Into the Medicare maze: decisions facing seniors.

• Author: Steckler, Douglas

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BECAUSE HEALTH CARE COSTS CAN HAVE serious detrimental effects on savings and lifestyle, understanding what Medicare covers and the difference between Medicare supplements and Medicare Advantage plans is an essential part of helping clients with retirement planning.

Medicare Basics

Medicare allocates coverage into Parts A, B, C, and D. It is useful to think of Part A as covering hospitalization, Part B as covering physicians and other out-of-hospital fees, and Part D as covering drug prescription plans. Part C covers what are called Medicare Advantage plans. Participants in Advantage plans sign up to have all of their Part A and Part B coverage handled by one company. Advantage plans frequently include some sort of prescription coverage.

Medicare, like most insurance, does not cover everything. As a result, insurance policies, called Medigap policies or Medicare supplement policies, are available to cover required coinsurance payments, copayments, and deductibles.

Caution: It is important to underscore that Medicare Advantage plans and Medigap insurance policies are mutually exclusive. There is no situation in which a senior would be covered by both. A careful evaluation of client needs--including what plans their doctors accept and what medications they take--is invaluable in the decision process.

Understanding Supplemental or Medigap Policies

Throughout the 1980s, insurance companies sold a variety of plans that were confusing and difficult to compare. Consequently, seniors were often sold multiple, redundant policies. Congress stepped in and had the National Association of Insurance Commissioners (NAIC) develop a set of standardized plans. These standardized plans became the model for state law, which has been adopted by all but three states (Wisconsin, Massachusetts, and Minnesota). The NAIC categorized the supplement plans based on the coverage and gave each category a letter. They labeled the plans A-J, with plans in the later letters generally including more coverage. Currently, there are 12 plans (A-L). The government puts out an excellent document describing the coverage provided by the various plans currently in place. (See Centers for Medicare and Medicaid Services and NAIC, "Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare," www.medicare.gov/publications/pubs/pdf/02110.pdf.)

Just to throw a wrench into the works, one more important factor must be considered: Not all plans are...