Medicare supplement insurance premiums jumped up twice in 2013, and they will likely spike again in 2014. The increases have a lot to do with budget changes by the Obama administration and how these changes affect reimbursements to health care providers. As a result, a lot of seniors are asking how they can save money on their Medigap policy.
Medigap policies, as the name implies, cover the gaps in your Original Medicare health insurance. As a general rule, once you have paid your annual Part B deductible, Medicare covers about 80% of the rest of the “reasonable charges”. However, that still means that you’re on the hook for 20% of copayments and coinsurances. This is where most seniors can save some money.
Medicare Copayments and Coinsurances Explained
Copayment are a fixed fee that you pay for various medical services. For instance, when you see your primary care physician you may have to pay a $20 copayment, and seeing a specialist may cost $25. These fixed price fees are predetermined by Medicare based on the type of service.
Although it may sound like the same thing, a coinsurance is another out-of-pocket medical expense, but it is a percentage of the service cost instead of a fixed amount.
Copayments and coinsurances can really add up fast, especially if you see your doctor frequently or have a condition that requires hospitalization. If this sounds like you, then having a Medigap Plan F or a Medigap Plan G might be the best strategy. However, if you are very healthy and rarely see the doctor, you can save a lot of money by taking a little more risk. It all comes down to weighing your out-of-pocket expenses versus your supplemental insurance costs.
The following Medicare Supplement Plan Benefits Chart offers a quick look at the benefits provided by the ten standardized Medigap lettered plans (A through N).
| A | B | C | D | F * | G | K | L | M | N | |
| Medicare Part A Coinsurance and hospital costs up to an additional 365 days after Medicare benefifits are used up | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes | Yes |
| Medicare Part B Coinsurance or Copayment | Yes | Yes | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes** |
| Blood (First 3 Pints) | Yes | Yes | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes |
| Part A Hospice Care Coinsurance or Copayment | Yes | Yes | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes |
| Skilled Nursing Facility Care Coinsurance | No | No | Yes | Yes | Yes | Yes | 50% | 75% | Yes | Yes |
| Medicare Part A Deductible | No | Yes | Yes | Yes | Yes | Yes | 50% | 75% | 50% | Yes |
| Medicare Part B Deductible | No | No | Yes | No | Yes | No | No | No | No | No |
| Medicare Part B Excess Charges | No | No | No | No | Yes | Yes | No | No | No | No |
| Foreign Travel Emergency (Up to Plan Limits) | No | No | Yes | Yes | Yes | Yes | No | No | Yes | Yes |
| Out-of-Pocket Limit*** | None | None | None | None | None | None | $4,660 | $2,330 | None | None |
Evaluating Cost Differences
Let’s assume that the Medicare-approved amount for a doctor’s office visit is $75. In this case, Medicare pays $60 and your portion of the bill, the coinsurance, is $15. In other words, there’s a $15 gap that has to be paid.
Medicare supplement insurance, or Medigap if you prefer, lowers your health care costs by covering the copayment and coinsurance gaps in your Original Medicare (Part A Hospital Insurance and Part B Medical Insurance) coverage. Using our example, if you have a policy that covers all of your Part B coinsurance, you will save $15 each time you need to see the doctor.
As you can see, having a policy that offers you full Part B gap coverage won’t save you money if you don’t use outpatient services regularly. However, if you see your doctor and specialists often, those fees add up fast and your full-coverage Medigap policy is saving you money.
Do the math. If you’re paying $200 per month ($2,400 a year) for your Medigap policy but you’re only saving $500 a year on copayments, you might want to consider a plan with a little less Part B coverage and a lower monthly premium.
Choose Your Medigap Plan Carefully
Saving money on copayments and coinsurance is smart, but you don’t want to be penny wise and pound foolish. It’s important to fully understand the costs and benefits of your supplemental Medicare policy. The right plan for you depends on your medical needs, expenses and budget. You don’t want to buy more insurance than you can afford. At the same time, you don’t want to put your savings or property at risk by not having enough coverage in the event you should become hospitalized or critically ill. That’s why it’s so important to do your homework and choose wisely.