Include Medigap in Your 2012 Medicare Review

Basic Medicare includes Part A, for hospital and in-patient expenses, and Part B, which covers physician, out-patient, and equipment costs. It includes deductibles and co-pay requirements that can expose retirees to big out-of-pocket payments. With this year's earlier timetable for 2012 Medicare open enrollment—October 15 to December 7—your coverage review should include Medigap policies that help close holes in basic Medicare coverage. About 9 million Medicare beneficiaries decided last year to also buy Medigap insurance plans, also known as Medicare supplement insurance.

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"Because of Medicare's relatively high cost-sharing requirements, 90 percent of all beneficiaries have some source of supplemental coverage," says a recent Medigap analysis prepared by the Kaiser Family Foundation. "Beneficiaries with Medigap tend to include those without access to a relatively comprehensive employer-sponsored retiree health plan, those not poor enough to qualify for Medicaid to supplement Medicare, and those who choose fee-for-service Medicare rather than a Medicare Advantage plan."

Medigap plans are sold by private insurers. There are 10 sets of currently available coverages: A, B, C, D, F, G, K, L, M, and N. Four discontinued plans—E, H, I, and J—are still available to people who had the plans before they were closed. Rates for the plans vary by insurer and state, but federal rules require that all plans with the same letter must offer the same coverage.

The plans fill holes in basic Medicare to different extents. The primary variables involve deductibles for Part A and B coverages, coverage of the 20 percent co-insurance payment, emergency care fees, and medical treatment outside the United States, which is not covered by basic Medicare.

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Plans C and F are the only plans that provide "first dollar" coverage of the deductible expenses for Part B coverage. They are the most popular plans, with about 15 percent of Medigap customers choosing C plans in 2010 and 44 percent choosing F plans. Here are the state ranges of average 2010 monthly premiums charged by Medigap insurers:

Beginning in June 2010, all Medigap plans changed. The primary reason was because the U.S. health reform law expanded free preventive services under Part B of Medicare. The discontinued Medigap plans—E, H, I, and J—duplicated other plan offerings or prescription drug coverage available under Medicare Part D.

The two newest Medigap plans, M and N, are high-deductible plans offering lower premiums but higher out-of-pocket costs. Also, benefits for Plans D and G are different than they were prior to the June 2010 changes.

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You can apply for a Medicare Supplement insurance policy if you are a resident of a state where the policy is offered, enrolled in Medicare Parts A and B, age 65 or older or, in some states, under age 65 with a disability and/or end-stage renal disease (plan offerings and eligibility vary by state.)

Insurance companies do not have to sell Medigap or sell all 10 types of Medigap. But all Medigap insurers must sell Plan A, the most basic Medigap plan. And if they want to sell any other type of Medigap, they must include either Plan C or Plan F as well.

Medicare provides an online guide, "Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare." Here's the guide's summary of how the various Medigap plans cover Medicare services and costs:

Medicare Part A coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up: covered by all 10 plans.

Medicare Part B coinsurance or co-payment, blood (first three pints), and Part A hospice care coinsurance or co-payment: covered by all 10 plans, except Plan K pays only 50 percent and Plan L pays only 75 percent. Plan N pays 100 percent of the Part B coinsurance, except for a co-payment of up to $20 for some office visits and up to a $50 co-payment for emergency room visits that don't result in an inpatient admission.

Skilled nursing facility care coinsurance: not covered by Plan A or Plan B. Covered by all other plans, except Plan K pays only 50 percent and Plan L pays only 75 percent.

Medicare Part A deductible: not covered by Plan A. Covered by all other plans, except Plan K and Plan M pay only 50 percent and Plan L pays only 75 percent.

Medicare Part B deductible: covered only by Plans C and F.

Medicare Part B excess charges: covered only by Plans F and G.

Foreign travel emergency (up to plan limits): covered 80 percent by Plans C, D, F, G, M, and N.

Yearly out-of-pocket limits: Only two plans have yearly limits. Plan K's out-of-pocket limit for 2011 is $4,640. Plan M's yearly out-of-pocket limit for 2011 is $2,320. After you meet your out-of-pocket yearly limit and your yearly Part B deductible, these plans pay 100 percent of covered services for the rest of the calendar year.

Massachusetts, Minnesota, and Wisconsin have unique Medigap plans. They are explained in the government's Medigap guide, which also includes important phone numbers. In some states, you may be able to buy another type of Medigap policy called Medicare Select.

Insurance companies are required to offer a 30-day "free look" period for Medigap plans, during which the policy may be cancelled with a full refund. Medicare has an online tool for access to local Medigap policies and rates by ZIP code.

Twitter: @PhilMoeller