New to Medicare? How to simplify choosing a Medigap plan

Between now and 2030, when the last baby boomers turn 65, about 10,000 people per day will officially become eligible for Medicare. That means 10,000 people a day have to make sense of what Medicare coverage to sign up for.

Anyone who opts to enroll in Original Medicare (rather than Medicare Advantage ) will be on the hook for 20% of costs they run up outside of a hospital. This is known as Part B of Medicare: the doctor appointments, tests and treatment that occur when you are not admitted to a hospital.

There is no annual maximum out-of-pocket cost for what you might be required to spend to cover your 20% “cost sharing.”

Medicare supplement insurance solves the 20% problem

Some people who enroll in Original Medicare have their Part B copays covered by complementary retirement benefits they have from a former job. This typically is for public sector employees.

But if you don’t have a complementary plan to cover Part B expenses, you need to buy one.

Medicare supplement plans, also known as Medigap, are private insurance plans to help pay for out-of-pocket Medicare costs. Medigap policies can cover part or all of your Part B copays, as well as charges you’re liable for when you are admitted to a hospital (Part A of Medicare).

In a design failure that predates all we have learned from behavioral science about having too much choice, the government has set up a maze of eight Medigap policies that private insurers can offer to new enrollees. That’s a lot to get confused about.

Relax. If you are new to Medicare, there is one type of plan that provides blanket coverage, and there is another plan that is very similar but with a few additional out-of-pocket costs.

Those are the two plans to focus on first. And if you find them affordable, they provide the best out-of-pocket protection.

Medigap Plan G

In most states, Medigap plans have alphabet names. Plan A, Plan B, C, D, F, G, K, L, M and N.

New enrollees since 2020 are not eligible for Plan F and Plan C. (Massachusetts, Minnesota and Wisconsin have different plans.)

For anyone new to Medicare, Plan G is the best plan to limit your out-of-pocket costs. The only cost that isn’t covered is the annual deductible for care that falls under Part B. That’s $203 in 2021. (The 2022 deductible has yet to be announced.) It also covers all of your in-patient hospital coinsurance, which falls under Part A of Medicare.

If you happen to know someone who raves about their Plan F Medigap policy, that means they enrolled in Medicare prior to 2020. New enrollees aren’t allowed to purchase Plan F. But the only difference between F and G is that with Plan G you have to pay the annual deductible. That’s it.

Basically, with a Medigap Plan G, if you can handle the monthly premium cost, all expenses not covered directly by Medicare will be covered by the insurer who you buy your Plan G from.

And there’s the rub. All Medicare supplement plans charge a monthly premium. Plan G will be the most expensive because it removes all your out-of-pocket exposure. Plan G monthly premium costs typically range from $80 to around $300 a month depending on where you live.

And it really pays to shop. Within your state, and your region, there might be more than a dozen Plan Gs you can purchase. And for no good reason, the costs can vary by hundreds of dollars a month between each Plan G offered in your area. To be clear, the benefits for each type of plan are standardized by the federal government. That is, every Plan G is exactly the same in what it offers.

The Medicare Finder, a free online tool run by the federal government, will show you personalized plan costs based on where you live. You can also contact your State Health Insurance Assistance Program (SHIP) to be connected to counselors who provide free assistance in navigating all Medicare decisions.

There are independent insurance agents who specialize in helping folks sort through their options. Independent agents shop for you across plans offered by different insurers. That’s key; as noted earlier, identical plans can have wildly different costs from insurer to insurer. Agents are paid by the insurance company you choose. There’s no direct charge to you.

Medigap Plan N

After Plan G, the next best option for comprehensive coverage is a Plan N.

One main difference between a Plan G and a Plan N is that Plan N will have copays for doctor visits. Typically it’s up to $20 every time you see your GP and up to $50 when you see a specialist. You might have a $50 copay if you seek care in an emergency room and aren’t admitted to the hospital.

A Plan N will have a lower premium than a Plan G. If you are healthy, that can be worth considering. But just do the math of how copays can add up. If you see one specialist once or twice a year, you will likely save money with a Plan N. But if you are seeing multiple specialists more often, paying more for a Plan G might be a better move, as there are no doctor copays.

Plan N also requires that you pay any “excess charges” billed by a doctor you see. This refers to a system where doctors can charge more than what Medicare agrees to pay them. It is not common for doctors to impose excess charges, and the maximum they can charge is typically 15% more than what Medicare pays them. But if you do have a doctor who levies an excess charge, with a Plan G it will be covered by the insurer. With a Plan N you will be on the hook.