CLICK HERE if you know about these plans and simply want a no obligation price quote and/or to apply online–hands on assistance by a specialist is available via this link and a toll free phone #.
For a Part D stand alone Rx Prescription Drug plan quote, or Medicare Advantage Plan that includes Rx benefits, please call us to discuss all available options at: 800.482.5347.
(See bottom of this article and page for discussion on Long Term Nursing Home & Home Care Insurance, and “The Largest Unfunded Liability Facing Americans Today – Lack of Long Term Care Coverage.”)
“The ABC and Now…D of Medicare & Medigap Private Supplemental Insurance Coverages”
by Paul M. League, QFP—QUALIFIED FINANCIAL PLANNER
[Originally published in Financial Services Journal Online 12/06 & CA Broker Magazine 1/06. Partially last updated herein 2014]
The Medicare Modernization Act, which was passed in December 2003, adds new prescription drug benefits for Medicare beneficiaries via a new Medicare Part D Prescription Drug Plan, which became effective January 1, 2006. Like the other parts of Medicare, this Rx benefit does not cover expenses on a 100% basis; therefore, to be more fully covered, one has to look to private Medigap Insurance Plans to pick up portions of these coverage “gaps”.
There are many Medigap plan choices for people who are eligible for the new Medicare Part D, but whether or not such plans are necessary depends on whether your existing employer provided Medical benefits plan, or any private Medicare supplemental plan (Medigap plan) you may separately already own, offers “creditable” or “non-creditable” prescription drug coverage. A plan’s prescription coverage is creditable if it is equal to or better than the new standard Medicare prescription Part D coverage, confirmation of which should be sought from either your employer or private insurer.
We’ll get into the specifics of the Medicare Part D a bit further on in this article, but first let’s look at Medigap Insurance generally, which again is designed to pick up gaps in Medicare benefits, and until 2006 was available in 10 standardized plans; namely, Plans A-J (except in Maine, Minnesota, and Wisconsin). Required consumer disclosure benefits matrix charts provide consumers with side-by-side benefits comparisons of each of these plans. Private insurers are not required to sell each model plan, and can pick ones they wish to market. Prices vary greatly from one company to the next depending on their own pricing and marketing considerations.
Medigap insurance, through 2005, has been available in 10 standardized plans A through J (except in Maine, Minnesota and Wisconsin). The Centers for Medicare & Medicaid Services (“CMS”) provides “A Guide to Health Insurance for People With Medicare” that offers side-by-side benefits comparisons for each of these plans (see chart below). Private insurers can choose the plans they wish to market. Prices vary among insurers based upon company-specific pricing considerations.
Medigap plans are available on a guarantee-issue basis to people between the ages 64½ and 65½ who are covered under both Medicare Part A (hospital insurance) and Part B (medical insurance). You become eligible for premium-free Part A hospital insurance by engaging in Medicare-covered employment, earning at least $970 in Social Security benefits in 2006 ($920 in 2005), along with at least 40 quarters of Medicare-covered employment. You are automatically eligible for Part B if you are eligible for premium-free Part A, and are a U.S. citizen or permanent resident age 65 or older (the premium is taken out of your Social Security or otherwise billed quarterly). Sign-up for Part B is just before turning age 65, or if after, under “General Enrollment Period” (January 1 to March 31 with coverage beginning July 1, subject to a 10-percent late penalty), or under the “Special Enrollment Period” (for those not taking Part B because of being covered under a group or union health plan, or disabled, have 8 months to enroll in Part B when this coverage ends). Once you have a Medigap plan in California, Law SB 2043 also permits a change in plans on a guarantee-issue basis, but only to a plan of equal or lesser benefits and then only within 30 days of any age change.
What about those who obtain Part A, but delay going onto to Medicare Part B after turning 65?
The right to guarantee-issue starts with their Part B effective date and ends six months later, which is referred to as “Open Enrollment.” For all others, the plans are medically underwritten.
HMO Forms of Medigap Insurance
The HMO forms of supplemental coverage are different since they typically require no premiums. This is because they accept Medicare assignment from the government in exchange for a monthly monetary government-paid allotment. HMOs require consumers to sacrifice freedom in choosing doctors, since they must receive all benefits only through their plan approved and discounted contracted providers, but in return they generally offer enhanced benefits.
Some of the various state Blue Cross and Blue Shield private insurance plans offer their own versions of the standardized Medicare supplement plans, and are referred to in law as “Medicare C plans” and now go by the name “Medicare Advantage plans” (“MA” Plans). These plans require consumers to use specific doctors and hospitals. A carrier must meet the standards of any Medicare standardized plan, but may exceed it to customize their own offerings; hence, the name “Advantage” plans. As of January 2006 there are PPO offerings in these plan types which will provide greater doctor choice, flexibility and convenience in using such plans, as well as a new High Deductible Plan F & J, and two new lower priced high deductible plans K & L (SEE BELOW – these come with higher out of pocket co-insurance cost sharing).
Medicare Parts A & B Overview – Benefits & Costs:
|Medicare Part A Deductible||
$1,068 (days 1-60 for days of a hospital stay)
|Medicare Part B Deductible||
|Medicare Part A
|40 or more quarters of eligible Medicare covered employment||
|Medicare Part B
|Part A Coinsurance for Hospital (Days 61-90)||
|Lifetime Reserve Coinsurance
|Skilled Nursing Facility Coinsurance (SNF)
|Max Amount of High Deductible for
Plans F & J
Out of Pocket Limitation
Out of Pocket Limitation
[*Premiums and deductibles are indexed annually. The 2009 Social Security tax rate (FICA) is 7.65 percent; the self-employed tax rate is 15.30 percent; and the taxable wage base for 2009 is: $106,800].
STANDARDIZED MediGap Insurance PLANS (A-J, and the High Deductible F and K & L Plans):
|Standardized Plans / Benefits||A||B||C||D||E||F**||G||H||I||J**||K*||L*|
|Part A – Basic Benefits||X||X||X||X||X||X||X||X||X||X||100%||100%|
|Part B – Basic Benefits||X||X||X||X||X||X||X||X||X||X||50%||75%|
|Skilled Nursing Facility Coinsurance||X||X||X||X||X||X||X||X||50%||75%|
|Part A Deductible||X||X||X||X||X||X||X||X||50%||75%|
|Part B Deductible||X||X||X|
|Excess Doctor Charges||100%||80%||100%||100%|
|Foreign Travel Emergency||X||X||X||X||X||X||X||X|
|Out-of-Pocket Annual Limit (2009)**||$4,620||$2,310|
[**Plans F and J also have an option called a high deductible Plan F and a high deductible Plan J. These high deductible plans pay the same benefits as Plans F and J after one has paid the higher calendar year deductible noted above. Benefits from high deductible Plans F and J will not begin until out-of-pocket expenses exceed the calendar year deductible noted above. Out-of-pocket expenses for this deductible are expenses that would ordinarily be paid by the policy. These expenses include the Medicare deductibles for Part A and Part B but do not include the separate foreign travel emergency deductible in Plans F and J. *Plans K and L provide for different cost-sharing (50% for Plan K, 75% for Plan L) for items and services than Plans A-J. Once you reach the “Out of Pocket Annual Limit” cited in the chart above for the respective year noted, the K & L Plans pay 100% of the Medicare co-payments, coinsurance, and deductibles for the rest of the calendar year. The out-of-pocket annual limit does NOT include the charges from your provider that exceed Medicare-approved amounts, called “excess charges”. You will be responsible for paying excess charges. The Out of Pocket Annual Limit is inflation adjusted annually].
High Deductible Plan F (HDF) is a Medicare Supplement Plan that provides all the features and benefits of a Standard Plan F, but at a substantially lower premium. A calendar-year deductible, set by the federal government, applies. The Deductible is $1,790.00 for 2006, and $1,860 for 2007.
High Deductible/Co-Insurance Medigap Plans (Standardized F & J and new K & L Plans)
Medicare allows insurers to offer high-deductible (HD) Medigap plans. HD Plans F and J cover the basic benefits required of standardized plans A through J (their deductible is $1,790 in 2006, indexed annually). The newer K and L Plans cover a different set of basic benefits than the standardized plans A through J, as well as differing co-insurance percentages for skilled nursing facilities and Medicare Part A deductibles. With the new K and L plans the emphasis is on risk sharing via higher out-of-pocket co-insurance: $4,000 with Plan K, $2,000 with Plan L. Premiums are reduced substantially with these newer plans, and they do not include Rx coverage. Rx coverage must be obtained by separately enrolling in Medicare Part D via one of the CMS approved private insurers that CMS has contracted with to administer Rx benefits.
Certain insurers report that 70 to 80 percent of their standardized F Plan claims average under $600, which means it may make better sense for some clients to buy the newer, less expensive, HD Plan F. The premium savings between the higher-cost standardized Plan F and the newer, lower-cost HD Plan F, can almost entirely pay for the higher deductible exposure. This is especially true when you multiply the savings over several years of averaged catastrophic claims. Enrolling in Medicare Part D could still be necessary for clients who seek Rx coverage.
Which Plan Is Best?
Before Medicare Part D, picking the best plan often centered on the level of prescription benefits offered. Prior to 2006, limited Rx benefits were only available in plans H, I and J.
Clients who don’t need prescription drugs, or don’t foresee the need for them, may consider Medigap plans A through G. Many find that Plan C is the most cost effective. Under the “limiting fee charge law,” doctors who accept Medicare assignments cannot charge more than the Medicare allowable fees. Therefore, higher priced standardized plans F, G, H, I and J may be less appealing.
The most important criteria to consider about enrolling in Medicare Part D are the types of drugs covered and the completeness of drug formularies, since nearly half the plans on the market only cover Tier 1 and 2 drugs (generic and preferred brand). We avoid plans limited to covering only Tier 1 and 2 drugs, even if one is now only taking such medications. There are equally affordable and often lower-priced plans that provide broad formulary drugs of all tiers.
You can check a detailed list of drugs against various Part D plan formularies and compare their projected total annual co-pay and deductible costs, when added to a given plan’s premiums, by using the Medicare Part D Plan & Cost Finder at www.medicare.gov, or by going to Find A Medicare Prescription Drug Plan at: https://www.medicare.gov/find-a-plan/questions/home.aspx
For some, saving premium dollars and paying for their own prescriptions may the best approach based on the theory that it’s cheaper to self pay the prescription costs and save the premium over trading dollars with an insurer. If prescription coverage is critical to you another option is to buy a supplemental prescription discount card from a private vendor or set up an investment side fund to pick up any Rx gaps. When making such decisions, you must now be especially careful to avoid the Medicare Part D late enrollment penalty.
Understanding and maneuvering Medicare Part D and Medigap insurance can be tricky, but with informed professional advice and guidance you can arrive at a good outcome.
The New Medicare Part D – Prescription Benefits – Effective January 1, 2006
As of January 1, 2006 several options are available for those already enrolled in Medigap plans. Under the new legislation, you have the following options:
You can keep your current plan as is and not enroll in Medicare Part D.
You can keep your current plan and request the removal of the older prescription benefits, which will cause your premium to be reduced. That will enable you to keep all of your present Medigap plan benefits (except any prescription benefits) and sign up for the new Part D benefits through a separate Part D CMS approved private insurer that CMS has contracted with to both administer and deliver Rx benefits. You can get them from any of the listed private insurers at their pricing (for CA residents you can contact www.LeagueFinancial.com, 1.800.482.5347, for assistance).
You can choose another Medigap plan without answering medical questions and then sign up for Part D at the same time, thus allowing you to switch to a new Medigap plan and upgrade to one with richer benefits, regardless of your insurability (a new kind of guarantee issue opportunity), and one that includes the new Part D Rx coverage and benefits.
If you do not have creditable coverage (which the old Plans H, I and J are not after 12/31/05), or you are enrolled in a Medigap plan without prescription benefits, and you do want Part D benefits, you must enroll in the Medicare Part D prescription drug plan before May 15, 2006 to avoid a premium penalty. You can have a Medigap plan with one company, but buy your Part D coverage from any other CMS approved company, as you prefer. The late enrollment penalty is a cumulative, lifetime penalty (see below).
Medicare Part D Rx Coverage – Late Enrollment Penalty
Like Part B of Medicare, if you fail to enroll in Part D when first eligible, you are subject to a penalty. If you don’t enroll in Part D by May 15, 2006 (if eligible), and you don’t have “creditable” Rx benefits that cover at least as much as the new Medicare Part D coverage via a group health plan or other allowable plan, they you will have to wait until Nov. 15, 2006 to join. When later joining your premium cost will go up at least 1 percent per month for every month that they waited to join, (cumulative), and you will have to pay this higher premium for as long as you have Part D. For most people, enrolling in Medicare Part D, when first eligible, through a CMS approved private insurer, ensures the lowest overall costs.
Who is Eligible for Medicare Part D?
Anyone who is newly eligible for Medicare by turning 65, for example, can enroll in a Part D benefit up to three months before their birth month or three months after their birth month. You must be entitled to Part A, or be enrolled in Part B.
The following are some important dates and time frames:
November 15, 2005 to May 15, 2006 — This is the coordinated election period. The first open enrollment period begins for Medicare Part D with coverage to become effective as of January 1, 2006 or later. It is referred to as the “initial enrollment period.” For 2006 only, the initial enrollment period and the annual enrollment period are the same.
November 15, 2005 to May 15, 2006 — Creditable coverage notices are sent to employees.
November 15, 2006 to December 31, 2006 — Open enrollment for 2007 and annually thereafter beginning in 2007 becomes the regular annual enrollment period. NOTE: this is a change from prior Medicare Law, such that one can no longer enroll or dis-enroll at any time they choose to and must do so only during this new Open Enrollment time frame (November 15th through December 31st).
January 1, 2006 — Medicare prescription drug coverage begins for those who have enrolled by December 31, 2005.
May 2004 to December 31, 2005 — The temporary drug discount card benefit is available, along with a $600 credit to help pay for drugs for qualified Medicare beneficiaries with lower incomes. These beneficiaries are referred to as “low income assistance beneficiaries.”
May 15, 2006 — This is the final day to enroll in a Medicare Part D prescription drug plan with no penalty, for this initial Part D open enrollment period, for those eligible before on as of this date.
The Medicare Part D basic benefits are as follows:
There is a $250 Deductible.
Co-insurance costs between $250 – $2,250 are shared, with Medicare paying 75% and the Part D participant paying 25%. That is $250, plus 25% of 2,000 (the difference between the $250 Deductible and the $2,250), which is $500, for a total to this point of $750 in personal out-of-pocket Rx expenses.
There is a “donut hole” in the coverage between $2,250 to $5,100 in Rx costs, where the Part D participant pays 100%, for an added out-of-pocket exposure of another $2,850.
Shared costs above $3,600 ($750 plus $2,850), in out-of-pocket costs (catastrophic coverage), have Medicare paying 95% and the Part D participant paying 5%.
(Note: All benefits are calculated on an annual basis. All dollar amounts shown above will change annually to reflect inflation increases in prescription drug prices. Assuming full utilization, the beneficiary could be exposed to out-of-pocket expenses of over $3,600, considering the deductible, co-insurance/co-payments, and actual drug prices in the year of claim; hence, the merits in favor of acquiring Medigap Part D Rx insurance coverage).
Under Medigap insurance plans carriers can offer standard, actuarially equivalent, or enhanced benefit designs that pick up varying amounts of the gaps noted above. You can choose a prescription drug plan from any one of the insurers approved by the Centers for Medicare & Medicaid Services (CMS). They base their Part D premiums around the CMS published national average monthly premium, which is $32.20 for 2006.
To be covered under Part D, the drug must be available only by prescription, approved by the FDA, and used and sold in the U.S. for a medically accepted purpose. Formulary drug lists may be used, but they cannot discourage enrollment among certain groups of people.
Excluded Drugs (Non-Medically Accepted Purposes)
Anorexia, weight loss, or weight gain
Cosmetic or hair growth
Insomnia and anxiety
Symptomatic relief of cough and colds (for example, Tylenol w/Codeine)
Vitamin or mineral products (except prenatal and fluoride)
Drugs covered under Medicare Part B (physician coverage)
One of the most important points about Medigap Part D Rx insurance plans is that no matter how rich in benefits, or regardless of price, and no matter if the plan removes the $250 deductible and the 25% co-pays (replaced perhaps by fixed dollar co-pays or no payments), the participant does not get to “Stage 4” – the point where Medicare pays 95% of the participants drugs bills for the rest of the year – until after the participant has paid $3,600 out of their own pocket for co-pays and any deductible.
Paying a high premium for a “richer plan”, when the person uses a lot of drugs (e.g. $7,000+ annually) does not usually gain anything because all one is doing is paying hundreds of dollars in extra annual premiums while still having to reach the $3,600 annual out-of-pocket limit before they go to the 95% Medicare payment level of Stage 4; however, for those consuming between $4,000-$6,000 of drugs annually, there are instances where the high priced richer plans can offer a lower total cost.
For those of you who do not take many, or any meds presently, do not be fooled into thinking that you do not need to enroll in Medicare Part D because things can dramatically change over time and, in the future, you may really need such benefits. Therefore, we generally recommend signing up now, during your Open Enrollment or initial eligibility into a Medicare Part D plan of coverage that at least offers a basic or “standard” level of Rx benefits so as to avoid any Late Enrollment Penalty (some basic Part D Rx plans can be purchased for as little as only $6 a month).
The most important criteria to use in selecting the best Medigap plan for you is to check your detailed list of drugs against various Part D plan drug formularies, along with comparing the projected total annual cost of the plan premiums added to any plan co-pays and deductibles. The “best” kind of plan is one that has the largest available drug formularies, since nearly half the plans on the market only cover Tier 1 & 2 drugs (Generic and Preferred Brand). We attempt to avoid such plans, even if one is now only taking Tier 1 & 2 drugs, since there are equally affordable and often lower priced plans which do provide broad formulary drugs of all four tiers, without having to pay the $35 to $50 monthly premiums of richer benefit, higher priced, plans.
Researching Available Part D Medigap Insurance Providers & Plans Yourself
Once there, simply enter your residential zip code, and then pick a stand alone Medicare Part D Plan, not a Medicare Advantage Plan, to perform your comparisons. Remember to input all of the medications and dosages that you take so that you can see for yourself at what Tier they will be covered, and how much of a co-pay or co-insurance you will have to pay. Be sure to type in the full name of the drug, including any letters or words after the first name of the drug (e.g. HCL or ml, etc.), as this can make a big difference in the accuracy of your results. Next click on “Continue with Selected Drugs” and then move onto the report summary of plans, costs and benefits.
Please note that these steps will open new windows, but you will not loose your original entry position. You will be able, once you get to the plan summaries with costs, to click onto the name of any given approved insurer (see left-hand column of the report), and you can find therein all of the details of that plans local pharmacies and their respective Rx Formularies, Rx Tier’s and co-pays that will relate to the Tier assignments you identified when initially inputting your specific medications. All of this is very intuitive and relatively easy to do.
There is also an option at the end of the initial report list (bottom of report, lower right-hand corner, called “Plans Per Page”), and in the drop down arrow for that select “All”, or you can select a lower number of plans to view to make the analysis less cumbersome (i.e. 5,10 or 20 plans at a time).
Plans that provide some form of coverage during the period when you typically would pay 100% of your drug costs (the “Donut Hole”) are indicated by a “Yes” in the “Coverage in the Gap” column shown in the report. To view additional information about the type of coverage available during this period, please click the plan name in the report table itself (far left-hand or border column) and then click on “View Important Notes” in the window with the plan’s information. If you personalized your search by entering your medications, the drug costs during the “coverage gap” will show how the plan pays for such benefits.
In the center column, where it has a drop down box with a default text of: “Select Below”, click on it and then click on “View Plan Details”, which will bring up a new page of the detailed date for that one plan you clicked on that shows what Tier each drug is (e.g. Tier 1, 2,3 or 4), what the patient’s cost will be on that plan (even if the drug is not on the formulary and not covered by the plan, in which case it will show the full cost of that drug). It also shows the patient’s costs for using the money-saving 90-day mail order option.
Further, it breaks out these patient costs into all 4 Stages: $250 Deductible (if applicable); 25% Co-Pay or the Fixed Dollar Co-Pays of many of the Part D Plans; the “Donut Hole” when they must usually pay all of their Drug costs (though not in some of the richer benefits, higher cost plans); and when the patient pays the greater of $2 Generic or $5 Brand Name Rx, or 5% of their Drugs costs.
You will get a fairly accurate picture of what you will be paying while consuming your first $2,250 worth of drugs during the year, and then how much your cost will be in the “Donut Hole”, and finally, if you get to Stage 4, what your minimal costs will be paying just 5% of your drug costs.
We have found that sometimes one or more of the most expensive plans create the lowest total overall cost for the insured. Each plan participants drugs needs are unique to them and therefore makes for a unique outcome using these reports; hence, the value in preparing such reports at the Medicare website. In many cases, the lowest priced plans offer the lowest overall cost to the senior…but, again, all things are relative and depend on if and when one is actually taking any drugs, and just how much (an unknown for many at the time of considering a Medigap Rx Plan for purchase); therefore, we recommend that you avoid the potential Late Enrollment Penalty by enrolling in Medicare Part D when first eligible and choosing a “standard” or basic Rx benefits plan.
Report Printing Tips
Look at the top of any page you want to Print for the words “Printable Version” and the screen will adjust so that you can easily print out whatever you are viewing. Then, for the detailed reports on one plan at a time, or a multi-plan comparison when that report appears, click on “Show Details”, so you also get to view Stages 3 & 4, which are usually hidden by default.
The above, step-by-step instructions may appear a bit laborious, but they really are not. It should only take about 15 minutes, along with any added time for report printing, for you to conduct your own research on available Part D plans that cover, to one degree or another, the gaps in the new Medicare Part D Prescription Drug Plan.
We hope that this overview of Medicare Parts A, B, C and now the new Medicare Part D Prescription Drug Plan effective January 1, 2006, and the available Medigap insurance plans designed to pick up portions of the gaps in Medicare benefits, has been of help to you.
When looking at Medigap insurance plans please evaluate them carefully, and, prior to any purchase, please be certain to read all such required plan documents as the plan brochure, outline-of-coverage, “Guide to Health Insurance for People with Medicare” and any replacement form (as applicable).
If you are a California resident, and would like help in researching available plans and rates, or you would like help in enrolling in a Medicare Part D Rx plan that’s right for you, please contact us at www.LeagueFinancial.com, by e-mail at Info@LeagueFinancial.com or by phone at 1.800.482.5347. There is no added cost to you to use our enrollment services, and we have found that most people prefer personal assistance and the ability to work with someone they know, trust and who can easily be reached.
Disclaimer: The material discussed herein is meant for general illustration or informational purposes only and is not to be construed as investment advice. Although the information has been gathered from sources believed to be reliable, it is not guaranteed. Please note that individual situations can vary; therefore, the information contained herein should be relied upon only when coordinated with individual professional advice. We are not licensed for and therefore do not provide tax or legal advice.
About the Author: Paul M. League, QFP — QUALIFIED FINANCIAL PLANNER, is the Founding Principal of League Financial & Insurance Services (www.LeagueFinancial.com), which is a privately held company, established in 1984, and located in Palm Desert, CA. Paul and his company specialize in assisting clients to create, expand & preserve assets “…in a league of our own.” Contact Information: Paul M. League, P.O. Box 11800, Palm Desert, CA 92255-1800; 800.482.5347; Info@LeagueFinancial.com. © Paul M. League. All rights reserved.
A Case for the Need for ~ Long Term Care Insurance (“LTCi”)
Seniors, and others, have another very serious need to protect against Long Term Care (“LTC”) Nursing Home and/or Home Care confinements and the costs that accompany them.
For many seniors the annual cost for Nursing Home care (averaging here in CA, in 2005-2006, at around $50,000 per year, or $140 per day) could cause them to either completely loose or seriously deplete assets that would otherwise be used and depended upon for retirement income.
What most do not understand is that Medicare does NOT cover Long Term Nursing & Home Health Care unless one is fully impoverished, and it is not at all likely that Government will ever be able to provide the resources to cover the kind of care most persons would want under such circumstances.
We offer Tax Qualified and Non-Tax Qualified LTC Insurance plans, both Private and State Sponsored, that can help you to effectively address this problem. We strongly recommend that persons get this type of coverage as soon as possible.
Through an affiliation with the national firm, Long Term Care Resources, we also offer many endorsed and discounted LTC Insurance Plans for national Associations and their Members. Please contact us for details.
Remember that while it’s true that money pays for these coverage’s only good health actually buys them; therefore, don’t delay your decision to obtain these types of highly valuable insurance coverage’s.
Click here for more information on Long Term Care Insurance Plans & Proposals
Click here for a case on The Largest Unfunded Liability Facing Americans Today – Lack of Long Term Care Coverage.
Visit our Services & Products portal to access additional, information rich, website pages