Have you ever tried to solve one of those knot puzzles? It takes some study and then you have that ‘Aha!’ moment and you quickly figure out the game. Medicare can be a lot like one of those vexing puzzles. There are several moving parts to Medicare and you can easily get lost trying to keep track of all the interlocking parts.
Medicare Supplements, also known as Medigap Plans, were a little confusing to me at first. I did not quite see their value until I got a firm grasp of the different parts of Medicare.
Original Medicare, Parts A and B, is a wonderful health insurance program for folks 65 and older. They have relatively low deductible, coinsurance and copayment expenses. The trick is understanding how often all of those expenses are applied and that is known as the Benefit Period:
The way that Original Medicare measures your use of hospital and skilled nursing facility (SNF) services. A benefit period begins the day you’re admitted as an inpatient in a hospital or skilled nursing facility. The benefit period ends when you haven’t received any inpatient hospital care (or skilled care in a SNF) for 60 days in a row. If you go into a hospital or a skilled nursing facility after one benefit period has ended, a new benefit period begins. You must pay the inpatient hospital deductible for each benefit period. There is no limit to the number of benefit periods.
Unlike individual, family and most small group plans, there is no annual ‘maximum out of pocket’ dollar amount written into Original Medicare. With most private health insurance plans once you have paid a specified amount for medical expenses, all of the benefits are covered 100% by the insurance company. This is not the case with Original Medicare.
Theoretically you could have multiple hospital admissions during the year for similar or unrelated medical conditions and continue to incur a deductible, coinsurance and copayments each time under Original Medicare benefit period definitions. Perhaps you have a hip replacement in the winter, orthoscopic surgery on the knee in summer and a bad case of influenza in autumn. Separate admissions, separate benefit periods, separate deductibles. On top of that, you throw on all the follow up office visits, physical therapy, labs, tests, imaging and inpatient medications and the bills start to mount.
It was acknowledged early on that Medicare had a somewhat unregulated expense structure. To help limit recurring costs to beneficiaries, Medicare Supplements or Medigaps were developed. These plans reduce or eliminate a person’s exposure to deductibles, coinsurance and copays with Original Medicare. They are a ‘supplement’ to Medicare or ‘they help fill the gaps’. The plans are regulated by the Federal and state governments and are all standardized (with the exception of MN, MA, & WI). All the plans with the same letter have the same coverage.
Medigap plans are offered by private health insurance companies. The various plans are designated by letter and regardless of which companies offer a particular plan, they must contain exactly the same benefits. Only the cost will vary by company. The ‘F’ plan covers virtually all expenses not covered by original Medicare and also includes foreign travel emergency expenses. Plan ‘A’ has the fewest benefits but still reduces the exposure to Part A and B coinsurance with a couple of other benefits.
Medigap plans only work with Original Medicare and there is a monthly premium. At the time of a person’s Initial Enrollment Period (IEP), usually at age 65, Medicare Supplement plans are guarantee issued. This means that a company must issue a plan regardless of any pre-existing condition. Also, the company can’t charge higher rates because of pre-existing conditions during this period. However, if you do not select a Medigap plan at IEP and choose a Medicare Advantage plan, you may be subject to medical underwriting and higher rates if you want to enroll later on.
With the advent of Medicare Advantage plans, which include a ‘maximum out of pocket’ limit, some steam was taken out of the Medigap market. But supplement plans can still make sense for many people. It is just a matter of studying the financial resource puzzle to determine which, if any, Medigap plan offers the best protection from the lack of a ‘maximum out of pocket limit’ component in Original Medicare.