Diseases don’t only take their toll on your physical and mental wellbeing – they can also deplete your life savings. Most US citizens over the age of 65 rely on Medicare to cover their healthcare expenses, at least to a certain degree, as its coverage is not comprehensive. As a way to avoid excessive medical costs, Medicare beneficiaries can extend the scope of their health insurance coverage by purchasing one of the supplemental Medigap plans. Read on to find out what really matters when you are considering a Medigap policy for your healthcare needs.
Basic facts about Medicare
Medicare is the national health insurance program, addressing the needs of people aged 65 or above and other people with certain qualifying conditions.
There are 2 ways to get your Medicare coverage: Original Medicare, consisting of Part A (hospital insurance) and Part B (medical insurance) or Medicare Advantage (Part C), which is a standalone plan designed as a substitute for Original Medicare, administered through Medicare-approved private insurance companies.
If needed, users of Original Medicare and Medicare Advantage can add prescription drug coverage by purchasing Medicare Part D. Original Medicare beneficiaries in Arizona can also buy supplemental coverage known as Medicare Supplement Insurance (Medigap), which can only be used in combination with Original Medicare. Medigap and Medicare Advantage are mutually exclusive and you cannot have both.
Medigap – concept and important facts
Medigaps are private health insurance policies designed to supplement Original Medicare and cover some of the costs left out by Original Medicare. These are referred to as coverage gaps, hence the name Medigap. Coverage may include out-of-pocket costs such as deductibles, coinsurance, copayments, as well as hospice or additional hospital coverage.
When you receive healthcare as a Medigap beneficiary, Medicare pays its share of the Medicare-approved amount, after which the Medigap policy pays its share, thus supplementing the costs of your Original Medicare benefits. Medicare doesn’t cover any of the purchase costs for your Medigap policy. One Medigap policy only covers one person.
In Arizona, insurance companies can only sell you “standardized” Medigap policies, labeled by letters (A, B, C, D, F, G, K, L, M, and N). Standardized means that all providers selling a particular Medigap plan must offer the same coverage and benefits.
However, unlike the benefits, the costs of same-lettered plans do differ across providers. This is why, when purchasing a healthcare plan, it is best to choose the plan that fits your needs first and foremost, and then shop for the best price.
Arizona companies are not required to offer Medigap plans to disabled Medicare beneficiaries. Medigap policies are renewable (with the exception of policies purchased before 1992), meaning that your insurance provider cannot cancel your policy, unless you stop paying premiums or the company goes out of business.
Medigap plans offer the following basic benefits:
- Hospitalization – Part A coinsurance plus additional 365-day coverage after Medicare benefits end
- Medical Expenses – Part B coinsurance (usually 20% of Medicare-approved expenses) or copayments for outpatient services
- Three pints of blood each year, if you need transfusion
- Hospice care – Part A coinsurance
Medigap plans – coverage scope and costs
As a rule, Medigap policies sold in Arizona do not include long-term care, vision or dental care, hearing aids, eyeglasses, or private‑duty nursing, but some of them do offer coverage while traveling abroad.
As of 2006, Medicare Supplement plans in Arizona do not include prescription drug coverage. Your Medigap plan comes with a monthly premium, in addition to the monthly Medicare Part B premium. Monthly premiums for Medicare Supplement plans in Arizona range from around $40 to $300, depending on the beneficiary’s age and provider.
How insurance companies set their premiums
The ways in which insurance providers price their Medigap policies are important, as they will affect your present and future expenses. Premium rates can be set as follows:
- community-rated i.e. no-age-rated: premiums are the same, regardless of the beneficiary’s age;
- issue-age i.e. entry-age rated: premiums are based on your age when you first buy the policy. The sooner you enroll, the less you will pay;
- attained-age rated: premiums are based on your current age, and they increase as you grow older.
When to purchase a Medigap policy in Arizona
It is recommended that you join a Medigap plan during the open enrollment period (OEP), when you have a guaranteed issue right to buy a Medigap policy, regardless of your health status (i.e. when the provider is required by law to sell you a Medigap policy).
The 6-month Medigap OEP automatically starts on the first day of the month you turn 65 and are enrolled in Medicare Part B. However, you may have to wait up to six months for coverage of a pre-existing condition.
If you enroll in a Medicare Supplement Plan outside of your OEP, you may be subject to medical underwriting, which can affect the premium rates and whether the provider will sell you a policy or not. This basically means the company can ask you to take a physical, review your health information and then decide whether to offer you coverage, at which price and under which conditions.
Choosing a Medigap policy in Arizona
Arizona residents can choose from 10 standardized Medigaps, offered by around 50 insurance providers. More than half of the beneficiaries statewide use Medigap Plan F, followed by Plan C as the distant second.
Medigap providers don’t have to sell all Medigap plans, but their Medigap offer must include Plan A. If they offer any plan in addition to Plan A, they must offer Plan C or Plan F.
Plan F is also offered as a high-deductible plan. This means that you have to pay for Medicare-covered costs (coinsurance, copays, deductibles) up to the deductible amount of $2,180 before your policy pays anything.
For Plans K and L, after you meet your annual out-of-pocket limit and Part B deductibles ($147 in 2015), the Medigap plan pays 100% of the covered services for the rest of the year.
Plan N pays 100% of the Part B coinsurance (except up to $20 copay for some doctor visits and up to $50 copay for ER treatments that don’t require inpatient admission).
When choosing a Medigap policy, check if the company offers discounts, such as discounts for women, non-smokers, or married people, yearly payment discounts, multiple policy discounts etc.
Generally, your choice of health insurance policy should match your medical needs but also your financial abilities. When choosing a plan, always consider your current needs and try to foresee future concerns.