United States Medicare: What Are the Reasons to Choose a Private Medigap Supplement

On this blog this time of year, I am intermittently working my way through the how-tos and why-nots of making Medicare Part C and Part D changes for 2014. If you're interested, start with this post here from October 11 and work your way back through the links provided.

Previously I wrote about why you even would want a supplement (other than that over 90% of us get one and we can't all be  wrong). Many times -- for many reasons -- I have written about the major questions to ask in deciding if a public Part C Medicare health plan is best for you. Those two questions are -- to oversimplify -- 

1. Does your doctor take Part C?
2. Do you stay here in one geographic area all year (except for a couple of weeks vacation; in other words, are you a snowbird?)?

There will be a lot more details between now and December 7 but if the answer to either of those two questions is "No," you probably want to go the private Medigap supplement route (lefthand side of the decision tree -- image above -- on page 17 of the "Medicare and You, 2015" booklet)

But naturally there's a little more to it. This is the government after all, which is not noted for simplicity.

• From the insurance company's point of view, the difference between the two sides of the decision tree is the difference between fee for service insurance vs. capitated-fee insurance. In English, that means the government contracted insurance company¹ that is administering your Medicare policy, depending on the side of the tree you choose, is either going to get paid a lump sum for the year to pay your providers (who also may or may not get a lump sum) or a fee every time you go to see the provider.
• But from your point of view the major difference is whether you want to be part of -- and somewhat limited by -- a coordinated network of providers (public Part C) or whether you want to be able to choose any provider you want at any time (private Medigap insurance). That's why a private Medigap plan is probably going to be your choice if you spend a lot of time somewhere other than at your legal residence.

In making that the decision, you need to look at actual costs and likely costs. Public Part C Medicare health plans are usually less expensive (the trade off for staying within the network) than private Medigap plans. But Part C plans do have co-pays every time you go to the doctors or into a hospital or surgical center. You have to figure out if you think -- in your case -- whether the co-pays are going to add up to more than you would have paid in higher Medigap premiums.  

On the other hand -- like Original Medicare Parts A and B -- Medigap does not cover a lot of healthcare services at all so you need to include in your cost analysis some of the extras that might be in your Part C plan like one or two teeth cleanings a year, or an annual physical or the usually built in drug plan (with a private Medigap plan you will most likely also want to get a Part D Medicare standalone prescription drug plan).

That's the final little extra gotcha in deciding between a private Medigap supplement or a public Part C supplement: make sure the Part C you are interested in covers your drugs and at a reasonable co-pay.  Even though you won't be making the decision in favor of Part C based on its drug coverage.

¹In many cases the same insurance company administers both Original Medicare and public Part C health plans (and also sells private Medigap plans, Obamacare, and car insurance)