We are in that season, especially in Florida where I live, when my mail is flooded daily with Medicare switching come-ons, and every other television commercial seems to be pitching me as well. One of my most-viewed posts from last year was my advice to treat this decision as a series of bets on “your money or your life.” This post is an update of last year’s post, with some updated 2021 numbers and other suggested tweaks from readers, for which I am very grateful.
The Medicare plan provider actuaries have priced their offerings according to rigorous probability estimates, and I suggest that you need to know how they are betting on you for fun and profit. This post primarily covers the various options for the standardized Medicare Part B “Medigap” plans. Drop down to “The Bets” section below to get to the pith of this review.
My (mostly negative) post from last year about the “bad bet” of Medicare Advantage (Part C) is still quite accurate, in my view, and worth reading. I also wrote a subsequent review of Part D prescription plan “bets” that is still pretty accurate, but needs a number update for 2021 that may be coming soon.
Part B “Medigap” versus Part C Medicare Advantage
Basic Part A Medicare covers most in-patient hospital costs. Part B is optional, and for a monthly deduction from your Social Security check, it covers up to 80% of the cost of many medical expenses NOT covered by Part A. The uncovered part is mostly outpatient provider visits and procedures. However, you can purchase an optional private “Medigap” insurance policy offered by several private providers to cover some or most of that 20% Part B shortfall. It is here where the bets get interesting.
Medicare Part C, also called Medicare Advantage, allows private insurance companies to package the Part A and B services, plus Part D prescription benefits, together in a package. They can also provide some additional benefits, such as selected dental procedures, or reduce monthly costs to the insured person. These savings are usually accomplished by restricting the network of available providers to a limited set of contracted hospitals, doctors, and other healthcare providers, which they never say on their commercials.
The Medicare Advantage “bet” has its own separate post, as noted above, but just let me state upfront my bias and “Buyer Beware” caveat. I estimate that 90% of the mailings I receive coming up to the open enrollment deadline are from Medicare Advantage packagers. Just as with the incessant prescription medicine advertisements on television, you should assume that companies market very heavily only when there is a lot of potential profit in it for them. You are their “profit mark.” Be very suspicious. They likely know more than you do and take advantage of that. My cardiologist’s practice has a warning sign in the window about the many obstacles and quirks that they run into with Advantage programs.
Part B Medigap programs, on the other hand, are free from many of the Medicare Advantage restrictions on providers. As a result, Medigap plans are closer to “true insurance,” where companies work on slim margins and well-tested actuarial formulas to set prices and to move money from patient to provider as efficiently as possible. As a result, they advertise less than the Advantage plans. There is just not a lot of profit margin in Part B to waste on television celebrities, and that is usually good news for you.
Each state has some control over Medigap plan details and prices, but the plans offered usually fall into the ten plan categories shown below. Massachusetts, Minnesota and Wisconsin each have some quirks to watch out for that are not covered here.
The green check marks below indicate 100% coverage of the item, while the red X’s indicate zero coverage. The red boxes are where the bets are going to come in. You will pay less when you take on more risks, and conversely, you will pay more to cover a broader set of probabilities. In most cases, you can even use the differences in premiums between plans to get a feeling for the probabilities the actuaries use, and so make a more informed bet.
Bet #1 – Things won’t change. The natural urge is to find the cheapest plan available if you currently have no medical needs. However, once in a plan, the insurance companies can take your health status into consideration and charge you a higher rate if you decide to switch after you get sick. My take on this bet: when you are over 65, things will eventually change. By the way, this is one of the biggest Medicare Advantage risks; getting out of your Advantage plan is often much harder than getting in.
Bet #2 – The “major medical” bet. Plans K and L are usually among the cheapest supplement plans because they cover the least of that 20% shortfall. On the other hand, they put a top limit on “out of pocket” costs of $6,220 and $3,110, respectively, in 2021. If you are generally healthy and have no problem covering that amount of expense, then these plans may be a good bet (subject to Bet #1). Doing it just to save money, however, is usually not a good idea. You could get stuck with a big bill for what might seem to be a minor medical procedure.
Bet #3 – The Part A deductible bet. While Plans K and L, as noted in Bet #2, cover a part of the annual $1,484 deductible for hospital-related Medicare Part A charges, Plan A covers none of it. This is not a bad bet if you can easily pay that size of a bill if it hits, but the other missing coverages, discussed in more detail below, generally make this plan a risky option for most people. Do not get sucked into this one just to save money!
Bet #4 – The Part B deductible bet. With Plans C and F, you pay a higher monthly premium, but you may well never see a bill because they cover the annual Part B deductible, which will be $203 in 2021. Just like car insurance deductibles, however, this is relatively expensive insurance. First of all, if you can’t cover a $200 medical bill, you likely have financial problems that none of these plans can fix. Most people would be financially better off by sticking $20 every month in an envelope marked “Medicare Deductible” and paying those charges out of the envelope when they occur. You will likely be better off at the end of the year than if you had paid the extra monthly premium. These two plans are now closed to new entrants, so for many this option is moot; you will not escape the deductible.
Bet #5 – I won’t need skilled nursing care. These days, hospitals will dump Medicare patients pretty quickly into a skilled nursing facility for recovery or rehabilitation. The rules are complicated, but in 2021 a “coinsurance” fee of $185.50 per day kicks in if they send you to one of these facilities. Plans A and B save you money monthly by letting you take on that risk. However, that fee can add up quickly. There is a high actuarial probability that you and I will one day need skilled nursing care, which make Plans A and B undesirable in my opinion. The lower cost is not worth the risk of a huge bill.
Bet #6 – Excess doctor charges. My experience has been that most doctors in my part of the country will settle for the standard Medicare reimbursement rates for in-office visits or procedures. In some cases, however, providers can charge up to 15% above that rate in “excess charges.” For example, if a doctor gets $100 from Medicare for an in-office visit or procedure, they could possibly bill you for another $15. Plans F and G cover these charges, but you will pay a higher monthly premium to get that protection. Plan N goes the other way. You not only are liable for those excess charges, but you may also have to pay a per-visit co-payment, usually $20 (or $50 for emergency room visits), in exchange for a lower monthly insurance payment. The bet here is whether you can afford these relatively-small charges if and when they hit.
One reader notes that it is sometimes difficult to get a straight answer about whether a new provider takes standard Medicare reimbursements. Some uncovered providers are contracted work in facilities that are generally covered by Medicare, so surprises can occur. There is also the hassle with Plan N in receiving bills for those co-pays that need to be reviewed closely. Deciphering them with aging eyes can get difficult. You can reduce this risk and bill interpretation mess with Plan G, but it may cost you $200-$300 per year in additional premiums.
Bet #7 – Do I travel internationally? My travel plans took a big coronavirus hit this year, as maybe did yours. Medicare provides some coverage if you get hospitalized abroad, but there are significant limitations. Six of the standard plans reimburse 80% of some uncovered charges, such as ambulance rides. If you travel, this bet is probably worth the money, but you should also get additional travel insurance. Insurance that most people never collect on, like basic travel insurance, is usually relatively cheap and worth it.
How well do you sleep?
I measure personal medical and financial risks based on how well I sleep at night. If my risks are keeping me awake in middle-of-night terrors, then spending some money to ameliorate some of that risk is a good deal in my book. However, my research also indicates that you pay a lot to insure against relatively small dollar amounts, like the Part B deductible.
My bets have pushed me to Plan N. I can financially handle miscellaneous medical charges like co-pays, and even the Part B deductible, but I am willing to shell out significant monthly bucks to cover the potentially-costly risks. Plan G would be my second choice, but the provider quote I got this year would take a lot of co-pays to hit breakeven. Your mileage may vary.
The downside of this number of plan options is that many people wind up going with plan with the cheapest monthly premium because they can’t find room in their budgets for the more expensive plans. These are often the same people who cannot afford these same seven risks should their bets fail them. That is a whole different discussion on the difficult questions of economic justice hard-baked into our healthcare system.
If you disagree with my analysis, see an error, or simply have some words of wisdom, feel free to comment below. Stay well!
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- The bad Medicare Advantage bet
- Your Medicare Part D prescription drug plan bets
- Eldercare and the economic vacuum cleaner
It may be helpful to see the Medigap bet as being similar to Russian roulette: Chances are that you will survive any one play of the game, as the odds of a bad event are just 1-in-6, but the consequences of an unfortunate outcome are rather severe–and we don’t actually know which play will bring about the unfortunate outcome. So, we generally insure against the unfortunate outcome by not playing, an option we do not really have in the case of Medicare. The real danger in the Medigap bet is not that we will pay too much for coverage we don’t use, but rather that an unfortunate event will arise unforeseen, and we will not have the capacity to cover it. This danger is made worse since changing Medigap plans may incur some medical underwriting that will make a switch to a more comprehensive plan much more difficult. (At the very least, switching from some Medicare Advantage plans to conventional Medicare can result in medical underwriting.) So, the actual question at stake here is: “If I have an adverse medical event in the future, how prepared am I to cover the potential costs not covered by my plan?” If we’re on Medicare, the odds of an unfortunate medical event are rather significant, so most folks would be better off in the long run by paying attention to what would happen in a worst-case scenario.
Great advice & I love how you’re offering this for free & it’s truly independent (some brokers want to steer people). I would say that Medicare Advantage can be an excellent option for people if, like you said, the network is not restrictive . However, in some cases, a very low premium on a more restrictive network could be good for people that are really healthy. Either way, you provide great advice to help seniors make the best choice for them so thank you!
Thanks for your comments. We just lost a good friend to cancer whose Advantage program would not pay for recommended treatments (which regular Medicare would have paid for), so they had to eat the whole costs. We are all healthy until we are not.
What a greatly helpful analysis! We agonized over the selection process some four years ago, and landed on a high-deductible F (whatever that is; and no one new can get it).
Our selection criteria (as is best for any insurance) was a balance of (A) what premium cost can we readily afford now, in relation to (B) what healthcare bill-cost we could less-likely readily afford in the future.
If memory serves, we could have saved maybe a couple of thousand dollars in near-term premiums, by risking more near-term costs (such as in, e.g., N), only to lose that advantage in some distant future when managing things such as excess charges would be a puzzle to us. [I am speaking to the different, of two, choice(s) that you and we made.]
Many of us (by gambler-type temperaments or by financial constraints) will place “bets” with our insurance. I believe that’s a risky way to look at insurance—and your point in relation to insurers’ actuarial knowledge speaks to this. One could gamble on getting crushed by a truck rather than live to face a nursing home. Or bet on how many out-of-pocket deductibles will be saved by accumulated lower-premium dollars over one’s life time. (Here, your $20 per month example makes good sense—unless you’d rather skip the act of actually making the deductible payments. Convenience versus costs—when the costs are so modest.)
Our family lived 35 years, mostly under pre-ACA private insurance. We took the highest deductibles we could afford—because Premiums + Deductibles = maximum cost [with exclusion caveats]. By the luck of being overall healthy, we never drew on our insurance. This meant hundreds of thousands of premium dollars not regained. The high deductible also meant hundreds of thousands of deductible dollars not paid. We were lucky; no question.
But we were also in a business ancillary to healthcare insurance. Our job was to know, first-hand, what items insurers would not cover, and what we might be stuck with. The worst of it, of course, would have been preexisting conditions and lifetime maximums. When ACA was signed into law, we cheered—regardless of its limitations.
It seems close to insane for a society to pay so much, much more for its healthcare, while getting so much less of it in exchange, and leaving so many people in financial ruin, despite their best efforts to use the for-purpose tool of insurance.
In closing, let me admit that I have nothing constructive to say here, in response to your fine post. It’s just such a big subject—and, in this time of pandemic, one of legitimate National Defense.
Since no person in the world knows what scope of healthcare they will need, a society that makes one citizen (Me) bet on killer medical bills without insurance, and another citizen (You) bet on paying excess premium dollars, for coverage that may not save you financially—or medically—at the end, means the insurers collect from both sides, leaving us the worse for it, and I wouldn’t be such a stupid person about healthcare insurance for all the Republicans in the U.S. Senate.
Words for the ages. Thanks for this insight:
“Since no person in the world knows what scope of healthcare they will need, a society that makes one citizen (Me) bet on killer medical bills without insurance, and another citizen (You) bet on paying excess premium dollars, for coverage that may not save you financially—or medically—at the end, means the insurers collect from both sides, leaving us the worse for it, and I wouldn’t be such a stupid person about healthcare insurance for all the Republicans in the U.S. Senate. “
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