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. 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