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High-deductible Medigap plans
by Abraham

 

A high-deductible Medigap plan can be a great choice for someone who doesn’t mind paying a large deductible before coverage take effect in order to keep premiums low.

In 1997, the Balanced Budget Act (BBA97) introduced two high-deductible plans — plans J and F — to increase financial flexibility for consumers. Plan J eventually became obsolete and is no longer sold. High-deductible Plan F, on the other hand, is still being sold today.

High-deductible Plan F policies cover every Medigap benefit. However, you’ll have to pay a certain deductible each year before you can actually use your policy to pay for any medical services. For 2013, the high-deductible Plan F has a deductible of $2,110. That means you must pay your insurer $2,110 yourself before your policy covers anything.

High deductible Medicare supplement insurance is far from popular. According to the  Kaiser Family Foundation, “relatively few policyholders nationwide have purchased high-deductible Medigap policies.” And an analysis from America’s Health Insurance Plans (AHIP) showed that between 2007 and 2011, only between 1 percent and 3 percent of all Medigap policies were high-deductible plan F. The standard Plan F, on the other hand, is the most popular plan. The standard Plan F accounted for about 53 percent of all Medigap policies in 2012.

The right fit for some

High-deductible Plan F can be a terrific plan for the right person. Generally, the ideal fit is someone who plans to use their Medicare supplement policy only for emergencies or a period when they have to make more frequent doctor visits than usual. To see why, let’s look at some example scenarios.

Let’s say John is 65 years old and has enrolled in high-deductible plan F. He has a generous savings account and is in great health with no pre-existing conditions. He only plans on visiting the doctor for routine checkups and takes great care of himself.

If he just has routine checkups throughout the year, the only expenses not covered by Medicare would be the $147 deductible (which he’d have to pay only once per year) and then 20% of the cost of each doctor visit. Both of those would be covered by the standard Plan F. But they’d be covered by the high-deductible Plan F only if John paid the $2,110 deductible first.

Since it’s just a regular health evaluation, John may not feel the need to pay his high deductible to get the treatment covered. After all, his out-of-pocket expense is only going to be $147 plus 20% of the cost of the visit. Let’s say John remains healthy all year and only visits his doctor four times total. If each doctor visit is $100, his total out-of-pocket expenses for the year are only $227.  By not using his coverage, he saved $2,110 (the size of his deductible). And, in addition, he saved a lot on premiums by choosing the high-deductible Plan F vs. a regular Medigap Plan F.

Now let’s say John has met an unfortunate event and is hospitalized. At this point, he would rather not pay the out-of-pocket medical costs, so he pays the $2,110 deductible out of his own generous savings account. From that point on, his Medigap plan kicks in and covers all of the gaps in his Medicare coverage. Once he gets better to leave the hospital, the Medigap plan continues to pay for every upcoming medical cost for the rest of the calendar year. With his generous savings, John has managed to get the most out of his plan.

All too often, consumers who don’t have the financial resources will enroll into a high-deductible plan because they were enticed by the low monthly premium. It becomes a nightmare if an accident that involves inpatient care were to happen and they didn’t have the $2,110 to pay up front in order for their Medigap plan to cover the extra medical costs.

If you have the resources to pay a hefty deductible and are in great health, then by all means, the high-deductible option is a great choice. However, if you are struggling to make ends meet and do not have strong financial savings, consider another plan that will fit both health and financial needs. The deductible increases every year with inflation.

The pros and cons going with a high-deductible plan

There’s plenty of tradeoffs for a high-deductible plan. Some can be more valuable than others depending on how you look at it.

Pros: Low monthly premium, full range of benefits, potential to save money

High-deductible F does have a much lower monthly premium depending on where you live. Those in great health, strong savings, and other monetary resources may have the potential to save more money on top of their premium if they don’t receive critical medical services within a given year as their would likely be no need to pay the high-deductible.

In addition, Plan F provides coverage for every possible Medigap benefit.

Cons: High out-of-pocket costs when you need coverage

Those who have fewer financial resources on hand may find this plan to be a real nightmare if an accident or serious medical condition were to occur. Sure, they’d have lower premiums, but then they’d be stuck having to pay a $2,110 deductible if they need to use the coverage they’ve already been paying for.

Although the plan is very comprehensive and covers everything, it doesn’t offer first-dollar coverage. If you can’t pay your deductible as soon as possible, you may have to pay all of the remaining medical expenses left over after your Medicare coverage is used up.

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