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Beware Medigap F!

If you're over 65, or becoming that age soon, it's likely that Medicare has become a major issue of concern. Health insurance can be confusing, and all the various options surrounding Medicare choices are enough to make almost anyone's head spin. Part A is usually free and covers hospital care. With part B you'll pay an insurance premium, based on your income, which covers medical treatment. Part D covers prescription drugs and also has a premium. However, there are gaps in coverage with these policies, so it is generally advisable to sign up for a Medicare supplement plan, also known as Medigap insurance. As the name implies, this coverage fills some of the "gaps" that parts A, B, and D don't cover. There are many different Medigap policies to choose from, but the most popular is Medigap plan F. However, by the end of 2019, this popular option will no longer be available.1

Note: This article refers to traditional Medicare supplement plans.  The other option, Medicare Advantage, is a comprehensive package that is not affected by these changes.

What's so special about Medigap F?

Medigap F is the most expensive option to choose from, but it is also the simplest and has the most coverage. With Plan F there are no deductibles, co-pays, or coinsurance. You pay your premium and you're covered for all medical expenses as long as the medical provider accepts Medicare. In an effort to cut Medicare costs the government is eliminating the popular Plan F for future enrollees. The rationale is that people may think twice about using medical services if they have to pay a deductible. Medigap plan G is the same as plan F, except it has a small yearly deductible (currently $183).

What impact does this have on Plan F?

There are a lot of people enrolled in Plan F and they will be allowed to stay on that plan.  However, the way medical insurance works is that the cost is determined by actuaries based upon the risk of the individuals insured. As new, younger people enter insurance plans they are generally deemed to be "healthier" and thus spread out the risk to the insurer and help keep costs lower. With no new enrollees allowed into Plan F the remaining individuals in the plan will continue to get older, and thus, more likely to incur medical expenses for the insurer. It is uncertain what will happen to premiums, but with the higher risk to the insurer, over time, it is likely that the premium payments may increase faster than other Medigap plans.

If I’m almost 65, what should I do?

While Medigap Plan F is open for business through the end of 2019, because of the risks noted above, it would be advisable to avoid this plan. What option should you choose? If you're looking for similar coverage, Plan G may be a good alternative.1 It is expected that most people will quickly reach that $183 deductible, but once that is covered, there are no more out of pocket expenses for the year. As long as Plan G is available, new enrollees should help keep premiums lower relative to those still enrolled in Plan F.

What can I do if I'm already enrolled in Plan F?

If you're already enrolled in Plan F it may be difficult to switch. When you initially enroll in Medicare there are no requirements to have a medical exam to buy coverage.  You are automatically approved! However, generally when you switch, you must go through medical underwriting which may or may not approve you for coverage. This can pose a problem for those who are covered by Plan F who are not in good health. Will the government allow those currently under F to switch without medical underwriting? At the moment there is no indication that this will be allowed, but it is something that is certainly a concern for those currently under Plan F. If you are in good health, it may make sense to consider switching to a different Medigap policy while you are in good health.

Also, note that the premium for most Medigap policies is dependent on your age.  So your premium for next year is likely to be higher under your current plan or a different plan than for a new age-65 enrollee.

What are the risks to Plan G?

Enrolling in Plan G does not come without risks of its own. With the increase of enrollees in Plan G, to keep costs down there is a possibility that the modest deductible will increase in the future. It might have been better or a wash for a Plan F enrollee to stay in a plan with no deductible and a higher premium.  Only time will tell what will happen to Medicare and these various Medigap plans, but it is important to monitor these changes when they arise.  

Summary

By the end of 2019 Medigap plan F will no longer be available to new enrollees. Those who enroll before the deadline are still permitted to keep the plan, but that does not come without risks. The future is uncertain as to what will happen with premium costs for those who remain enrolled in the plan. A viable alternative to F is plan G with the only current difference being a modest deductible. However, like Plan F, there is uncertainty as to what will happen with the premium and deductible as Plan F goes away, and more people enroll/move into a different plan.

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1 https://www.reuters.com/article/us-column-marksjarvis-medigap/medicare-supplement-plans-are-changing-what-you-need-to-know-idUSKCN1LZ18F