Why You Should Consider a Medigap High-Deductible Plan in NY

Choosing the right Medicare plan can potentially save you hundreds or even thousands of dollars per year and tens of thousands of dollars more over your lifetime if you consider both premiums and medical expenses.

The purpose of health insurance is to transfer risk from you to the insurance company. Limiting your annual out-of-pocket expenses should be a major objective. Most people want to do this while paying the lowest possible premium, all else being equal. That is why, if you live in New York State, you should consider a Medigap High Deductible plan. The unique features of New York (Connecticut has similar features) make these plans extremely attractive to many seniors when compared to the other Medicare plans available. Unfortunately, these high deductible plans are not often promoted due to the lower commissions associated with them. There is also a general lack of understanding as to how these plans work.

The Medigap High Deductible Plan G and Medigap High Deductible Plan F offer the same benefits and, in most cases, have similar premiums. Since the Medigap High Deductible Plan F (HD-F) is not available to everyone, I will focus on the Medigap HD plan G (HD-G)

In this article, I will explain how these Medigap HD plans work, why they offer such excellent value, the advantages and disadvantages of these plans, and how they compare to Medicare Advantage plans.

For those of you not familiar with New York insurance law as it pertains to Medicare, it is important to know that there is no insurance underwriting for Medicare supplement or Medigap plans as long as an individual does not exceed 63 days without continuous creditable insurance coverage.  This means that someone living in New York can theoretically change their Medigap plan 365 days of the year without going through an underwriting process.  The importance of this feature will become clearer when we look at the pros and cons of the Medigap HD plans.  Medicare Advantage plans also do not require underwriting, but your ability to change your Medicare Advantage plan is limited to Special Enrollment Periods (SEPs).

The first thing that we need to understand is that the deductible on the Medigap HD plans is not truly a deductible in the way we usually think of it.  Rather, the deductible ($2,370 for 2021) is the maximum out-of-pocket expense (MOOP) for the calendar year.  Once an individual has incurred $2,370 in out-of-pocket expenses for Medicare-approved services, the Medigap HD plan covers all Medicare-approved services for the remainder of the calendar year.
(Non-Medicare covered services and prescription drug costs do not count toward the deductible).

This leads to two often misunderstood components of the Medigap HD plans.  The first misconception is that the standard deductible ($203 in 2021) is in addition to the $2,370 deductible.  It is not.  The $203 deductible counts toward the $2,370 deductible for both the HD-G and the HD-F.  Therefore, the two plans are essentially similar to one another, and the premiums are usually the same or within dollars of each other.

The other misconception concerns the way the deductible is calculated.  The deductible is based on the Medicare-approved amount, not the actual medical fee.  Let me illustrate this using the following example.  You go to your doctor for an office visit.  The doctor then submits a bill to Medicare in the amount of $200.  Medicare (in our fictitious example) approves $100.  Medicare pays 80% ($80) and you are responsible for the remaining 20 percent ($20).  A quick calculation tells us that you would need to incur $11,850 of Medicare-approved costs before you will have incurred $2,370 of coinsurance bills (20% of $11,850 = $2,370). Considering that, you need to ask yourself how often you incur those kinds of Medicare-approved expenses in a calendar year.  If the answer is seldom, then a Medigap HD plan may warrant serious consideration.

The disadvantages of the Medicare high-deductible plans

Medical expenses for a serious illness, surgery or injury could occur near the end of the calendar year and extend into the following year, resulting in an individual incurring back-to-back deductibles of $2,370 (2021).  An individual therefore needs to be able to afford two years of deductibles ($4,740 in 2021) in the event this should happen.  It is worth noting that the maximum out-of-pocket expenses (MOOPs) on most Medicare Advantage plans can range from $6,500 to $7,550 for in-network providers and up to $11,300 for out-of-network providers.  The individual faces the same two-year scenario in the Medicare Advantage plans as he does in the Medigap HD, but two years of MOOP for the Medicare Advantage plan can range from $13,000 to over $22,000. This is three to nearly five times the MOOP of the Medigap HD plan.
Another disadvantage of the Medigap HD plan is the continual compounding of dual costs associated with the plans.  First, the premium for the HD plan itself can increase each year due to inflation.  Second, the deductible will also increase.  The deductible is tied to the cost-of-living adjustment (COLA) and will therefore increase accordingly.  This dual compounding is not to be taken lightly.  It is important to remember, however, that in New York we can choose another Medigap plan at any time without underwriting, should the value of the Medicare HD plan no longer prove attractive.  Individuals can also choose to change to a Medicare Advantage plan during a Special Election Period (SEP), one of those being the Annual Enrollment Period (AEP) between October 15 and December 7 each year.

One other potential disadvantage which should be mentioned is the necessity of keeping track of medical bills incurred during the year.  While Medicare keeps track of your deductibles, doctor's offices can make mistakes and therefore it is prudent to reconcile the bills with the actual services.  The more medical expenditures you incur, the more diligent you will need to be in reconciling your bills.  With a standard Medigap plan G, an individual only needs to be concerned about the initial deductible of $203 when reconciling bills since there are no additional out-of-pocket expenses for Medicare-approved costs after that.

The advantages of the Medicare high-deductible plans

As with the other Medicare supplement plans, there is no network of providers. You can go to any doctor, hospital or medical provider in the United States and its territories who accept Medicare. If the medical provider accepts Medicare, they must accept your Medigap HD plan.

We have established that the deductible is your maximum out-of-pocket expense (MOOP). The MOOP for 2021 is $2,370 which is less than one-half (and sometimes one-third) that of Medicare Advantage plans.

The difference in premium between the Medigap HD plan and the popular Medigap plans F, G and N is significant in New York. This difference is what makes the Medigap HD plan so attractive. It is more of a pay-as-you-go model which is similar to the Medicare Advantage plans except the maximum out-of-pocket expense for the Medigap HD plan is considerably less than the MOOP associated with the Medicare Advantage plans.

Due to the lower premium associated with a Medigap HD plan, someone can purchase a dental plan and cancer or critical illness insurance to create more comprehensive coverage for about the same price they would pay for one of the more expensive Medigap plans.

The ability to change Medigap plans without underwriting anytime you wish in New York adds to the attractiveness of the Medigap HD plan. Should your circumstances change, you can switch to another Medigap plan that might be more appropriate.

While Medigap high-deductible plans are not for everyone, the potential cost savings suggest that if you live in New York, it would be prudent to consider these plans along with your other options before making a final decision on which Medicare plan you purchase. The current Annual Enrollment Period between October 15 and December 7 is an appropriate time to start.