Earlier this week, we talked about Medicare Part D at the 30,000 foot level, and Medicare Part A and B at the 25,000 foot level. These are the baseline Medicare policies. One of the key take-aways is that Medicare is decent insurance but it does not cover everything. Medicare Part A limits hospital stays (for extreme outliers), Medicare Part B has no cap on out of pocket co-insurance payments. Medicare Part D’s 5 % catastrophic co-insurance is never capped either. There is significant outlier risk for extraordinarily bad luck or illness.
The solution to these problems are three fold. The first is to marry a beer distributor heiress (now legal in all states for all adults). The second is to buy a Medicare Advantage plan that is configured much more like a traditional employer insurance policy with annual out of pocket caps. The final choice is to buy a Medicare Supplement.
Medicare Supplemental plans are standardized, regulated insurance products that fill some of the Medicare gaps. They are underwritten at purchase at a community rate if they are bought during the initial Medicare eligiblilty open enrollment period. If a policy is bought outside of that window, insurers are allowed to medically underwrite policies. A 68 year old with no major health issues will get a much better rate than a 66 year old cancer survivor with diabetes and rheumatoid arthritis. This is a major difference between Medicare and the PPACA under-65 regulatory world.
Medicare Supplements in most states (except for some of my neighbors and my childhood home) are nationally standardized. Medigap Type A plans cover certain things (extra hospital days, the first three pints of blood, hospice care etc) while not covering other things. Type M plans cover everything that Type A covers while also paying some of the Medicare-A deductible and the skilled nursing facility co-pays. There are a bunch of different benefit designs, but each private insurer has to cover the same things within each benefit design. There is no space for creativity.
Medicare supplementals are an optional buy-up. Something like a Medicare supplemental system would be common in countries that provide a baseline public insurance plan with the option to get richer coverage. This design leads to two groups of people to buy these add-on policies. The very sick as they know that they will be burning through services and they want to limit their costs. And the reasonably healthy with some extra income and assets as they are buying insurance against seeing their standard of living surprisingly drop due to excess medical bills.
Bringing us back to the PPACA world, standard Medicare (A+B+D) has a combined acturial value in the low 80s. It is a Gold plan. Medicare supplemental plans allow people to buy up to Platinum (90% AV) or higher coverage.