retirement

The ABCs of Filling Medicare Gaps

Choosing among the dozen private Medigap insurance plans can be difficult.

EDITOR'S NOTE: This article was originally published in the July 2008 issue of Kiplinger's Retirement Report. To subscribe, click here.

If you're nearing 65, chances are you'll be applying for Medicare coverage. But be aware that you'll be on the hook for the costs of deductibles, co-payments and other out-of-pocket expenses that the federal health-care program doesn't cover. If you're opting for traditional Medicare, you'll want to consider supplemental insurance, known as Medigap, which fills in the program's huge coverage holes.

Medigap policies, which are sold by private health insurers, come in 12 standardized benefit packages, labeled A through L. The coverage and the price generally increase as you move up the alphabet. Deciding on a policy can be tricky. "Do your homework, even though it can be complicated," says Melissa Gannon, a vice-president of insurance and banking ratings for TheStreet.com Ratings. "It really pays off."

Plan A is the most basic package. It covers Medicare's co-insurance for hospital stays longer than 60 days, as well as the 20% co-payments for Medicare Part B outpatient services. Plans K and L are high-deductible policies that carry lower premiums but higher out-of-pocket costs.

The most popular package is Plan F, which strikes a good balance between costs and coverage. It covers the basic benefits plus Medicare's $1,024 hospital deductible, the $135 Part B deductible and some skilled nursing home costs. (Massachusetts, Minnesota and Wisconsin have their own plans.)

How to Pick a Plan

To choose a policy, consider your health status and family medical history. The differences among some plans can be small. For instance, Plan F covers the Part B deductible, but doesn't cover at-home recovery, while Plan G covers the opposite. If you can afford the deductible and would rather cover at-home costs not covered by Medicare, you're better off with Plan G. Meanwhile, the high-deductible Plans K and L are best suited for healthier beneficiaries.

Once you settle on a plan category, shop for the cheapest policy. You'll get the best Medigap price if you sign up within six months after enrolling in Medicare Part B. During this open-enrollment period, an insurer cannot refuse to sell you a policy or charge you more because of medical issues.

Although each policy with the same letter offers the same coverage, prices can differ significantly, says Gannon. For Plan F, for instance, the median price for a 65-year-old male was $1,880 in 2007, but ranged from $788 to nearly $12,000.

The cost can also depend on the insurer's pricing method. With attained-age policies, premiums start low but rise every year. Issue-age policies lock in your premium when you first buy; premiums often are initially higher compared with attained-age policies but may be cheaper in the long run. With community-rate pricing, everyone in an area is charged the same premium regardless of age. Attained-age policies are the most popular because buyers like the low initial rate.

To get an idea of your long-term costs, ask for a three- to five-year rate history for each policy you're considering. Also ask for quotes that assume you are five, ten and 15 years older. Note that premiums on all policies can rise annually because of inflation.

Medigap plans no longer offer drug coverage, so consider buying a separate Medicare Part D drug plan. You don't need Medigap or Part D if you enroll in a Medicare Advantage plan, which offers Medicare benefits and varying levels of gap and drug coverage.

Advantage beneficiaries typically are limited to a specific provider network, and some plans may pay less than traditional Medicare for some services, such as hospital stays. Also, Medicare Advantage plans operate on one-year contracts, while an insurer cannot terminate your Medigap coverage.

To compare policies, use the Medicare Options Compare Tool at www.medicare.gov/mppf. If you need further help, call Medicare at 800-633-4227 or contact your State Health Insurance Assistance Program (www.shiptalk.org).

For more authoritative guidance on retirement investing, slashing taxes and getting the best health care, click here for a FREE sample issue of Kiplinger's Retirement Report.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
25 Best Kirkland Products You Should Buy at Costco
Smart Buying

25 Best Kirkland Products You Should Buy at Costco

Many of warehouse club Costco's store-branded Kirkland Signature items get high marks for quality and value. Check out our picks.
July 21, 2021
Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments
Tax Breaks

Warning: You May Have to Pay Back Your Monthly Child Tax Credit Payments

Unlike stimulus checks, you might have to repay your monthly child tax credit payments if you get too much money from the IRS.
July 16, 2021

Recommended

How Patients with Lasting Symptoms of COVID Can Apply for Disability
Financial Planning

How Patients with Lasting Symptoms of COVID Can Apply for Disability

Those who can no longer work because of COVID-19 may qualify for these benefits but the approval process can be a difficult road.
July 30, 2021
Older Adults Battle Long-Term Effects of COVID-19
Financial Planning

Older Adults Battle Long-Term Effects of COVID-19

Seniors are more likely to suffer from long COVID, and it's unclear when, or even if, they will fully recover.
July 29, 2021
33 States with No Estate Taxes or Inheritance Taxes
retirement

33 States with No Estate Taxes or Inheritance Taxes

Even with the federal exemption from death taxes raised, retirees should pay more attention to estate taxes and inheritance taxes levied by states.
July 26, 2021
10 Least Tax-Friendly States for Retirees
retirement

10 Least Tax-Friendly States for Retirees

When it comes to state and local taxes, retirees in these states are likely to pay more than retirees in other states.
July 26, 2021