The ‘Best’ Medigap Plan Is Not Really The Best

It’s been a few years since I’ve gotten any questions about Medigap Plan F. Then, last month, that seemed to be the topic.

Consider this recent question from Dennis.

I am 71 years old and finally retiring. I talked with my agent about signing up for a Plan F. I think that’s the best one because it covers everything. She just shook her head and scowled. I know that I qualify for one and that’s what I want but she won’t even discuss it. How can I get Plan F?

A Medigap policy is Medicare supplement insurance, part of the Original Medicare package and an alternative path to Medicare Advantage. A Medigap policy helps cover the costs that Medicare Part A, hospital insurance, and Part B, medical insurance, do not pay. Medigap policies are standardized, with a letter representing a package of benefits and cost sharing.

Plan F was once called the Cadillac of Medigap plans. It covers the maximum allowed for all nine benefits, such as the inpatient hospital deductible, the skilled nursing facility copayment, and the 20% coinsurance for outpatient services. Pay the premium and there’s first dollar coverage, which means the plan pays from day one. The beneficiary faces no out-of-pocket costs when using healthcare providers who will accept Medicare patients. According to a 2016 report from AHIP about 55% of all Medigap policies in force were Plan F policies. (This document is no longer available on the AHIP site but there are mentions of this statistic in many places, including this one.)

But then, the Medicare Access and CHIP Reauthorization Act of 2015, known as MACRA, changed the rules. As of January 1, 2020, insurers could no longer sell to newly eligible Medicare beneficiaries Medigap policies that covered the Part B deductible, specifically Medigap Plan F and Plan C. (Newly eligible includes those who either turned 65 or became eligible for Medicare because of disability or end-stage renal disease.) Having seniors pay something (i.e., the Part B deductible) would make them think twice about the medical services they receive.

In the four years since MACRA took effect, the Medigap Cadillac has turned into an Edsel. Only 1% of seniors purchasing a Medigap plan in 2023 chose Plan F, compared to 50% for Plan G that covers every benefit that Plan F offers, except the Part B deductible.

Think twice about Plan F

So, Dennis and all those born before 1955 can still purchase Plan F. However, it is not the best option for two very important reasons.

1. They would pay more than Plan F is worth.

There is only one difference between Plan F and Plan G – the Part B deductible. Plan F covers it; Plan G does not, which means beneficiaries have to meet the deductible before the plan will start paying its share for outpatient service.

This year the deductible is $240. However, every Plan F I have seen charges more. For example, in Los Angeles, the annual premium for Plan F starts around $2,580, compared to $1,840 for Plan G, a difference of $740. In Charlotte, North Carolina, Plan F costs $360 more. Paying $360-$740 to cover a $240 benefit is neither cost-effective nor wise.

2. No young beneficiaries can enroll in Plan F.

Today’s seniors who choose the Original Medicare path at age 65 will most likely opt for Plan G. But, in Plan F, the youngest non-disabled beneficiaries will soon be over 70. The Plan F risk pool is aging and shrinking and that likely means higher premiums in the future.

Dennis’ insurance agent should have discussed Plan F. Then, if he still wanted to get that plan, she should have handled his request or referred him to another agent. But I suspect, if she had taken the time, he would have decided that Plan G was a much better choice, both for his pocketbook and his future healthcare.