Medicare Medigap plans and Co-insurance
Co-insurance sounds like one of those terms that insurance execs came up with to just make the whole thing indecipherable. Throw in deductible and out of pocket max and you can tell the same execs were busy on that day. Medicare also uses the concept of co-insurance and it's actually one of the most important terms to wrap your head around before purchasing a Medicare supplement insurance plan. Let's take a look at what co-insurance is and why becomes so important to your decision.
First, a quick definition. Co-insurance is essentially a percentage sharing of costs. You're paying a percentage of the costs and the insurance carrier is picking up the rest. Most people are familiar with terms like an "80-20 plan" and this is really referring to the co-insurance portion of the plan. Medicare happens to be an 80-20 plan so that's a good time to break down the code and figure out how it really pays out. First, we need to talk about deductibles before we get into co-insurance with Medicare since that's how it's also structured. There is a part A deductible (hospital) and part B deductible (physician) that you have to meet first. After that, the Medicare 80-20 co-insurance kicks in. Let's take an example.
Let's say we have a $1000 physician charge and a $100 Part B deductible. If you only had Medicare (no Medigap plan), you would pay the first $100 which is your deductible. That leaves $900 left from your original bill. This is where your co-insurance comes into play. You would now pay 20% of the remaining charges or $180 in our example and Medicare would pick up the other $820. That's pretty good coverage and it's hard to find 80-20 plans on the individual/family market. What happens if you have another $1000 charge in the same calendar year for something unrelated to your original issue? You not need to meet another deductible and you would go right into the 80-20 co-insurance. You would pay $200 in this case. Medicare deductibles and co-insurance are calendar year so they will reset January 1st. So why is co-insurance so critical in choosing a Medicare supplement plan? There is no cap to it with just traditional Medicare.
People are generally concerned with the deductibles since they're first dollar coverage. You're more likely to feel those since any amount of medical care is going to require meeting the deductible amount. It's for this reason that people really concentrate on deductibles but the deductibles are finite. They're a certain amount (roughly $150 for Part B and roughly $1200 for part A) and then you're done. The co-insurance never ends and this is a problem. 20% of a $1000 bill is $200 and sure, we don't want to come up with that but it's manageable. 20% of a $10K bill is $2K...much less manageable and what about catastrophic costs such a 20% of $100K? Now, we're in trouble. This is really where Medicare supplement insurance plans are worth the while. Let's see how Medigap plans address the co-insurance concern.
This is really the reason to get a Medicare supplement plan to begin with. Co-insurance is the real risk to only having Medicare without Medigap coverage. The core plans will cover your Part A co-insurance in full. The majority of Medicare supplement plans will cover the Part B co-insurance in full and some will cover a percentage of this charge until a calendar year maximum is met, after which it will cover it at 100%. We like the F Medicare supplement plan which covers both Part A and B deductibles as well as co-insurance at 100% for the best value on the Medigap market.