TheStreet.com Ratings: Maneuvering Medigap

Editor's note: In this three-part series, TheStreet.com Ratings staff explains how to find the best Medigap policy that's right for your family.

When your parents are nearing age 65, they will face a difficult choice: what health care plan to choose. In most cases, seniors have the option of receiving health care benefits through either the government-administered Original Medicare program or through a Medicare Advantage insurer.

Under Original Medicare, your parents would go to a doctor or other health care provider who accepts Medicare. The doctor would then receive payment from the government for the cost he incurs for your parents' care.

The Medicare Advantage program allows them to join a private health insurance plan that has contracted with Medicare to provide Part A (hospital services) and Part B (medical services) coverage.

The Medicare Advantage plans in turn receive funds from the government for providing your parents with benefits. These plans often provide coverage beyond what Medicare offers. One potential downside to these plans is that your parents may have to go to a doctor or hospital that's in the plan's network.

If your parents, or other family member, have decided to choose the Original Medicare program, then they should consider getting additional coverage beyond what Medicare pays for. While Medicare does cover many physician and hospital services, patients are still responsible for various deductibles, coinsurance and extended hospital or nursing facility stays, among other costs.

Medicare supplement insurance, or "Medigap," fills in the gaps of coverage that Original Medicare does not pay for and provides you peace of mind that your parents' out-of-pocket costs in any one year won't be prohibitive.

Medigap policies are standardized to allow consumers the ability to compare policies from one insurer to another. There are 12 such plans to choose from: plan A through plan L. This means that all Medigap insurers offer the same exact policy (though some companies may offer only a few of the 12 plans). If your parents live in Wisconsin, Massachusetts or Minnesota, there are different types of Medigap plans that are sold, but are still standardized.

There are three primary steps to take when shopping for a policy:

Step	Action
1	Determine which plan works best for you or your loved one.
2	Understand the different pricing methods.
3	Comparison-shop based on price and the financial strength of the insurer.

For Step 1, you will need to learn more about the coverage offered by each plan in order to determine which one best fills your parents' needs. The table below, "12 Standard Medigap Plans," gives you a quick snapshot of what each of the plans covers. Take a close look at plans C and F, the most popular plans, and also at two new entrants, plans K and L.

Plan C will cover your parents' Part B deductible of $124, unlike plans A or B. If they choose plan F, they also receive 100% coverage of excess charges. That's the difference between the approved amount for Part B services and the actual charges. Plans K and L provide less coverage, but cap their out-of-pocket costs and are generally less expensive than the other plans. (You can read more about these two new plans in the second story of this series.)

Before you go out and shop for coverage, we recommend in Step 2 that you first understand the different ways that these policies can be priced. With attained-age pricing, the premium will rise as your parents age, but will be cheaper when they first purchase the policy. For example: If they buy coverage at age 65, they pay what the company charges 65-year-old customers. Then at 66 they will pay whatever the company is charging a 66-year-old. The Medigap policy will go up in cost due to age, in addition to the increased cost of medical care.

With an issue-age rating, the premium will be based on the age your parents were when they first signed up; they will always pay the same premium that someone that age pays. With this method, expect to pay a higher premium at the start. There also are some states that require the use of community rating, which means that no matter how old you are, the policy costs the same.

12 Standard Medigap Plans

Basic Benefits

A

B

C

D

E

F

G

H

I

J

K

L

Part A Hospital

X

X

X

X

X

X

X

X

X

X

X

X

(Days 61-90)

Lifetime Reserve Days (91-150)

X

X

X

X

X

X

X

X

X

X

X

X

365 Life Hosp. Days-100%

X

X

X

X

X

X

X

X

X

X

X

X

Parts A and B Blood

X

X

X

X

X

X

X

X

X

X

50%

75%

Part B Coinsurance- 20%

X

X

X

X

X

X

X

X

X

X

50%

75%

Additional Benefits

A

B

C

D

E

F

G

H

I

J

K

L

Skilled Nursing Facility

X

X

X

X

X

X

X

X

50%

75%

Coinsurance (Days 21-100)

Part A Deductible

X

X

X

X

X

X

X

X

X

50%

75%

Part B Deductible

X

X

X

Part B Excess Charges

100%

80%

100%

100%

Foreign Travel Emergency

X

X

X

X

X

X

X

X

At-Home Recovery

X

X

X

X

Preventive Medical Care

X

X

X

X

Annual Out-of-Pocket Limit

$4,000

$2,000

And finally, in Step 3, you need to shop around for the best price from a financially strong insurer. You want a financially sound company so that you don't have to worry about its ability to pay claims. In the table below titled "Top 10 Strongest Medigap Insurers Based on Market Share," we list the Medigap insurers with the largest market share that have received the highest marks from TheStreet.com Ratings.

Top 10 Strongest Medigap Insurers Based on Market Share
Company	State	Financial Strength Rating
Anthem Health Plans of Virginia	VA	A-
American Republic Insurance Company	IA	A-
Arkansas Blue Cross and Blue Shield	AR	A+
Blue Cross Blue Shield of Alabama	AL	A
Blue Cross Blue Shield of Florida	FL	B+
Blue Cross Blue Shield of Michigan	MI	A
Blue Cross Blue Shield of NC	NC	A-
Health Care Service Corporation*	IL	A+
Mutual Of Omaha Ins Co	NE	A-
State Farm Mutual Automobile Insurance Co	IL	B+
Financial strength (in alphabetical order, per TheStreet.com Ratings, Inc. as of 9/06/06. Market share based on number of covered lives sourced from 2005 NAIC Medicare Supplement Insurance Experience Exhibit. *Does business as Blue Cross Blue Shield of Oklahoma, Blue Cross Blue Shield of Illinois, Blue Cross Blue Shield of Texas and Blue Cross Blue Shield of New Mexico.

And of course, you want to compare based on price. Each year, TheStreet.com Ratings does a study on the premium rates charged by insurers, and each year we find that there can be substantial differences in price for the same exact policy from one insurer to another. (You can read more about that in the third story of this series).

Check out the table below, "2006 Medigap Premium Rates," to get a sense of what your parents would expect to pay for the two most popular plans, C and F. If you find that the policy you would have preferred is just too expensive, review the table above for other options.

2006 Medigap Premium Rates*
State	Average Premium Rate Plan C	Average Premium Rate Plan F
Alabama	1,757.60	1,735.46
Alaska	2,146.56	2,109.59
Arizona	2,114.33	2,105.80
Arkansas	2,315.18	2,248.79
California	1,966.25	1,978.56
Colorado	1,735.87	1,695.36
Connecticut	3,008.70	2,871.83
Delaware	1,918.56	1,969.52
District of Columbia	1,993.88	1,930.97
Florida	2,269.38	2,378.15
Georgia	1,938.44	1,925.58
Hawaii	1,581.45	1,665.51
Idaho	2,113.46	2,055.25
Illinois	1,624.14	1,634.01
Indiana	1,753.16	1,734.40
Iowa	1,578.79	1,522.89
Kansas	1,705.16	1,737.05
Kentucky	1,745.40	1,708.83
Louisiana	1,995.51	1,958.93
Maine	2,138.09	2,171.19
Maryland	2,021.72	1,901.24
Michigan	2,010.39	1,858.14
Mississippi	1,631.84	1,617.64
Missouri	1,943.03	1,910.28
Montana	1,480.86	1,506.44
Nebraska	1,696.35	1,697.61
Nevada	1,864.85	1,798.67
New Hampshire	1,651.25	1,607.96
New Jersey	1,847.86	1,831.51
New Mexico	1,681.75	1,616.73
New York	2,533.50	2,706.30
North Carolina	1,679.36	1,648.87
North Dakota	1,537.91	1,517.39
Ohio	2,030.33	2,028.86
Oklahoma	1,773.89	1,720.59
Oregon	1,502.57	1,495.51
Pennsylvania	1,818.91	1,788.46
Rhode Island	1,849.32	1,863.57
South Carolina	1,713.25	1,695.07
South Dakota	1,573.59	1,595.20
Tennessee	1,775.34	1,754.47
Texas	1,914.08	1,953.88
Utah	1,405.82	1,408.89
Vermont	1,706.51	-
Virginia	1,552.82	1,570.69
Washington	2,174.23	2,209.07
West Virginia	1,739.07	1,736.12
Wyoming	1,669.36	1,695.90
*Calculations based on a 65-year-old female nationwide, excluding Minnesota, Wisconsin, and Massachusetts, which do not follow the standard A-J plan description. Calculations include all pricing methods. Averages were calculated using mean.

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Editor's note: One service you may want to consider is TheStreet.com Ratings "Customize Me." If you call us at 800-289-9222, we can work up a Medicare Supplement Insurance guide that is specific to you or your family member. All you do is give us your family member's age, gender and ZIP code, and we'll send a guide that lists all the policies included in the area, how much the plans cost, and TheStreet.com Ratings' exclusive grades on which companies are the best. The cost of the customized guide is $49, plus $4.95 for shipping and handling, and it will be sent to you in the mail within three to five business days. We can also email the customized plan to you, but be aware that this is a report that generally runs between 80 and 100 pages.