Choosing the right Medicare Supplement policy

If you are approaching age 65, you will soon become Medicare-eligible, and you have a few decisions to make. For starters, if you aren’t yet collecting Social Security, you should apply for “original” Medicare around your 65th birthday (from three months prior to or after the month of your 65th birthday). Original Medicare includes Part A (hospital insurance), which generally is available at no cost, and Part B (medical insurance), which typically requires a monthly premium of $100 per person (more if your income is beyond certain threshold levels). Drug coverage is provided through Medicare Part D, which is applied for during the same time period but separately from Original Medicare. 

Yet Medicare doesn’t cover all of the costs of healthcare in retirement. Given that most people are likely to need more medical care as they grow older, it makes sense to consider adding a Medicare Supplement policy, sometimes referred to as “Medigap.” 

Here are some key points to know about Medigap insurance: 

·         Private insurance companies sell these policies. Their purpose is to cover expenses that aren’t paid for by traditional Medicare, including copayments, coinsurance, deductibles and medical services outside of the U.S.

·         You can only buy a Medigap policy if you enroll in Part A and Part B.

·         If you plan to buy a Medigap policy, you should do it during your initial open enrollment period. This begins on the first day of the month you are at least age 65 and enrolled in Medicare Part B. You have a six-month window from that point to choose any Medigap policy you want regardless of pre-existing conditions*. Insurance companies must charge you a standardized rate and cannot reject you due to your medical condition provided you enroll during this six month window. In addition, they must renew your coverage each year regardless of your health status.

·         Medigap policies sold after January 1, 2006, aren’t allowed to include prescription drug coverage.  If you want prescription drug coverage, you can join a Medicare Prescription Drug Plan (Part D) offered by private companies approved by Medicare. 

A variety of choices

Private insurance companies offer Medicare supplement coverage, but the types of coverage offered are standardized. Every Medigap policy is required to abide by certain federal and state laws. 

However, you can choose a specific Medigap policy that suits your needs. These plans are identified with a letter system (Plan A, Plan B, Plan C, etc.). Any insurer who offers a plan under any of those categories must provide the standard level of coverage defined for that category. 

Plans typically cover coinsurance or copayments that you must pay under your Medicare coverage. Other benefits will vary depending on the type of plan you choose. The plan you select may or may not cover:

•     Hospice care

•     Skilled nursing facility care

•     Deductibles for services otherwise covered by Part A or Part B

•     Foreign travel 

You can decide on the type of coverage that is appropriate for your needs. Typically, the more comprehensive the coverage, the higher the premiums will be. If you are looking for a Medicare supplement plan, shop around to understand if you have access to plans that may include long-term care coverage, hearing aids and vision or dental care. 

Compare carefully

You can consider Medigap policies from a variety of providers in your state (the types of plans offered in each state can differ). Pricing may also vary. Insurance companies can base premiums in one of three ways: 

•     Community rated, meaning premiums aren’t based on age.

•     Issue-age rated, where premiums remain steady (and generally lower) if you first buy the policy at a younger age.

•     Attained-age rated, where premiums are lower when you first buy the policy, but will rise as you grow older. 

Be sure you understand the pricing structure of the policy you are considering. If policies you are comparing use different pricing structures, a policy that might cost you less today could be more expensive down the road as there are a number of variables that can affect premiums. 

Also be sure to understand exactly how your policy works, what it covers, and how premiums might change in the future. You may want to check with the State Health Insurance Assistance Program where you live to answer any specific questions you have about Medicare supplement policies. You can also visit www.Medicare.gov for more information and a free, helpful booklet titled “Choosing a Medigap Policy.” Planning for healthcare expenses in retirement can be very complex and daunting so consider working with a financial professional who can help you review your options and determine what fits best for your personal goals and financial situation. 

* While the insurance company can’t make you wait for your coverage to start, it may be able to make you wait for coverage related  to a pre-existing condition. 

Sources: “2013 Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare”, published by the Centers for Medicare & Medicaid Services and “When can I sign up for Part A & Part B” on Medicare.gov 

Rob Davis lives in University Place with his wife Lorri and sons Wesley and Parker. He is a Financial Advisor and CERTIFIED FINANCIAL PLANNER practitioner™ with Ameriprise Financial Services, Inc. in Tacoma, Washington. Rob specializes in fee-based financial planning and asset management strategies and has been in practice for 36 years. He is licensed/registered to do business with U.S. residents only in the states of Washington, Idaho, Arizona and California. You may contact Rob at ameripriseadvisors.com/robert.g.davis.

Ameriprise Financial and its representatives do not provide tax or legal advice. Consult with your tax advisor or attorney regarding specific tax issues. 

Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC.