Co-founder at Boomer Benefits, a
national insurance broker that helps Baby Boomers learn the ropes in regards to
Medicare.
Just when you finally
understand your Medicare coverage, they change it on you. For decades, people
on Medicare have had the option to supplement their Medicare benefits with
Medigap coverage. The most popular supplement
plan for many years has been Medigap Plan F.
Why? Mainly because it
provides first dollar coverage after Medicare, covering all the gaps in
Medicare and leaving you with $0 out of pocket. It’s the policy that makes
planning for your healthcare spending easiest to predict.
However, as part of the Medicare Access and CHIP
Reauthorization Act of 2015 (MACRA), Congress is eliminating
Medigap plans that cover the Part B deductible, like Plan F and Plan C.
Medicare premiums for higher income individuals will also be increasing.
If this affects you, you have time to plan now to minimize the financial impact
ahead.
Why is Congress eliminating Plan F?
Medigap Plan F is the Cadillac of all
supplement plans. It essentially gives the policyholder 100% coverage. Medicare
covers 80% of your outpatient benefits and Plan F covers both your Part A and B
deductibles as well as the other 20%. People with Plan F have no copays for
Medicare-covered services whatsoever — not even a copay at the doctor. (Plan C
is similar but doesn’t cover Medicare excess charges, so it is less popular).
Some legislators fear that Plan F and Plan C
policyholders visit their healthcare providers more often than someone who pays
their own deductible. In other words, they worry that anyone with Part B
deductible coverage will run to the doctor for every sneeze or paper cut.
Conversely, if you were responsible for paying your own Part B deductible, then
you might think twice about visiting your doctor for minor things like a cold.
Critics say that eliminating Plan F might
cause some people to forego care, resulting in more expensive care later on.
There could be health conditions that don’t get diagnosed early enough and end
up costing Medicare big bucks down the road. While that may be true, it didn’t
stop Congress from eliminating plans with first dollar coverage. They want you
to have a little skin in this game.
How will this affect Plan F policyholders in
2020?
Fortunately, these changes only affect new
enrollees after January 1, 2020, so people currently on Plan F will be able to
keep that plan in 2020 and beyond. You’ll even be able to shop your coverage.
If another insurance company offers it at a better price down the road, you can
apply to change to that insurance company’s Plan F policy. This is good for the
long-term rate picture, because insurance companies will still compete for your
Plan F business.
However, over time we can probably expect Plan
F premiums to slowly rise, since the total number of people enrolled will be
shrinking annually. If this concerns you, then you might consider Plan G, which
functions exactly like Plan F except that you pay the small annual Part B
deductible. It’s still great coverage and you won’t find yourself stuck in an
obsolete Medigap plan that might have escalating costs over time.
Higher Medicare premiums are coming for higher
incomes.
The elimination of Medigap plans covering the
Part B deductible is just one part of MACRA that might affect your wallet. The
legislation also adjusts the income thresholds for Medicare Part B premiums
beginning in 2018.
This will largely affect higher-income
beneficiaries, who will pay more for their Part B and D than they do now. Many
in this group already pay higher premiums, and the MACRA legislation will
increase those premiums further for individuals earning over $133,500 ($267,000
for married couples).
While this change affects only a small
percentage of the Medicare population, the Kaiser Family Foundation reports that
premiums for this group will be as much as 80% higher than the Part B base
premium. If you fall into this category, your health insurance costs in
retirement may be higher than expected. Working out your estimated costs now
will help you better plan for when you can retire.
Conclusion
While Medigap plans with
deductibles are going away, enrollees with this coverage will be grandfathered.
If first dollar coverage is important to you, enroll in Plan F or C prior to
2020 so that you can keep your policy. However, if you can handle a small Part
B deductible, options such as Plan G or Plan N offer significantly lower
premiums today and will also still be around after 2020. Selecting the right
coverage now can help you attain rate stability down the road.
Likewise, if you are a part of the estimated
2.9 million individuals who will pay income-related premium adjustments, the
healthcare spending projections you’ve made for your retirement may be
changing. Sitting down with your financial planner to discuss how you will
handle these changes is always a good idea.
Forbes Finance Council is
an invitation-only organization for executives in successful accounting,
financial planning and wealth management firms. Do I qualify?
Co-founder at Boomer Benefits, a national insurance broker
that helps Baby Boomers learn the ropes in regards to Medicare.
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