Page 5 - Cover Letter and Evaluation for Mike Peaseley

Analysis

As a rule, you will pay higher premiums for more comprehensive coverage like the two Medigap
plans in your evaluation. In comparison, premiums in Advantage plan are low (zero for the
HMO plan) but you accept a higher out-of-pocket risk. People in good health will usually save
money in an Advantage plan – even if they lose money one year (compared to what they would
have paid for a Medigap policy), over a period of several years they will likely come out ahead.

The other risk associated with choosing an Advantage plan is that if you later decide to switch
to a Medigap policy, you will have to answer questions about your health before knowing
whether you will be able to get a policy. The risk of being declined Medigap coverage is higher
in the state of Washington than in most other states. That’s because the state’s laws require
community rating and unlimited transfers among plans and insurers.

When plans are required to use community ratings, they cannot charge more to people who
have serious pre-existing conditions. Insurers, then, have only two choices for people who want
to buy a Medigap policy after the initial six-month guaranteed issue period is past – to accept or
decline coverage. In most other states, insurers can accept someone with health problems but
charge higher premiums to compensate for the added risk.

In the state of Washington, because of their inability to charge higher premiums to unhealthy
people, companies are more likely to decline coverage after the guaranteed-issue period is
past. Still, many or most people who are past their guaranteed issue period will be able to buy a
Medigap policy. But they should be aware of the risk that they may not later be able to get a
Medigap policy.

One way around this problem is for people in good health to buy a less comprehensive Medigap
plan, knowing that later they can upgrade if necessary. Plan K and the high-deductible version
of Plan F are riskier Medigap plans that have low premiums, and healthy people may want to
consider getting them, knowing that they can later upgrade without going through medical
underwriting.

Mike, please let me know if you have any questions. There are a couple of things to keep in
mind as you make the transition to Medicare as your primary coverage. On your initial visits to
your doctor(s) after January 1, show the office staff your enrollment cards for Medicare A&B
and your supplemental coverage. And on your first visit to the pharmacy, show them the
enrollment card for your Rx drug coverage. That will help to avoid any billing confusion. Finally,
you’re entitled to a free “Welcome to Medicare” physical (see page 11 of the evaluation), but
you’ll probably have to request it.

Sincerely,

David Armes, CFP®

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