A large number of people wait until near-retirement age to start thinking about retirement planning. That can include Medicare insurance.
While there are some benefits that are best delayed, such as Social Security, others need to be acted on early to ensure reasonable rates and desired coverage. One of those is Medigap insurance. Your clients should be asking about Medigap insurance as soon as they turn age 64. Waiting just a few months can mean the difference in dramatic rate increases and coverage reductions.
“Medigap insurance is exactly as the name implies. It fills the gap that Medicare leaves open,” said Jillian Nel, a financial planner at Legacy Asset in Houston, TX. “If you’re covered by Medicare only, there are some gaps like co-insurance and deductibles that can be significant. You can contract with a private insurance company to fill those gaps.”
Also known as Medicare Supplement, Medigap plans enable your client to cover those deductibles and co-insurance amounts, while also enabling them to keep their preferred doctor, specialist and hospital.
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Still, retirement planners should advise clients that, as with any insurance policy, you get what you pay for. Your client can opt for a comprehensive plan that covers more expenses beyond Medicare, but they will pay a higher premium for the plan.
Educating your client
Many consumers are very confused about what Medigap insurance is and what it does; or perhaps they haven’t heard of it at all, advisors said.
“I have to educate people a lot about it,” Nel said. “Most people think that there is Medicare and that is it, and that’s all they need. Like Social Security, it is the base of your coverage, but there is so much more that you need to manage in terms of risk.”
Your clients may also be confused by Medigap versus Medicare Advantage plans. Both are options for people with Medicare. “Technically, only Medigap counts as Medicare supplemental insurance – in fact, that’s its formal name – but Medicare Advantage plans may provide some extra benefits that could be considered as supplementing Medicare, according to Patricia Barry in the AARP Bulletin.
Medigap is private insurance that can only be used by individuals enrolled in traditional Medicare, and helps with out-of-pocket expenses that Medicare doesn’t cover. These include Medicare Part B costs such as the 20 percent your clients would otherwise pay at physician visits, or Medicare Part A costs such as hospital care deductibles.
Medicare Advantage includes a variety of private health plans, usually HMOs or PPOs, which offer alternative coverage to Medicare. These plans cover the same benefits that Medicare does, but can include additional benefits and different payment structures.
How the plans work
The challenge for retirement planners is to understand the different Medigap plans available to clients.
Medigap policies come in 10 standardized benefit packages, said Gil Armour, a certified financial planner with SagePoint Financial in San Diego, CA. These packages are labeled as the letters A, B, C, D, F, G, K, L, M and N. The most popular, and most comprehensive, plans are C and F.