August 11, 2015
With Plan F, a Medicare beneficiary could expect that all covered Medicare services and procedures will be paid for by either Medicare or the Supplemental insurance company. Other than the plan premiums, there should be no other out-of-pocket expenses. Most sales reps were happy to oblige and even today sell Plan F when asked because it’s the easy thing to do. Of course, it doesn’t hurt that the comprehensive coverage of Medigap Plan F means higher premiums which equate to higher commissions for the salesperson.
As a result, Medicare Supplement Plan F is by far the most popular Medigap Plan used by seniors in the United States. In fact, a survey conducted in 2010 showed that 40% of all Medigap Plans held were Plan F. While the Medigap Plan F coverage is comprehensive, price wise Plan F is not always the best value.
Merriam-Webster defines value as “relative worth“. For some seniors the peace of mind that Plan F covers every dime of the co-pays and deductibles left by Original Medicare is a value on which they cannot put a price. For others, just a few minutes of shopping and price comparison with other plans can reveal much better value in other Medicare supplement policies.
Let me explain. The above table illustrates the benefits offered by each Medicare Supplement available. The table can be found on page 11 of the 2015 government publication Choosing A Medigap Policy and on page 101 of the 2017 Medicare & You guidebook. Note that Medigap Plan G is almost identical to Medigap Plan F. In fact, there is only one row or category of benefit in which these plans differ. That is the coverage of the Medicare Part B deductible. Where Medigap Plan F pays the Medicare Part B deductible, Medigap Plan G does not. With Medigap Plan G the deductible is your responsibility to be paid out-of-pocket.
The annual Medicare Part B deductible must be paid before Medicare Part B coverage kicks in, covering 80% of outpatient services etc. In 2015, the Medicare Part B deductible was $147. In 2017, that deductible is $183. Obviously, the amount of the deductible can change every year. medicare expects this deductible to reach $250 annually by the mid-2020’s We’ll get back to that in a moment.
If all things were equal, then Medigap Plan G should be just $166 less in annual premium than Medigap Plan F. It’s a simple calculation. Because Plan G is identical to Plan F in every way except that you pay the Medicare Part B deductible out-of-pocket, the mathematical difference in Medigap Plan F and Plan G annual premium should look like this (Medigap Plan F premium – Medigap Plan G premium = $166). If the two plans were of equal value, the difference in annual premium would be equal to the Medicare Part B deductible. If the difference in premium is larger than $166, then Medigap Plan G is a greater value. If the difference in premium is less than $166 the Medigap Plan F is a better value. In many cases, you will find that the Medigap Plan F annual premium is much more than just $166 greater than Plan G. In these situations if you purchase a Medigap Plan G instead of a Plan F you can pay the Medigap premium plus pay the Medicare Part B deductible and still have money in your pocket that would have gone to the Plan F premium. Let’s take a look at an example to see this more clearly:
Here is an example from Indiana
Using a 65-year old woman, non-smoker. My quoting software shows at least 35 companies offering Medigap Plan F in her zip code. Of those 35 companies, the lowest cost Plan F is presented at $1,544 per year. My Medigap quoting software shows at least 31 companies offering a Medigap Plan G. Of those companies the lowest premium presented is $1,243 per year.
Plan F $1544 – Plan G $1,243 = $301.
If this person purchased the lowest priced Plan G she could pay the $166 with her savings and still have $135 left over relative to buying the Plan F. Medigap Plan G is a better value!
Here is an example in Oklahoma using the same 65-year old:
The lowest priced Medigap Plan F cost $1,317.90 in annual premium. The lowest cost Medigap Plan G has a $1,004.25 annual premium. The difference in annual premium is $313.65. If this person had a Medigap Plan G instead of a Plan F they would save $313.65 in just the first year. After paying the $166 Medicare Part B deductible they still have $147.65 in their pocket. Again, Plan G is a better value.
Now, let’s take a look at one more example. This one will surprise you!
Using the same 65-year old, this time in Florida.
The lowest priced Medigap Plan F has an annual premium of $2,209.20. The lowest priced Medigap Plan G has an annual premium of $2,068.27. The difference in annual premium is $140.93! In this situation, if a person were to purchase the Medigap Plan G, they would save $140.93 in annual premium, but then pay the $166 Medicare Part B deductible out-of-pocket. They have a negative value of $25.07! (I have found that in Florida, Medigap Plan G is seldom a better value than Plan F.)
The point I am trying to make with these examples is that often Plan G is a better value than Plan F. Often, but not always. Every person shopping for the right Medicare supplement policy should compare both the plan benefits and premiums. Never assume one plan is a better value simply because it offers more benefit. Medigap plans are priced based on zip code, not your entire state. Please don’t assume that the examples above are representative of their entire state. They are not. Find out your price, based on your age, zip code, county, gender and tobacco use.
If you are not in your initial enrollment period or a guarantee issue period, your health history will also be a factor.
If you would like to know prices in your area, check out this handy tool from Mutual of Omaha: Mutual of Omaha price quote. We encourage you to also use the quote comparison feature at the bottom of this page to find prices from other insurance companies.
Of course, the first year premium is not your only consideration when researching a Medigap plan. Although none of us know what the future will bring, we can make some reasonable inferences regarding the future relative price difference of Medigap Plan F vs. Plan G.
The Achilles heel of Medigap Plan F is that it pays the Medicare Part B deductible. As we have shown above, that deductible can change every year. In fact, according to the Kaiser Family Foundation industry expectations are that “For the coming years, the Trustees project Medicare’s monthly Part B premium and deductible will increase at an average annual rate of 5.4 percent between 2017 and 2024.” Using this estimate, that would put the annual Medicare Part B deductible at approximately $239 in 2024.
Because Medigap Plan F pays that Medicare Part B deductible, it will have to increase the premium an equal amount just to keep up with the rising cost to the policy, or absorb the Medicare Part B deductible increases and lower their profit margin. Medigap Plan G has no such issue because the policyholder is responsible for the annual Medicare Part B deductible if or when they see a doctor. All other variables being equal, it is reasonable to infer that Medigap Plan F premiums will increase at a greater rate than Medigap Plan G. History shows this is already the case.
In this chart of historical price increases in Medigap Plan F vs. Plan G, we can see Medigap Plan F has a history of price increases at a rate that is greater than Medigap Plan G.
This observation is consistent with numerous studies that show Medicare beneficiaries spend less on Medicare services when they do not have first-dollar coverage with a Medigap plan. ** First-dollar coverage refers to the fact that with Plan F (and Medigap Plan C) the policyholder does not have to pay a deductible out-of-pocket before their Medicare services are paid by their insurance / Medigap plan. Without first-dollar coverage, people tend to see a doctor less and incur fewer charges that will be paid for by their Medicare coverage and Medigap plan. This is the long way of saying that people with a Medigap Plan F tend to be a higher cost to insurance companies (and Medicare) relative to those with a Medigap Plan G. That higher cost is reflected in the higher average premium and rate increase.
My belief is that in those areas of the country where Medigap Plan G is a better value today than Medigap Plan F, that better value will continue or possibly increase in the years ahead.
In April of 2015 the Medicare Access and CHIP Reauthorization Bill was passed in a bi-partisan effort by the Senate and signed by the President. Among other things, this bill will eliminate “first dollar coverage” for all Medicare Supplement plans starting January 01, 2020. Medigap Plan F and Medigap Plan C offer first dollar coverage to their policyholders.
This is important information. But, before we move forward I want to stress that this is a subject that is not entirely settled. There are details to work out and there has been much misinformation in the industry that even I have been the victim of. I believe the following is important because it is my philosophy that my clients have all the information they need to make an informed decision about their Medicare. People do not like to be surprised with new information they could have or should have known prior to making a decision about their healthcare. There is no excuse for any informed agent not to talk about this subject with people as they evaluate Medicare Supplements. However, keep in mind that some of this issue is still in committee and there can be changes. I will endeavour to keep my clients informed as I receive new information.
Here is what I know as of April 30, 2016.
It is expected that people who become eligible for Medicare Part A on or after January 01, 2020 will not be able to purchase Medigap Plan F or Medigap Plan C. People who are eligible for Medicare Part A prior to January 01, 2020 will remain eligible and able to purchase Medigap Plan’s F and C.
We were provided with this proposed new Medigap benefits chart yesterday (Linked below). Keep in mind this is not a final version and may change.
Proposed new Medigap benefits chart. – Click to view.
I like the idea that the cutoff of access to Plan F and Plan C is more gradual than what was done in the past. People who are eligible for Medicare Part A prior to January 01, 2015 will still be able to purchase both plans. There may not be any immediate or radical changes in Medigap Plan F or Plan C prices. A lot is still simply not yet known. We do know that, according to the Kaiser Family Foundation (kff.org), approximately 50% of people new to Medicare who purchase a Medigap policy have been purchasing a Medigap Plan F or Plan C. After January 01, 2020 those who are new to Medicare will not be able to buy those plans. The pool of people who are eligible for a Plan F or a Plan C will be getting older, pass away at a higher rate than those who are younger and are expected to need more medical services as they age. In addition, the reason that Medigap Plan F and Plan C are being phased out is because people in those plans tend to use more healthcare services and cost Medicare and their insurance company more money.
Insurance works because of the law of large numbers. Over the years, as the pool of people eligible for Medigap Plan F and Plan C becomes smaller and grows older, the ability to predict the price increases of their Medigap plan decreases. At this time, no one knows how much or how soon the plan prices will be affected. It’s simply an unknown.
Still, none of this changes what we know today or how you should approach evaluating Medigap plans. Shop your plans, shop the insurance companies, and evaluate which Medigap plan best suits your needs and your budget.
In addition to evaluating price and benefits, it’s very important to know your state Medicare laws and how they may impact the value of one plan vs. another.
Some states have a law called a “Birthday rule” that allows you to purchase any Medicare supplement policy without underwriting each year during a period around your birthday. Other states have enacted laws referred to as the Medicare Override Measure (MOM) that restricts or eliminates Medicare Part B Excess charges. Those states are Pennsylvania, Connecticut, Ohio, Massachusetts, Minnesota, New York, Rhode Island and Vermont. We refer to these states as MOM states.
Referring back to the table of benefits posted above, you can see that both Medigap Plan F and Medigap Plan G insure against Medicare Part B excess charges. If your Medicare health care is in a MOM state, you have no reason to purchase insurance against Medicare Part B excess charges. Residents of these states should consider Medigap Plan N and weigh the difference in benefits with the state law in mind. Please see our article and video on Medigap Plan N for a better understanding of the subject.
The bottom line: don’t assume that the Medigap plan with the highest coverage is automatically your best value. As you research your Medicare choices, you should be comparing both the price and benefits of multiple plans. You should also understand your state specific Medicare laws and how they may impact the value of Medigap Plan F vs. Medigap Plan N and other choices. If you would like a free quote comparison, just complete this form. If you have any other questions, simply complete the Contact Us form below.
I welcome your questions.