Page 2 - Cover Letter and Medicare Evaluation for Dorothy Schmitt

It might be helpful to review some of the differences between Medigap policies and Medicare
Advantage plans.

How Medigap policies work

When people first enroll in Part B, they have a six-month guaranteed issue period to purchase a
Medigap policy without answering questions about their health or pre-existing conditions. But
once that initial six-month period is over, in Delaware and most other states, they will likely
have to answer questions about their health before they can get a Medigap policy. And if they
have health problems, they will either pay much higher premiums or be denied coverage.

Perhaps the most desirable quality of Medigap policies is the flexibility they offer. As you know,
there are no networks, and you do not need referrals to see specialists. You are covered when
you see any provider who accepts Medicare (a Kaiser Family Foundation study found that more
than 99% of doctors and public hospitals accept Medicare). And you can choose to go to Johns
Hopkins Medicine or the Mayo Clinic and you’ll be covered.

With a Medigap policy, coverage decisions are made by Medicare and not by an insurance
company. When Medicare covers a service or treatment, the Medigap insurer cannot question
Medicare’s decision. In an Advantage plan, though, the insurance company decides whether
certain treatments are medically necessary, and it has a financial incentive to limit coverage.

The downside of Medigap policies is their cost. A 65-year-old who gets a comprehensive
Medigap policy can expect to pay between $80,000 and $100,000 in premiums over a 25-year
period. That doesn’t include Part B premiums, Rx drug expenses, and costs for services that
Medicare does not cover. And since Medigap policies do not cover prescription drugs,
policyholders must also enroll in a Medicare prescription drug plan (a stand-alone drug plan).

How Medicare Advantage plans work

When people enroll in Advantage plans, Medicare assigns their benefits to the plans – at which
point the plans are responsible for providing the enrollees’ medical care. Medicare pays the
plans a monthly amount to provide this care (the amount varies based on several factors). As an
example, Medicare might pay the plan $1,000 a month for someone’s medical care, and if that
individual doesn’t need medical care that month, the plan comes out $1,000 ahead. But if that
individual needs a $10,000 medical procedure, the plan will still get only $1,000 plus any
premiums and co-payments it collects.

Given this framework, Advantage plans seek to limit expensive treatments and may not cover
second opinions (Medicare almost always covers them). To attract new enrollees, Advantage
plans use the $1,000 monthly payments (in this example) to reduce or eliminate plan premiums
and to provide benefits not covered by traditional Medicare. Most Advantage plans offer some
coverage for dental care, routine vision care, and hearing aids, none of which Medicare covers.

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