Medigap Plan F Versus High Deductible Plan F

Medicare Supplement (Medigap) High Deductible Plan F suffers from a horrible name, but don’t overlook it.  The premiums can be very affordable and the coverage is better than the name suggests.

Let’s begin with shortening up Medicare Supplement (Medigap) High Deductible Plan F for readability.  Let’s use HD-F from now on.

Deductible

Next, let’s make sure you understand with the word – deductible.  A deductible is the amount you pay each year before your health insurer begins to cover your medical services.

The deductible in 2016 for HD-F is $2,180.

Just to be crystal clear, this means before your Medicare Supplement insurance company pays anyone or anything… the first $2,180 is out of your wallet.

The thing is, the deductible really isn’t all that high, especially when you compare it to what they are in individual ACA (Obamacare) plans.  Right now, the average the average combined deductible for 2016 is $5,765 for bronze plans (up from $5,328 in 2015) and $3,064 for silver plans (up from $2,556 in 2015).  So, if you’re currently paying for your own individual coverage, odds are $2,180 doesn’t scare you.

If it does, I’m about to show you how the differences between premiums for these plans can more than pay for the deductible in a very short amount of time.

Price

Then there’s the price: They’re cheap.  Obviously, prices vary from state to state and carrier to carrier, but they’re generally half – if not less than half the price of a regular Medicare (Medigap) Supplement Plan F.

Let’s take a look at both of them side-by side (premiums are illustrative only).  Here’s a hint:  The only things different are the monthly premium and MOOP!

We’ll start first with Medigap Plan F

Medicare SupplementPlan F
Monthly Premium$180 per month
Annual Deductible ExpenseNone
Annual Coinsurance ExpenseNone
Annual Maximum Out-of-Pocket (MOOP)Zero
NetworkYou can see any doctor who accepts your coverage; no referrals needed for specialists
Other Out-of-pocket CostsNo copays for doctor's visits or hospitalization
Prescription Drugs Does not include prescription drug coverage

Well, that was nice.  Let’s now look at Medigap HD-F

Medicare SupplementHigh Deductible F
Monthly Premium$80 per month
Annual Deductible Expense$2,180
Annual Coinsurance ExpenseNone
Annual Maximum Out-of-Pocket (MOOP)$2,180
NetworkYou can see any doctor who accepts your coverage; no referrals needed for specialists
Other Out-of-pocket CostsNo copays for doctor's visits or hospitalization
Prescription Drugs Does not include prescription drug coverage

Break Even

I’ve done a bit of quick math for you below.  If you assume a monthly premium of $180 for Medicare Supplement (Medigap) Plan F, and an $80 monthly premium for HD-F, the chart shows you’ll break even in a little under 2 years.  Another way of saying that, is: by paying less monthly premium for HD-F, you’ll effectively save enough money (if you don’t use it) to cover the deductible in just under years.

 Medicare Supplement Plan F Monthly PremiumMedicare Supplement HD-F Monthly Premium
Jan$180$80
Feb$180$80
Mar$180$80
Apr$180$80
May$180$80
Jun$180$80
Jul$180$80
Aug$180$80
Sep$180$80
Oct$180$80
Nov$180$80
Dec$180$80
Total Annual Premium Cost$2160$960
Annual Savings$1200
Number of Years to Break Even1.81

But there’s yet another way of thinking about this: If you buy an HD-F when you turn 65, by the time you turn 67 you will have already saved enough money to cover an entire yearly deductible.  By the time you’re 69, you’ve already got more than two and on your way to three year’s worth of maximum deductibles saved up.

The Takeaway

So, which one is the right choice for you?  To get there, the central questions you must ask yourself (and answer) are these:

  1.  Do I want to give the insurance company $180 per month for 100% coverage and 100% peace of mind?
  2. Or do I want to give them $80, save $100 a month in premium and stick that $100 it in my back pocket just in case I get sick and need it?
  3. Should I just go with a Medicare Advantage plan?

 

Should I Stick With Original Medicare?

Choosing a Medicare plan isn’t a once-in-a-lifetime experience, it’s something you really need to be doing every year.  Just as your financial situation, health and even living arrangements change, so do the benefits and premiums of Medicare insurance policies.  Hopefully, this post will give you some things to think about if you’re considering staying on original Medicare for your hospital and doctor coverage.  This is known as, “Going Bare with Medicare.”  Future posts will provide an overview of hospital and doctor coverage when considering Medicare Supplement and Medicare Advantage plans, and when they’re up I’ll link them in blue.

Protect Your Savings!

At its core, any insurance product should really serve one primary purpose:  Provide you financial protection against exposure to high-dollar claims. Think about your car insurance… no one in their right mind has a $250 or even a $500 deductible anymore… and if you do, you’re paying entirely too much for car insurance!  The days of first dollar insurance coverage, especially in the health insurance field are long, long gone.  Just look at the Affordable Care Act (ACA) plans that were rolled out a few years back.  The average (annual!) deductible for an individual in 2016 is now over $5,700 and more than $11,000 for a family!   I wouldn’t be alone in arguing that those deductible levels are borderline insane, but the point remains; first dollar coverage is over!

Anyway, back to the point of the article.  Staying, “Bare with Medicare” isn’t a bad way to go… and about 20% of the population who have Medicare don’t have any additional coverage.  It’s true Original Medicare (parts A and B) works for a lot of people, but it also has plenty of gaps… gaps that could expose you to high-dollar claims, however unlikely.  Let’s review a few of them.

You Need a MOOP

First of all, Original Medicare has deductibles and coinsurance, and no MOOP.  By far my favorite acronym, the MOOP stands for “Maximum Out Of Pocket.”  That’s a fancy way of saying under Original Medicare, you have no annual or lifetime cap on how much you’ll pay for healthcare.  Once you meet your Part A and Part B deducible (every year, BTW), then you’ll pay coinsurance (a percentage of all additional charges) up to…. well, forever.  There’s no MOOP!  On the other hand, all Medicare Advantage plans must have a MOOP, and none have one higher than $6,700 annually in 2016 (More on those plans in Choosing a Medicare Plan Part 3).

Let’s say you’re hospitalized and have Original Medicare A and B only.  In 2016, you’ll first pay a deductible of $1,288.  As long as you’re not in the hospital for more than 60 days, you’re all set.  However beginning day 61 through day 90 you’ll pay an additional $304 per day.  If you do the quick math, a 90 day hospital stay will cost you a minimum of your $1,288 deductible, plus 30 days X $304 ($9,120) = $10,408!!!

That’s huge.  How likely is it you’re in the hospital for 90 days?  Highly unlikely.  More likely is a) you’ll be dead or b) you’ll be moved out to a nursing home or a Skilled Nursing Facility (SNF).  Not trying to be morbid, just realistic.

If we assume you end up in a Skilled Nursing Facility, then Medicare will cover your stay at 100% for days 1-20.  Days 21-100 will cost you $152 per day in 2016.  The price tag for a (SNF) stay that lasts exactly 100 days is $12,008!   Anything longer for 100 days, and you’ll be picking up 20% of the entire tab for every day you’re in the facility.   Once again, there’s no MOOP!

Worst-case scenario: If you’re in the hospital for exactly 90 days, then get moved into a Skilled Nursing Facility, stay there for 100 days, you’ll have a bill totaling $22,416!

Going back to our original premise, first and foremost insurance should provide you financial protection.  How much financial protection is up to your personal risk tolerance, health status and thickness of your wallet. I think it’s safe to say most people shouldn’t be purchasing super-rich insurance products that offer first dollar coverage.  That is of course unless you simply like the peace of mind giving all of your money to insurance companies for first dollar coverage instead of keeping it in your own wallet!

Not Covered Under Original Medicare A and B:

  1. Routine eye exams & glasses (except after cataract surgery, but who wants that?)
  2. Dental insurance & dentures
  3. Outpatient prescription drugs prescribed by your doctor (Part D covers this)
  4. Gym memberships or fitness classes
  5. Weight management programs
  6. Routing hearing tests
  7. Custodial care (help with bathing, dressing, using the bathroom & eating) at home or in a nursing home
  8. Long-term care (fancy phrase for nursing homes and in-home assisted living)
  9. Acupuncture
  10. Cosmetic Surgery
  11. Most chiropractic services
  12. Most care while traveling outside the United States

The Takeaway

Going “Bare with Medicare” isn’t for everyone, but it’s a fine solution that has worked literally for hundreds of thousands of Medicare beneficiaries since 1966!  Odds are that you’ll never come close to being in the hospital for more than 60 days in any one stay, and it’s highly unlikely you’ll be in a Skilled Nursing Facility for more than 20 days.   I’ve highlighted a few worse-case scenarios, but the real problem is the fact Original Medicare has, you guessed it, no MOOP!  And that’s precisely the reason you’re probably better off served by purchasing some type of supplemental policy or Medicare Advantage plan that offers an annual MOOP limit.

Readers, what’s been your experience going “Bare with Medicare?”