Minding the gap in Medicare insurance

Under normal circumstances, nobody wants an F, and getting a C isn't much better.

While those two letters cause report card distress, they are prized in the world of supplemental Medicare insurance.

But F and C policies, often called "first-dollar Medigap plans" are about to become significantly more exclusive on Jan. 1 when a new federal rule passed by Congress in 2015 requires health insurance companies to stop selling them to new Medicare enrollees.

Anyone eligible for Medicare coverage in 2019 will still be able to buy F and C which, together, represented more than 60 percent of all Medigap plans sold nationwide, according to a recent study from the trade group America's Health Insurance Plans.

These two plans are so popular among the 10 flavors authorized by the federal government because they cover all deductibles, co-pays and coinsurance (see "Speaking the language: Glossary of health insurance terms") built into original Medicare. While other plans cover most extra costs, F and C are the only ones that make Medicare's $185 part B deductible go away.

Why end something that's so popular?

Gretchen Jacobson, associate director of the Program on Medicare Policy at the Kaiser Family Foundation, said the decision to stop offering these two plans is rooted is the concern that plans with no co-pays or other forms of cost sharing beyond basic monthly premiums encourage overuse.

"There has been some research showing that people who do not pay any cost-sharing for medical services tend to use more health care than those who don't," Jacobson said.

David Weil, program manager for the Health Insurance Counseling and Advocacy Program in San Diego and Imperial counties, said by eliminating F and C, Medicare is saying, "'We're sort of going to push people away from expecting that they pay their monthly premiums and that's it, they can use as much as they want with no additional costs.'"

While avoiding all deductibles is the main reason why many choose F and C policies, experts said it's important to remember the real point of getting Medigap insurance is to protect against financial ruin.

Original Medicare requires beneficiaries to pay 20 percent of the cost of most doctor services both inside and outside the hospital. And in situations where a major diagnosis is involved, that percentage can stick people on limited incomes with bills that are in the thousands.

Unlike most company-provided health insurance policies on the market, original Medicare sets no out-of-pocket limit on that 20 percent exposure, Jacobson said. Though different plans provide other kinds of services, every Medigap plan does the most importing thing: Filling in that 20 percent gap that can end up raiding your bank account.

"With all the focus on relatively small deductibles, it's important, I think, to remember that the main purpose of Medigap is to make people's Medicare bills much more predictable, and to provide them with much more financial protection since, in original Medicare, there is no out-of-pocket limit," Jacobson said.

These days, with the cost of a Medigap premium on top of Medicare's standard premium for Part B coverage outside of hospitals, many are leaving original Medicare for advantage plans because they often have no additional monthly fee. Many who stay in original Medicare do so to keep their options open. Remember, the original system allows you to see any doctor or specialist who accepts Medicare payment.

Often it's those with significant income in retirement who can afford to pay more for broader choice. And for these folks, losing out on the chance to buy an F or C plan probably is not a very big deal. Having to pay a $185 deductible for services like doctors office visits and durable medical equipment is really no big deal if you've got significant retirement cash flow.

But there is another constituency here, Jacobson noted, that might find having to pay that deductible difficult. Patients with serious diagnoses whose finances are already stretched paper thin will likely need to plan for the expense.

"For some, they're going to have to budget that $185," Jacobson said.

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