In the September issue of Momentum, we cautioned that Original Medicare will not pay all of your health care costs. We pointed out that if you rely solely on Original Medicare, a serious illness could severely deplete the assets that you worked a lifetime to accumulate, and have a major impact on the quality of life in your retirement years.

In this month’s issue, we will address an affordable solution that may be available to you.

Medicare Supplement policy basics

A Medicare Supplement policy (also known as Medigap) is a health insurance policy sold by private insurance companies to fill the gaps in Original Medicare coverage. Medicare Supplement policies help pay some or most of the health care costs that Original Medicare doesn’t cover.

Without a Medicare Supplement plan, you will be liable for, among other expenses, the Part A (hospital) deductible ($992 in 2007 for each hospital stay); hospital coinsurance for days 61 to 150 for each hospital stay($248 to $496 per day);the Part B deductible ($131 in 2007) and the Part B coinsurance (20% of most physician charges).

Since the early 1990s, insurance companies may only sell you a “standardized” Medicare Supplement policy. These policies must all have specific benefits, making it possible to easily compare among different companies.

In most states, you may have a choice of up to 12 different standardized Medicare Supplement policies (Plans A through L). Each plan has a different set of basic and extra benefits. Different standardized plans are available in Minnesota, Massachusetts and Wisconsin.

It is very important to compare Medicare Supplement policies carefully, since costs can vary greatly among insurance companies, as can the underwriting criteria used to accept applicants into their program. The benefits in any Medicare Supplement Plan A through L are the same for any insurance company. Each insurance company decides which Medicare Supplement policies it wants to sell.

Generally, when you buy a Medicare Supplement policy you must have both Medicare Parts A and B. You will have to continue to pay the monthly Medicare Part B premium (currently $93.50 per month for most people). In addition, you will have to pay a premium to the
Medicare Supplement insurance company.

If you and your spouse both want Medicare Supplement coverage, you each must buy separate Medicare Supplement policies. Your Medicare Supplement policy won’t cover any health care costs for your spouse or other dependents.

Each insurance company sets its own premiums
and determines the methodology by which they set these premiums. It is important to ask how an insurance company prices its Medicare Supplement
policies. How they set the price affects how much you pay now and will pay in the future. Medicare Supplement policies can be priced or “rated” in three ways: Community-rated; issue-age-rated; and attained-age-rated.

When to buy

The best time to buy a Medicare Supplement policy is during your Medicare Supplement open enrollment period. Your Medicare Supplement open enrollment period lasts for six months. It starts on the first day of the month in which you are both age 65 or older, and enrolled in Medicare Part B. During this period, an insurance company can’t deny you any Medicare Supplement policy it sells; make you wait for coverage to start; or charge you more for a Medicare Supplement
policy because of your health problems. If you wait to purchase a Medicare Supplement policy until after your open enrollment period ends, you may be denied coverage or charged a higher premium because of your health conditions. Therefore, even if you are healthy when you first become
eligible for a Medicare Supplement policy, you will want to consider purchasing a policy to guarantee your future insurability if your health worsens as you get older. Once issued, Medicare Supplement policies are guaranteed renewable. This means that they can’t be cancelled, as long as premiums are continuously paid, just because you are getting older or your health worsens.

Medicare Supplement policies sold after January 1, 2006 can no longer cover outpatient prescription drugs. Therefore, it is necessary to also purchase a stand-alone prescription drug plan (commonly referred to as Part D) to cover these expenses.

More information can be obtained about Medicare Supplement policies at Medicare’s website: www.medicare.gov. Medicare also offers two very helpful publications that can answer many of your questions: Medicare & You 2007 and Choosing a Medigap Policy.