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By Stan Hinden | September 2009
While the debate in Washington over health care reform continues, one key aspect of national health insurance has already been decided. Beginning June 1, 2010, there will be a major change in the lineup of Medicare Supplemental Insurance policies-most often called Medigap policies.
Medigap policies, as the name implies, cover the gap between what doctors and hospitals charge a patient and the amount that Medicare is willing to pay for those services.
The changes to Medigap policies will be of special significance to the millions of retirees who currently purchase Medigap insurance and to millions of boomers who, as they reach age 65, will join the Medicare rolls. After signing up for Medicare, the boomers will be eligible to buy Medigap policies.
Because insurance regulation is a state responsibility, the new list of Medigap policies has been developed by the National Association of Insurance Commissioners (NAIC), working with the federal government.
While Medicare and Medigap are familiar names to most retirees, younger people may not know much about them. So here is a brief run down on how these programs work.
To begin with, Medicare is a federal health insurance program for people who are 65 and older. It also is available to people who are under age 65 and have certain disabilities.
There are four parts to Medicare:
Generally, the only people who need Medigap insurance are those who get their health care benefits from Part A and Part B of Medicare. People who join a Medicare Advantage plan generally do not need Medigap insurance.
Medigap insurance exists because Medicare does not always pay for all of your doctor or hospital bills. For instance, if I go to a doctor and she charges me $150 for the visit, her office will send the bill to Medicare. Medicare will take a look at the charge and will decide what the visit was worth. If Medicare says the visit was worth only $100, that figure becomes the approved charge. Medicare then will pay the doctor 80 percent of the approved charge or $80. I will have to pay the other $20, unless I have Medigap insurance. If I do, my Medigap policy will pay the $20. Thus Medigap insurance fills the "gap" between the cost of my medical care and what Medicare will pay.
That is why I and millions of other retirees buy Medigap insurance. As you grow older, there is an increased chance that you will run into big medical bills and it's nice to know that you have that insurance.
What is changing, starting June 1, 2010 is the list of standard Medigap policies that insurance companies will be allowed to sell. The word "standard" means that each of the 11 types of approved policies must offer the same benefits, regardless of which insurance company sells the policies. The prices can vary, and indeed, there are wide differences. But the benefits must be the same.
One of the main reasons for revising the number and content of Medigap policies was the recent adoption of the Medicare Part D prescription drug plan. Until then, many retirees could get drug coverage from their Medigap policies. However, after the creation of the Part D plan, Medigap insurers were no longer allowed to sell new policies with drug coverage. Thus people who now join Medicare must go to Part D plans, unless they have other qualified coverage, such as from a former employer.
The enactment of Part D meant that several former types of Medigap policies were not needed and thus were discontinued.
Also discontinued in the new policy lineup is the Medigap Preventative Care Benefit and the Medigap At-Home Recovery benefit. However, added to all policies is a new Hospice benefit.
One of the trends in the Medigap insurance field is the move toward creating policies that are less expensive but require more cost-sharing from the patient.
Details of the Medigap changes will be in the 2010 Guide to "Health Insurance for People With Medicare." It is expected to be published later this year by the Centers for Medicare and Medicaid Services (CMS) and the National Association of Insurance Commissioners (NAIC).
As mentioned, the cost of Medigap policies can vary widely. According to the State of Maryland Insurance Administration, these were the annual prices of policies sold in the state as of July 2009: For a 65-year-old person, a basic A-level policy sold for as low as $836 and as high as $2,541. An F-level policy sold for as low as $1,373 and as much as $3,972. Regardless of price, all A level policies must offer the same benefits. The same is true of other Medigap policy categories.
Clearly, when it comes to buying Medigap insurance, it pays to shop around.
Copyright 2009, Stan Hinden. All rights reserved. Reprint permission required.
The author was compensated for writing this article by AARP Financial.
