Medicare Supplement Insurance -- Part 2

In Part 1 of this series of posts we briefly reviewed original Medicare. In this post we will examine Medicare Supplement Insurance. Medicare Supplements or Medigap Policies are provided by private insurance companies and are designed to work with original Medicare. Therefore your first consideration should be to select a company because any policy is only as good as the company behind it. Existing customers are great sources of information about how well insurance companies are performing.

Another factor to consider is when the company was established. Of course, original Medicare did not begin until 1966; so you are not necessarily looking for a firm established a century ago. On the other hand, you probably don't want to find yourself being insured by an organization with less insurance experience than your grandchildren have life experience.

Especially in this economy, financial stability is important. Fortunately, there are agencies that do all the leg-work for you. Independent rating companies such as A.M. Best provide helpful ratings of many insurance companies' financial stability. Obviously, you don't want a policy from a company that cannot pay its claims. Finally, you should consider customer service. Even the best plans run into problems occasionally. Does the company offer live or automated customer service? Is there a local office? Do you have a local agent from that company?

On this note, I feel compelled to make a side-note regarding brokers. I know many people like working with brokers because they feel that a broker will get them the lowest premium for any particular type of plan. This is undoubtedly true in most cases. However, there is a downside to working with brokers; and that is customer service. Allow me to illustrate this point with my own personal dealings with a broker.

Many years ago my wife and I took out a life insurance policy with a friend, who also happens to be an independent and successful broker. Over the years due to various business interests our broker changed which companies he represents -- as is the way with nearly all brokers. Unfortunately, that left us without any local representation because, although the underwriting company is a large one, it now has no local agents, offices, or brokers in our area. Our friend, who was nearly as frustrated with the situation as we were, could only offer to change us to another life policy with a different company. All of this would have been avoided if my wife and I had done a little homework to see if the underwriting company had local agents or offices; but, alas, we were young and ignorant of such things at the time.

Now my situation is relatively benign even if annoying because it is life insurance, but imagine yourself in the same situation with your medical insurance. Perhaps you suffered a sudden stroke or accidental injuries. You are receiving daily mail and calls from the hospital about unpaid bills. When you call your insurance broker, are you going to be happy with a "Sorry to hear that. I stopped associating with that company years ago. (Didn't I mention it to you?) But, hey, I got this great new plan that you're gonna love?"

The bottom line is that brokers are paid to sell insurance -- period. Their independence disconnects them from the underwriting companies in a very real way. None of this is to say that brokers are bad people. On the contrary, the few I have met are helpful and kind persons. It's just that when you have a problem with your insurance, being able to speak to an agent of the company you are insured with or being able to visit a local office is definitely worth a couple extra bucks of premium. But I digress.

Medicare Supplement Policies are secondary coverage to Medicare Parts A & B. Depending on the supplemental plan you choose, it may pay

• Some or all of your deductibles and copayments.
• Some or all of your Medicare Part B excess charges.
• Emergency healthcare while traveling outside the U.S.

If you are enrolled in Medicare Parts A & B and continue to pay your Part B premium (which is currently $96.40 per month for most people), then you are eligible to enroll for a Medicare Supplement. Open enrollment begins with enrollment in Medicare Part B; however, you can switch or enroll in a Medicare Supplement without any medical underwriting up to six months before or up to six months after your enrollment in Medicare Part B. After that window of opportunity, you generally have to pass medical underwriting; so it is important to choose wisely when you have the chance, which brings us to the final and salient point of this post.

Currently, there are 15 Medicare Supplement plans to choose from designated Supplement A through Supplement L. Although 'A' through 'L' are only 12 letters, some plans have multiple versions such as High Deductible J or Innovative F. In the 1990s Medicare standardized all Medicare Supplements, which had two main effects on them.

The first is that all prescription drug coverage was removed from Medicare Supplements. This means that Medicare Supplements are strictly health care. Of course, you can still get prescription drug coverage via a stand-alone plan, which most serious Medicare Supplement companies offer to their customers.

The second main effect of standardization is that the benefits of each plan are exactly the same no matter what company offers the Medicare Supplement. This means that a G plan, for instance, will cover your medical costs in the same manner whether it's from Mega Insurance, Inc. or from Joe's Corner Insurance Shop.

Of course, there may be significant differences in other ways such as premiums, rate increases (How much, and how often?), is the policy guaranteed or collectively renewable. For example, a guaranteed renewable policy means that it cannot be terminated by the insurance company as long as you pay your premiums. It doesn't matter how old or sick you may become. Other renewing arrangements may leave the door open for the insurance company to cancel your policy.

There are a host of other factors to consider as well, but it is beyond the scope of this post to treat each one. I am happy to entertain questions; but your best option is to educate yourself the best you can, talk to existing customers whenever possible (especially those who have had to use their insurance), and talk to insurance agents.

Insurance agents -- especially ones dealing with Medicare -- had to study quite a bit and pass a fairly stringent exam to get their license. Additionally, they have continuing education requirements to maintain their license and are generally on the cusp of information about insurance in order to provide the best customer service possible and better compete. Stay tuned for Medicare Supplement Insurance -- Part 3 where the final installment of this series will examine specific Medicare Supplements and try to help you pick out the best one for you.