James Sullivan

Help Your Clients Find More Affordable Medicare Supplement Coverage

How comparison shopping for a Medicare supplement plan can yield savings.

March 14, 2011
by James Sullivan, CPA, PFS

Planning for coverage under a Medicare Supplement plan (Medigap) is often overlooked. Eligible beneficiaries typically enroll in traditional Medicare at age 65 and purchase a Medigap policy from the closest available insurance agent. Little comparison shopping is done. But careful planning and comparison shopping by the client can save your clients hundreds of dollars — or more a year. In the case study below, a couple who decided to risk going without Medigap insurance learn that low-cost coverage is available and for which they need not forego coverage. In this case, they were able to secure less-expensive coverage by staying with the same insurance company. A CPA can provide clients a valuable service by educating them about the choices available among Medigap plans and comparing premiums.

Medigap Basics

Medigap plans are sold by private insurance companies to fill in the gaps of traditional (or original) Medicare coverage. In the absence of a Medigap policy, Medicare participants are responsible for deductibles, co-insurance and co-payments under Medicare parts A (hospitalization insurance) and B (doctor bills and other healthcare costs).
Benefits offered under similarly labeled Medigap plans are the same (for example, all Plan F policies provide the same benefits). In 2011, Medigap plans A, B, C, D, F, G, K, L, M and N may be sold. Insurance companies are not required to offer all of the Medigap plans now available. In fact, most companies limit sales to just a few of the plans.

Monthly Medigap premiums have risen steadily over the years and participants are finding the plans less affordable. While many participants consider dropping the coverage altogether, CPAs can provide a valuable service by explaining why Medigap coverage is necessary, the risks of not owning a policy and that more affordable plans may be available either by switching plans or by switching insurance companies. In the case study below, a CPA helps an elderly couple better understand the risks of going without coverage and learn that a little planning can help them secure the coverage they need at a more reasonable cost.

Federal and state laws determine when an eligible individual may purchase a Medigap plan. Under federal law an insurance company must sell a policy (without medical underwriting — a “guarantee issue” policy) within the first six months of the individual turning age 65 and enrolled in Medicare Part B. A policy must also be issued when certain types of healthcare coverage are lost (see Choosing a Medigap Policy: A Guide to Health Insurance for People With Medicare is available on the Medicare website).

State laws may impose additional requirements on insurance companies doing business in their state regarding when a policy must be issued. The CPA must be familiar with those requirements. Finally, the insurance company may also establish its own policies as long as they are not more restrictive than federal or state law.

CPAs must become familiar with these laws as well as those regulations that impose coverage limitations on preexisting conditions, so that their clients do not inadvertently drop Medigap coverage and find that they cannot obtain another policy or lose coverage on a preexisting condition for a period of time.

Fred and Lois

Fred and Lois live on a modest retirement income. Their monthly income includes Social Security and a $1,700 withdrawal from their $500,000 retirement nest egg. Fred is 85; Lois is 78. Each owned a Plan F standard Blue Cross Blue Shield-issued Medigap policy located in their state. For Fred, the monthly premium was $281; Lois’ monthly policy cost was $261 for a combined cost of $542.

When the monthly cost of their Medigap policy was added to their Medicare Part B and Part D premiums, they were spending well over $700 a month on their healthcare coverage. Both are relatively healthy and have modest healthcare expenses.

Due to the expense of their Medigap policies they dropped the policies several months ago. Only in passing did they mention it to their son who called his CPA concerned about their decision. While he understands they live on a tight budget, he is worried that dropping the Medigap policy would leave them vulnerable should either of them have a serious illness and need to spend time in a hospital or skilled nursing facility. He asked his CPA’s opinion and for any alternatives.

The CPA told the son that he should be concerned. In addition to the deductibles and co-payments for which Medicare participants are responsible, there is no limit on the amount of Medicare cost-sharing expenses a beneficiary can incur. Unlike private health-insurance policies, Medicare does not have a maximum out-of-pocket (OOP) to limit a participant’s loss.

It is recommended that parents look at alternative Medigap policies. Specifically, they should consider a high-deductible version of Plan F or Plan N.

The CPA constructed a chart comparing the monthly premiums:

Plan Monthly Premium — Fred Monthly Premium — Lois
Plan F -- Standard $281 $261
Plan F -- High Deductible $90 $81
Plan N $197 $183

At a meeting with Fred and Lois, the CPA pointed out that the high-deductible Plan F costs $191 less per month for Fred and $180 less per month for Lois, representing annual premium savings of $2,292 and $2,160 respectively. The high-deductible Plan F is similar to the standard Plan F except that the participant must pay $2,000 of covered healthcare expenses before Medicare or the Medigap policy plan will pay. While this may seem to be a significant risk, the CPA points out that the savings in annual premiums exceeds the potential OOP annual costs for both Fred and Lois. In addition, the high deductible Plan F will provide the same protection should either or both, incur high covered healthcare expenses during the year.
Plan N also offers a lower monthly premium saving Fred $84 per month and Lois $78 per month. There are four differences between standard Plan F and Plan N. Under Plan N:

  1. There is a $20 co-pay for each doctor office visit.
  2. The plan does not pay the annual Part B deductible ($162 in 2011).
  3. There is a $50 co-payment due for a visit to the emergency room (this is waived if the participant is admitted to the hospital).
  4. The plan does not pay for a doctor’s “excess charges” that doctors who do not accept Medicare assignment can charge.

Fred and Lois both opt for high-deductible Plan F.

Fred asks the CPA if he or Lois can be turned down when they apply for coverage. Normally, yes, the CPA responds. Since Fred and Lois dropped their policies voluntarily, they do not have “guarantee issue” rights that apply to Medigap policies under certain circumstances. In this case, however, the insurance company selected issues policies without requesting health information and requiring medical underwriting.


As Medigap insurance premiums and OOP healthcare expenses increase, older adults are struggling with paying for their healthcare. CPAs can assist their clients by understanding how Medigap policies work, the risks they cover and how a little comparison shopping can make the policies more affordable.

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James Sullivan, CPA, PFS, works with his wife, Janet, who is an elder law attorney in Naperville, Illinois.

* PFP Section members, including PFS credential holders will benefit from additional Eldercare resources in Forefield Advisor on the AICPA’s PFP website at aicpa.org/pfp. Non-members can click here to join the section.