one plan fits all or that premiums and out-of-pocket expenses are the only variables that factor into a health plan that someone is happy with.

It is important that all Medicare beneficiaries are exposed to all of their options. This is the only way to ensure that each person is with the plan that will best serve their needs.

It’s that time of year again. Annual Enrollment runs from October 15th to December 7th. If you are enrolled in a Medicare Advantage plan, make sure to look over the Annual Notice of Changes you receive in the mail from your carrier. If you’d like to receive a review to make sure that you’re getting the most out of your Medicare benefits, give us a call and schedule a time to speak with us. We are always happy to assist you.

Additionally, you may use the tool above to quote Medicare Supplement rates near you from all available carriers. HDF plans are listed as F* within the quote system.