Understanding Medicare Supplement Plans

By September 4, 2015Medicare, Planning Ahead

by Beth Donner, CRPC

Once you turn 65, you’re eligible for health insurance coverage through the federal Medicare system. This is most commonly referred to as Original Medicare. Original Medicare pays for many, but certainly not all, health-care expenses. Medicare Supplement insurance policies, sold by private insurance companies, can help pay some of the health-care costs that Original Medicare doesn’t cover. Medicare Supplement plans (also called MedSupp and Medigap) help offset the cost of deductibles, co-payments and co-insurance that exist with Original Medicare, thereby supplementing or filing in the gaps in coverage.

In North Carolina and most other states, MedSupp plans are standardized. Every MedSupp policy on the market must follow strict federal and state laws designed to protect the consumer. The private insurance companies that sell MedSupp plans are required to sell standardized policies identified by a letter in the alphabet. Plans A through D, F through G and K through N are currently on the market. If you were to purchase a D plan for example, the D plan would offer identical “medical benefit” coverage regardless of which insurance company you purchased from, thus with the standardization in plan design, it becomes easier to shop the desired plan considering the monthly premium.

There are also lesser known parts to MedSupp plans, as some insurance carriers will offer “added benefits” to the standardized plans, which may include fitness or care management benefits at no additional cost. It pays to look at the overall plan and not just the monthly premium.

You will become eligible for Original Medicare (which has two parts, Part A and Part B) when one of two things occurs: when you turn age 65; or when you come off your group health plan if you have been employed beyond the age of 65. If you apply for a MedSupp plan within six months of either occurrence, you are guaranteed the coverage. Otherwise, if you apply outside of this six-month window, and you have a pre-existing health condition, the insurance carrier can decline your application and coverage. For this reason, pay particular attention to when you first become eligible for Medicare. If even one MedSupp carrier denies coverage, they probably all will.

As MedSupp plans offset costs for medical expenses, you should also consider a Part D plan to offset prescription drug costs. Adding a prescription drug plan to your Medicare Supplement is optional, but enrolling will give you more complete coverage.

Part D plans are also offered by private insurance carriers. A situation I see frequently regarding Part D is the Medicare enrollee doesn’t take any current prescriptions, so they decide to “save costs” and forego Part D coverage when first eligible. However, this may turn out to be an error in cost analysis, as there will be a financial penalty to the Part D premium once a prescription plan is purchased. Purchasing a Part D plan when first eligible can avoid this life-long penalty if the plan is purchased later.

Donner is a Chartered Retirement Planning Counselor and can be reached at Beth@DiversifiedPlanning.com or 919-601-0501.