BETA
This is a BETA experience. You may opt-out by clicking here

More From Forbes

Edit Story

How The 2020 Exit Of Medigap Plan F Might Affect Your Healthcare Spending

Forbes Finance Council
POST WRITTEN BY
Danielle Kunkle

Just when you finally understand your Medicare coverage, they change it on you. For decades, people on Medicare have had the option to supplement their Medicare benefits with Medigap coverage. The most popular supplement plan for many years has been Medigap Plan F.

Why? Mainly because it provides first dollar coverage after Medicare, covering all the gaps in Medicare and leaving you with $0 out of pocket. It’s the policy that makes planning for your healthcare spending easiest to predict.

However, as part of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), Congress is eliminating Medigap plans that cover the Part B deductible, like Plan F and Plan C.  Medicare premiums for higher income individuals will also be increasing. If this affects you, you have time to plan now to minimize the financial impact ahead.

Why is Congress eliminating Plan F?

Medigap Plan F is the Cadillac of all supplement plans. It essentially gives the policyholder 100% coverage. Medicare covers 80% of your outpatient benefits and Plan F covers both your Part A and B deductibles as well as the other 20%. People with Plan F have no copays for Medicare-covered services whatsoever — not even a copay at the doctor. (Plan C is similar but doesn’t cover Medicare excess charges, so it is less popular).

Some legislators fear that Plan F and Plan C policyholders visit their healthcare providers more often than someone who pays their own deductible. In other words, they worry that anyone with Part B deductible coverage will run to the doctor for every sneeze or paper cut. Conversely, if you were responsible for paying your own Part B deductible, then you might think twice about visiting your doctor for minor things like a cold.

Critics say that eliminating Plan F might cause some people to forego care, resulting in more expensive care later on. There could be health conditions that don’t get diagnosed early enough and end up costing Medicare big bucks down the road. While that may be true, it didn’t stop Congress from eliminating plans with first dollar coverage. They want you to have a little skin in this game.

How will this affect Plan F policyholders in 2020?

Fortunately, these changes only affect new enrollees after January 1, 2020, so people currently on Plan F will be able to keep that plan in 2020 and beyond. You’ll even be able to shop your coverage. If another insurance company offers it at a better price down the road, you can apply to change to that insurance company’s Plan F policy. This is good for the long-term rate picture, because insurance companies will still compete for your Plan F business.

However, over time we can probably expect Plan F premiums to slowly rise, since the total number of people enrolled will be shrinking annually. If this concerns you, then you might consider Plan G, which functions exactly like Plan F except that you pay the small annual Part B deductible. It’s still great coverage and you won’t find yourself stuck in an obsolete Medigap plan that might have escalating costs over time.

Higher Medicare premiums are coming for higher incomes.

The elimination of Medigap plans covering the Part B deductible is just one part of MACRA that might affect your wallet. The legislation also adjusts the income thresholds for Medicare Part B premiums beginning in 2018.

This will largely affect higher-income beneficiaries, who will pay more for their Part B and D than they do now. Many in this group already pay higher premiums, and the MACRA legislation will increase those premiums further for individuals earning over $133,500 ($267,000 for married couples).

While this change affects only a small percentage of the Medicare population, the Kaiser Family Foundation reports that premiums for this group will be as much as 80% higher than the Part B base premium. If you fall into this category, your health insurance costs in retirement may be higher than expected. Working out your estimated costs now will help you better plan for when you can retire.

Conclusion

While Medigap plans with deductibles are going away, enrollees with this coverage will be grandfathered. If first dollar coverage is important to you, enroll in Plan F or C prior to 2020 so that you can keep your policy. However, if you can handle a small Part B deductible, options such as Plan G or Plan N offer significantly lower premiums today and will also still be around after 2020. Selecting the right coverage now can help you attain rate stability down the road.

Likewise, if you are a part of the estimated 2.9 million individuals who will pay income-related premium adjustments, the healthcare spending projections you’ve made for your retirement may be changing. Sitting down with your financial planner to discuss how you will handle these changes is always a good idea.

Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?