Charles H. Bradshaw
This email is going to make a lot of Medicare Supplement sales people angry.
There is a Medicare Supplement called a High-Deductible Plan F that has a higher deductible than Plan G but also has a much lower premium.
Because High-Deductible Plan F has a much lower premium than Plan G and because most Medicare Supplement sales people are paid based on a commission that is a percentage of the premium, many agents do not tell their clients about this option.
Here is how a High-Deductible Plan F works:
The two primary parts of Medicare are Medicare Part A and Medicare Part B.
Medicare Part A covers you if you are an in-patient in the hospital or if you are a patient in a skilled nursing facility for rehabilitation.
Medicare Part B covers you for almost all other types of medical care such as doctor visits, outpatient services and surgery, sophisticated diagnostic testing such as MRIs, physical therapy and even some medications if they are administered in a medical facility.
If you have Medicare Part A and Medicare Part B only with no Medicare Supplement, you still will be responsible for a share of your costs for services covered by Medicare Part A and Medicare Part B.
For example, under Medicare Part A, if you go into the hospital you will pay a deductible of $1,340 whether you are in the hospital for one day or 50 days.
If your go into a skilled nursing facility for rehabilitation Medicare will pay for the first 20 days of your care but for days 21-100 you will pay a daily co-pay of $167.50.
Under Medicare Part B you pay a once-a-year Medicare Part B deductible of $183. After you have paid this Medicare Part B deductible one time in a calendar year, Medicare pays 80 percent of your Medicare Part B expenses and you pay the remaining 20 percent.
With a High-Deductible Plan F Medicare Supplement, you are responsible for all of the costs that Medicare Part A and Medicare Part B does not pay until you have paid a total of $2,240 during a calendar year.
After you reach the $2,240 amount, your High-Deductible Plan F Medicare Supplement will pay all of your out-of-pocket costs for the remainder of the year.
I actually do not like the name “High-Deductible Plan F” because the $2,240 you may pay is not a “deductible” in the most commonly used form of the word.
When traditional insurance policies use the word “deductible” is refers to an amount you must pay before the policy pays anything.
The deductible in a High-Deductible Plan F Medicare Supplement does not work this way. For example, after you have paid the Medicare Part B deductible of $183, Medicare Part B pays 80 percent of your cost.
In this situation, though you have not reached the $2,240 out-of-pocket maximum you may pay each year, Medicare is already paying 80 percent of your costs.
In most situations, you will have to incur more than $10,000 in Medicare Part B costs before you will reach your share of $2,240.
If you are an in-patient in the hospital or skilled nursing you can reach this out-of-pocket maximum faster because of the $1,340 hospital deductible or $167.50 skilled nursing co-pays but in these scenarios your overall care costs including what Medicare pays are likely far more than $10,000.
The following is why High Deductible Plan F can be an attractive option. The monthly premiums are much lower – particularly in areas where Medicare Supplement premiums are high such as South Florida or Connecticut.
As an example, in Miami a Plan G Medicare Supplement for a female with Mutual of Omaha is $253.34. The premium for a High-Deductible Plan F is $113.98. This is a difference of $139.36 per month.
Over 12 months, this difference of $139.36 multiplies to $1,672.32.
Now compare this annual savings of $1,672.32 to what your total out-of-pocket costs can be each year. The out-of-pocket maximum is $2,240. However, with a Plan G Medicare Supplement you still would pay the Part B deductible each year of $183.
So the total amount more you potentially pay with the High-Deductible Plan F compared to Plan G is $2,057.
However, if you are in reasonably good health in most years you will not incur more than $10,000 in medical costs so your share of the cost of your health care under a High-Deductible Plan F compared to if your had a Plan G Medicare Supplement will be far less than $2,057.
In fact, in most years your out-of-pocket costs will be likely be less than $300.
So, in this example, you would start off saving $1,672.32 in your annual premium savings for having High-Deductible Plan F instead of Plan G and will probably spend less than $300 of the savings in out-of-pocket costs.
In this situation you save more than $1,300 for the year.
The potential savings are not as large in areas where Medicare Supplement premiums are less. Let’s look at the situation for a male living in Chicago.
The monthly premium for a Plan G Medicare Supplement for a male in Chicago with Cigna is $133.25. The premium for a High-Deductible Plan F is $45.57. This is a savings of $87.68 per month or $1,052.16 per year.
In this Chicago example, the savings each year in a normal health situation are likely closer to $700.
There are three very important points to keep in mind when considering a High-Deductible Plan F versus Plan G.
First, if you already have health issues that make it likely that you will incur significant health care costs every year, the potential savings may not be as significant and in fact you may be likely to pay more with High-Deductible Plan F. In this case Plan G may be a better choice for you.
Second, unlike with Plan G, with a High-Deductible Plan F you must be able to pay as much as $2,240 out-of-pocket every year. While is may be unlikely you will have to pay this much in most years, it is possible and depending on your specific health conditions you may have to pay this every year. If unexpectedly having to pay as much as $2,240 in any year would be financially difficult for you, Plan G may be the right choice for you.
Finally, and very importantly, if you choose a High-Deductible Plan F, you may not be able to change to Plan G later if your health situation changes and Plan G becomes a better option financially because of the lower out-of-pocket maximum.
The reason for this is after you have been on Medicare six months your ability to change Medicare Supplements – even with the same company – depends on you not having any health issues that make it likely you will need higher levels of medicare care. In other words, you can be declined based on your health.
The same health issue that can make you want to switch to Plan G because of the cost you are having to pay out-of-pocket with a High-Deductible Plan F will likely cause you to be declined if you apply to switch to Plan G.
While a High-Deductible Plan F can be tempting for the near-term cost savings, you should carefully consider how this decision can look very different later in life – particularly if your health changes.
The savings you may have in your sixties may seem like a distant memory and not very comforting when you are in your eighties and are having to pay the higher out-of-pocket costs with a High-Deductible Plan F.
I would appreciate the chance to help you with your Medicare. Simply click on the link below to schedule a free, no-obligation Medicare consultation.
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I look forward to talking with you soon.
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