The Great Medigap Debate – What is Best?

Let’s back up again to Medigap. Let’s refresh what it actually is. It’s a contract with an insurance carrier that a consumer can purchase that will pay their medical bills after Medicare pays their initial portion.

A person has to be enrolled into Parts A and B of Medicare (referred to as Original Medicare) and then they will select an insurance company from which to purchase their Medigap plan.

Medigap will always follow Original Medicare. When Original Medicare pays 80% of the person’s medical bill, your Medigap plan will step up and pay the rest. How much the carrier will pay will depend on which contract you purchase.

Narrowing things down

So, let’s start with how many Medigap plans there are – not how many carriers there are that sell those plans, but how many plans there are to sell.

There are 10. Medicare talks about its plans here and states: A Medigap policy must follow federal and state laws designed to protect you, and it must be clearly identified as "Medicare Supplement Insurance." Insurance companies can sell you only a "standardized" policy identified in most states by letters.

After that, carriers get to decide which plans that they want to sell to the public, although state laws can affect that. And, if they sell Medigap, they also must offer plans A, C and F to the public.

Don’t panic. You won’t have to look at all 10 plans and make loads of comparisons. Plan K, for example, is an old plan that is rarely, rarely purchased.

The most popular Medigap plans are Plans G and N. Those are the most purchased plan letters by people who are newly eligible for Medicare.

Plan F was a wildly popular plan until 1/1/2020 when those who were newly eligible for Medicare after that date were no longer able to purchase it.

Plan G versus plan N

After figuring out that you want Medigap and not a Medicare Advantage plan, often the next headache is…. Do I want plan G or plan N?

My firm has a great video that spells out the differences between these two plans.

Plan G is rather simple. When a person enrolls into Original Medicare, Medicare is going to receive the bill for their medical services. Provided it’s an approved charge, Medicare will pay 80% of the allowable rate. That means that the 20% remaining charge will be passed along to the consumer, unless they purchased a Medigap contract.

If that person purchases a plan G, the consumer must first pay the 2021 part B deductible of $203 before that plan G contract will begin paying. After they have met their deductible, the plan G will pick up all eligible charges for the calendar year. The consumer has no co-pays, no co-insurance, no nothing.

Let’s pretend that the person bought a plan N instead. Just like with plan G, Medicare will pay the first 80% and after that the plan N contract goes to work. Just like the plan G, the consumer is required to meet the $203 annual deductible. But, unlike plan G, the Plan N purchaser may have an up to a $20.00 co-pay when seeing certain doctors, a $50 charge if they were brought to the ER and not admitted, and could be faced with excess charges.

What are excess charges? (sure doesn’t sound good especially since we’re dealing with insurance carriers!). Excess charges are situations when a doctor doesn’t accept Medicare assignment – meaning they don’t agree to what they’ll be paid by Medicare. They then can charge the consumer 15% more than the Medicare allowable rate. That differential is called the “excess charge.” When you purchase a plan G, the plan will pay those excess charges for you. If you purchase a plan N, you will be responsible for the excess charges.

While that sounds more daunting, it’s really not. In Michigan, where I am based, we’ve had a carrier that offered a plan C for years and years. Plan C allows for excess charges to be charged to the consumer. We rarely hear a peep from these consumers that they experienced a bill. But it can happen, so you, the consumer, need to understand that when you purchase plan N.

Does Medigap come in a high-deductible form?

It does! There are both high deductible plans F and G. In those cases, the consumer will pay up to the high deductible limit of $2,370 before the Medigap plan will begin paying.

The pros to the high-deductible plans can be their cost. In some states they are as low as 25-50$ per month compared to the Plan G, for example, that might be $125.00 per month.

Determine the rates for your state. In a state like New York, for example, a 65-year-old female might pay $300 per month for a plan G (New York is a guarantee-issue state, rates are high). Or, she can choose a high-deductible plan G for $90.00 per month. So, for her, that high-deductible plan can make sense.

Another woman living in South Carolina might pay $95.00 per month for a plan G or $26.00 per month for the high-deductible plan G. The tradeoff in savings may not be worth the higher deductible.

The majority of people arriving into Medicare (1) thought the system was “free” to a large extent. With that in their minds, they aren’t excited about surprise medical bills much less any bills at all; and (2) they’re tired of their high-deductible group plans.

Most Medicare consumers are buying plans G and N. And, plan G is by far still more popular than plan N.

Carrier choice

Now that you isolated the Medigap plan letter that you want to purchase, what next?

Well, carriers come into play.

This is an important piece of your Medigap shopping experience. With Medigap, you have that six-month window of opportunity to buy any Medigap plan even if you have pre-existing conditions. That’s a big deal, as you know. Well, it’s also a big deal to pick a solid insurance carrier because, for many folks as they enroll into their Medigap with significant health challenges, I have to tell them, “Let’s make a good selection because you will be married to this carrier forever.” They won’t pass underwriting for many years to come, if ever.

Issue age, attained age, or community rated

Let me just start this section with, “You won’t beat an actuary of an insurance carrier. You can spreadsheet this piece to death, but you will not win.”

I meet consumers armed with calculators and spreadsheets who want to spend hours debating: Do I buy a policy rated by issue age? Attained age? Community rated?

What do those things mean? An issue-age rated Medigap policy means that you buy your policy based on the age at the time of your application.

However, that doesn’t mean that as you age, the price won’t go up. Many people believe that to be true (it’s not).

Attained-age-rated plans will rise in rates as you age. As you “attain” a new age, you’ll see a rate increase. That sounds worse on the surface than the issue-age plan, for sure.

The carrier, however, will still be raising rates due other factors – their claims, inflation, etc.

And, finally there is community rating. All consumers in the “community” would be charged the same base rate if they enroll in the same plan.

More carriers use issue- and attained-age-rating systems.

At the end of the day, the consumer should pay more attention to the carrier and plan selection versus the rating mechanism that the carrier uses. It’s incredibly difficult to connect the rating mechanism to future rate increases.

You’re not going to beat that actuary (they’re pretty smart).

Rate stability

If there’s one big thing that I want for my customers, it’s rate stability. I try to the best of my ability to help choose carriers that will be long term “stable.”

Medigap rates are going to go up. You should plan on 5-10% annual increases. If the carrier takes “only” a 5% increase? The policyholder is almost happy.

Along those lines, I very carefully work with new carriers. I watch their progress for years before I ever recommend them to a consumer.

Why? Carriers may come into the market, undersell other carriers, offer agent incentives to place business with them and – boom – big rate increase, or worse, they leave the state or the industry.

Be careful in your carrier selection.

In closing

You can see why I suggest “don’t go it alone” in your Medigap purchase. Don’t listen to your friends who bought the cheapest plan they could find, for example.

Use a good agent. Take time finding one. Do some homework on YouTube. Ask a bunch of questions.

Agents are paid by insurance carriers when they place business with them. Don’t be afraid of that. We all get paid for our work. Ask your agent about commissions. We’re happy to share our details when people want to know.

Can agents steer business to certain carriers for financial gain? Sure can. But, at some point, if a good agent has a good reputation, good Google reviews, etc., don’t be too paranoid and accusatory. It doesn’t come up too often. But when it does, I tell people, “You’ll either have to believe we’ll do what’s best for you, or don’t work with us, or we can charge you high consulting fees if you’d prefer.”

They never opt for that last part. Imagine that.

Good luck!

Joanne Giardini-Russell is a Medicare nerd with Giardini Medicare, which was created to help those approaching Medicare eligibility or those currently enrolled in Medicare better understand what they are purchasing and how their choices may affect their long-term outcomes regarding care, finances, etc.

Read more articles by Joanne Giardini-Russell