If you are planning for retirement, estimating healthcare costs should be part of your plan. In recent posts, I have covered a Vanguard study on retirement healthcare spending, as well as the structure of traditional Medicare and Medicare prescription drug coverage. In this post, I’ll cover the last piece of traditional Medicare – Medigap insurance.
Medigap insurance is supplemental coverage that covers costs like coinsurance, copayments, and deductibles that Medicare does not cover, and in some instances, it will provide benefits not offered by Medicare. As a financial advisor, one of the things I appreciate about Medigap insurance is that it makes healthcare spending more predictable because it often places a limit on out of pocket expenses.
Medigap insurance is offered by private insurers and in most states, insurers can sell only standardized policies that are identified by letter (A through N). An ‘A’ policy offered by an insurer is usually identical to an ‘A’ policy offered by any other insurer, making policy comparison a good deal easier than it might be. This chart as Medicare.gov provides an overview of what is covered by the various standardized Medigap policies.
Typically, the ideal time to purchase Medigap coverage is the 6 month period that begins the day in which you’re 65 or older and enrolled in Medicare Part B1. This is known as your Medigap Open Enrollment Period, and if you enroll at this point, an insurance company can’t use medical underwriting in processing your application. What this means is that you can’t be refused coverage due to any medical condition and the insurer also can’t charge you any more than they would charge a person with no health issues. While under some instances they can delay coverage for a condition, the maximum waiting period before you receive full coverage is 6 months.
If you decide you want to purchase a Medigap policy, the first step is to decide what benefits you want. Once you have done that, you’ll need to find out which companies offer policies in your area. You can do this online at the Medicare.gov find a plan webpage here, and you can also get assistance at 1-800-Medicare. In Georgia, GeorgiaCares offers information and may also be able to offer individual assistance as well.
One last point to consider is that even though Medigap policies of the same type generally offer identical coverage, pricing can differ widely. Make sure you understand not only any premium difference, but the reason for the difference. Some insurers price policies using community rating, which means all participants pay the same premium regardless of their age. Others price policies based on the age of the applicant when the policy is initially purchased. Finally, some insurers price policies based on your current age, meaning premiums will go up as you get older.
Certain policies are also what are known as Medicare SELECT policies. These policies are less expensive, but they also require you to use specific providers (with exceptions for emergencies). Finally, high deductible options are available for Plan F, and premiums are lower under this option while potential out-of-pocket cost is higher. Beyond understanding what a plan covers and what the premium is, understanding these details is critical as well.
- If you wait beyond the age of 65 to enroll in Part B and obtain Medigap coverage, there are two key things to bear in mind. First, you should have healthcare coverage via your employer or your union, and second, the coverage should meet certain requirements established by Medicare. If it does not, you could be subject to a late enrollment penalty for Part B and miss the Medigap Open Enrollment Period thus potentially making it costly or impossible to get Medigap coverage. ↩