Page 4 - Cover Letter and Evaluation for Mr. Fred Falten

endorsed by AARP use a different method than do most other insurers when they set their
premiums. Most insurance companies use an “attained-age” approach in which premiums are
higher for each additional year of age. But the UnitedHealthcare/AARP policies use a
community rating approach in which everyone pays the same premium regardless of age. And
that results in higher premiums for younger retirees.

To make their premiums competitive for younger retirees, in New Hampshire UHC/AARP offers
an early enrollment discount of 3% a year for each year that a policyholder is younger than age
77. As an example, the discount for a 70-year-old is 21% (3% x 7 years). With a UHC/AARP
policy, then, there may be two premium increases each year – one a 3% increase because you
are a year older and the other an increase for health care inflation. UHC/AARP policies can be
good choices if they are attractively priced, but you should take into account the fact that you
may have two premium increases each year until you turn 77.

Comparing Medigap Plan F and Plan N

Here are summaries of the two Medigap plans compared in your evaluation:

1) Medigap Plan F. As mentioned, with Plan F there are no co-payments for Medicare-
covered medical services during the year. Some people like Plan F because of the
convenience of never having to make a co-payment for a service that Medicare covers.
This comprehensiveness also makes medical costs predictable because in most cases the
only costs are the premiums. In New Hampshire, you can likely get a Plan F policy for
$250 a month ($3,000 a year) or slightly less.

2) Medigap Plan N. This plan is slightly less comprehensive than Plan F, but it still provides
strong coverage. Its gaps include the $203 Part B deductible, co-pays of up to $20 for
doctor’s office visits, and a $50 co-pay for emergency room visits. Annual premiums are
roughly 25% lower than Plan F’s, and if you do not go to the doctor frequently you
would probably save money in this plan compared to Plan F. Annual premiums for Plan
N are about $2,450 a year.

Understanding Medicare Advantage plans

Advantage plans are managed care plans – HMO’s and PPO’s, for the most part. Most
Advantage plans have low premiums -- as an example, the two Advantage plans compared in
your evaluation have zero premiums for medical and Rx drug coverage. In addition, Advantage
plans often have lower costs for prescription drugs than do the stand-alone drug plan you will
need if you get a Medigap policy. Another cost saving is that most Advantage plans offer some
dental and hearing benefits as well as routine vision coverage – none of which are covered by
Medicare or Medigap policies.

Despite the lower premiums, in a few cases you could wind up paying more in an Advantage
plan than you would with a Medigap policy. That’s because Advantage plans often have high

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