The Centers for Medicare and Medicaid Services have just released 2022 premium and deductible information for Parts A (mostly hospital services) and Part B (mostly outpatient services). I have recently updated my reasons why I see Medicaid Advantage (Part C) as a bad alternative to the Part B Medigap plans, and this post demonstrates a simple way to choose a Part B plan that best meets your needs. Read that post on Part C Advantage plans to see why I usually (but not always) recommend against them.
You, too, can think like an actuary
One reason I find the Part B Medigap plans superior to the Part C Advantage plans is that the Part B system has ten standardized plan options that all insurers must conform to. Mutual of Omaha’s Plan G will offer almost exactly the same benefits as the competing Plan G from United Healthcare. This forces them to compete on price and customer service, which is how several of the European countries make their universal plans much more efficient than our system. The price differences between plans come down to how each company’s actuaries (their statisticians) estimate the probabilities of each plan paying out. You can assume that they know their math well. These plans are close to “true insurance,” because the plan price differences come down pretty much to different payout probabilities.
The competing Part C Medicare Advantage plans, on the other hand, are complicated hodgepodges of offered benefits, each company being different. They have to hide millions of dollars of advertising, celebrity endorsements, and what I call “Free beer!” offerings in their pricing (the various come-ons), and then squeeze it out of your hide and your doctor’s reimbursement when you get sick. In contrast, Part B plans work off the CMS determinations of what procedures are covered with your provider and what are not, with each Plan B insurer playing off basically the same rulebook.
And so, here is my strategy for picking a Part B Medigap plan from the eight available offerings (two are closed to newcomers): Assume that the price difference you get from quotes for the different plans from the same company closely reflect what those actuaries think the average person in that pool is going to cost them. If you think you are not average and will cost them less, then you are probably overpaying for that option.
Seven bets the actuaries are making against you
The remaining part of the decision, as laid out below, is a frank acknowledgement to yourself as to whether you are willing to take on one or more of seven bets the actuaries (who know their stuff) are making against you. If they are covering a risk that you do not mind paying for out-of-pocket, then decline that option, but be honest about your risk. Don’t pick a plan just to save money.
While each state has some control over Medigap plan details and prices, 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.
Remember that basic Part A Medicare covers most in-patient hospital costs. Part B coverage is optional, but pretty reckless to decline, and the basic cost will be deducted monthly from your Social Security check. In 2022 this monthly charge will Be $170.10 for most seniors. Part B covers up to 80% of the cost of many medical expenses NOT covered by Part A, mostly outpatient provider visits and non-hospital medical procedures.
The ten optional private “Medigap” insurance policy options are offered by a handful of private insurers to cover some or most of that 20% Part B shortfall. 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 use the differences in premiums between plans to get a feeling for the probabilities those actuaries use for the average customer, 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 in regard to your health, and in only one direction. By the way, this is one of the biggest Medicare Advantage (Part C) risks; getting out of your Advantage plan may be much harder than getting in. Research that carefully.
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. They do, however, put a top limit on “out of pocket” costs of $6,620 and $3,310, respectively, in 2022. 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 $1,556 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 $233 in 2022. Just like car insurance deductibles, however, this is relatively expensive insurance; most of us seniors will have some Part B expense to cover annually. These two plans are now closed to new entrants, so for most now this option is moot; you will not escape the Part B deductible.
Bet #5 – I won’t need skilled nursing care. Increasingly, hospitals will dump Medicare patients as soon as possible into a skilled nursing facility for recovery or rehabilitation. The rules are complicated, but in 2022 a “coinsurance” fee of $194.50 per day kicks in after 20 days 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. Most doctors in my part of the country will settle for the standard Medicare reimbursement rates for in-office visits or procedures because of the prevalence of old folks in Florida. 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 charges if and when they hit.
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 in 2021, 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 nagging worries, 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 last provider quote I got 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 for the 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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Ah, one of my favorite topics again. For those who opt for a plan that doesn’t cover excess charges, one thing to be aware of is that excess charges can sneak in even if one thinks they have covered all the bases. For example, you will likely want to know ahead of time if a particular doc accepts Medicare assignment, in other words, will the doc accept the Medicare-approved amount (i.e. Medicare pays 80% of their approved amount, and pt pays 20% (traditional Medicare, with the supplemental plan kicking in), or do they also bill for excess charges? But the people you talk with when making an appointment often don’t understand what “Medicare assignment” means, and they think you’re asking if the doc or practice simply sees patients who are on Medicare, which is not the same. Also, in some practices, some docs may accept Medicare assignment, and some may not, even though they’re all in the same practice.
Another consideration, which this blog post touches upon, is whether or not you will have help navigating the billing statements and insurance claim paperwork in the future, when declining cognition may become a factor as you age. Disputing charges and reimbursements can be a difficult process; insurance companies like to say “no” first. Making the process difficult is a “feature”, because they know a certain percentage of insureds will get worn down and give up. I once had a billing dispute go all the way to the state DOI (in which I prevailed and the insurer got tagged for extra monitoring by the state going forward), and it took almost a year of back and forth to get the issue resolved.
Am very happy with Plan G – big improvement from my former ACA plans, at a lower annual OOP cost (including the Medicare Part B premium), with a much lower deductible and no copays/coinsurance for US-based care. No more hassles and, imo, one less thing to worry about.
Great comments. Basically, Plan G is the plan all seniors should have, but we so often force seniors into making short-term financial choices that bite on the back end. The primary Part B charge goes up for everybody by $240 per year in 2022, which may cause seniors to go with cheaper supplements. However, this REALLY means that all average medical expenses will go up more than that across the board, so that is not good if you are underinsured. Half of the increase they say is cause by the new Alzheimers drug coming onto the market, which will fall under Part B treatments. Mixed feelings here, as the FDA approval for this drug was controversial, but I sure hope there are some good drugs available for when I am slipping.
Yes, the cost of the new Alzheimer’s drug seems over the top, for what seem to be questionable results in the clinical trials. And the CMS rationale for that part of the premium increase is for “contingency reserves” – would like to know a) what happens to those reserve funds if demand never materializes to the level they built into their assumptions, and b) what happens when the next pharmaceutical comes along, with a similar backstory (high potential, pent-up demand with mediocre or controversial clinical testing results) – will they add more reserve funding for that one too?
Continuing with your point re forcing seniors into making short-term financial choices that may hurt them, another thing that people don’t realize is that if they aren’t collecting Social Security yet, but are eligible for Medicare and being billed separately by the government for the premiums, their Medicare premium amount isn’t “protected” by the hold harmless provision that caps the annual COLA increase amount for Social Security recipients, and is free to float higher (which seems almost guaranteed these days, given how rapidly healthcare costs are going up). Since Social Security’s full retirement age (FRA) is now uncoupled from the age of eligibility for Medicare (65), and under current requirements will continue to increase gradually to age 67 for people born in 1960 or later, this will affect more people. It also affects people who are deferring collecting Social Security past their FRA. That being said, I still think it’s better to wait to collect Social Security and capture the 8 percent per year increase, provided the income isn’t needed sooner and unless family medical history implies otherwise. Again – a roll of the dice regarding these decisions.
This link has a good explainer: https://www.medicareresources.org/faqs/how-does-the-hold-harmless-provision-protect-beneficiaries-from-medicare-part-b-premium-increases/
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