The so-called Cadillac of Medicare-related insurance is being phased out at year’s end, shutting Medicare newcomers out of the plan that many retirees buy for peace of mind, and potentially boosting costs for those who remain or turn to another popular option.
People who turn 65 after 2019 won’t be allowed to pick Medigap supplement Plan F, the most popular supplemental plan that helps retirees cover medical costs that Medicare doesn’t pay. Retirees already in Plan F by year’s end will be allowed to stay. Almost 60% of the 14 million people who have Medicare supplement insurance are in Plan F, according to CSG Actuarial research.
Known as “first-dollar coverage” because people don’t have to worry about costs the moment they walk into a doctor’s office or hospital, or use a lab, Plan F is the most expensive of the Medicare supplemental plans. Nearly everything except vision, dental, drugs, and equipment such as hearing aids is covered. There are no deductibles, no copays, and no bills after a person has left a doctor or hospital, and no approvals are necessary to go to a specialist. Even overseas care can be covered.
The no-fuss nature of Plan F prompted the 2020 change. Supplements are sold by private insurance companies, but the federal government sets the rules because the insurance kicks in where Medicare leaves off.
“The government is trying to prevent overutilization,” says Adam Wasmund, chief development officer of Jack Schroeder & Associates, which advises health insurance brokers.
Trying to anticipate the future is worthwhile now because of the rules around selecting supplemental insurance. When you are new to Medicare, you can get into any supplemental plan regardless of health. After that, however, if you grow dissatisfied and want more extensive coverage, a lower cost, or a different insurance company, you may not be able to switch if your medical conditions have changed. Insurance companies ask about your health and can reject you.
That is why Maura Carley, president of Healthcare Navigation, tells anyone who chooses a Medicare supplement or Medicare Advantage Plan to think about their pick from the start. Consider it a “forever choice,” she says, because people can get sick as they age and that keeps them from switching. Also, she suggests making sure that any choice is portable to another state in case you move. Find free help through your state’s State Health Insurance Assistance Program, or SHIP.
Choosing plans isn’t simple because there are 10 different standard Medicare supplement choices with names of the alphabet from Plan A to Plan N—each with its own mixture of deductibles, copayments, and extra costs. The task is complicated by state regulations. Not all states allow the full array of plans, each state sets its own prices, and official government sites that help consumers are bumped down in Google search results by insurance companies vying for customers.
Medigap supplemental plans pick up where Medicare leaves off, but there are many differences and exclusions among the plans. Here is a sample of some of the most popular benefits and what is covered.
Yes = the plan covers 100% of this benefit; No = the policy doesn’t cover that benefit; % of the benefit covered
Some insurance experts are warning people who are already in Plan F and its closest cousin, Plan G, to brace themselves for price increases.
After the change, Plan G will survive as the most comprehensive plan for newcomers. It is identical to Plan F with one exception: People must pay Medicare’s deductible before insurance coverage kicks in each year. This year, the deductible is $185. About 27% of people in supplements are now in Plan G, according to CSG Actuarial.
Prices aren’t expected to soar immediately. In fact, some insurance companies have been cutting premiums recently in both Plan F and Plan G to lure customers in advance of changes. But insurance experts warn retirees that as insurance companies adapt to government-imposed changes after 2020, people in both Plan F and Plan G could be shaken by rate increases.
So people choosing supplements now are being advised to pick deliberately so a price shock doesn’t upset their budgets later.
Paying the deductible now seems fairly painless, and financial planners already have been urging clients to select Plan G as a bargain compared with Plan F. But there is a question about whether Plan G will remain a bargain as the 2020 changes play out.
Nationally, monthly premiums for Plan G average about $150 compared with Plan F’s $186, according to Aon. The monthly savings in Plan G more than cover the annual $185 deductible that people usually finish paying out of pocket after the first or second visit to a doctor each year. But when Plan G becomes the only comprehensive choice for newcomers, insurance experts aren’t sure the savings will persist. Deductibles typically increase annually, and some insurance brokers think the government may try to tame Medicare spending at some point in the future with much larger deductibles.
People in Plan G could be surprised by more than the deductible in the future. After 2020, the pool of people coming into the plan will start becoming less healthy than those who previously enrolled when financial advisors pointed them toward a bargain, says Jared Strock, consulting actuary for CSG Actuarial. As Plan G takes on more unhealthy retirees, insuring them will become more expensive, and insurance companies will probably start charging higher premiums, Strock says.
“[Over] the past several years, buying G made sense” as a bargain, he says, “but with this change, that will go away.” He thinks that Plan G premiums will become similar to Plan F’s.
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