Page 3 - Cover Letter and evaluation for Paul J. Lingane

about $650 less than those of Plan F. It also has a low $2,560 out-of-pocket (or OOP)
limit – it is one of only two Medigap plans with an OOP limit. But the OOP limit does not
include premiums and it applies only to the services that the plan covers. As an example,
the $183 Part B deductible is not covered by this plan and so any money you spend
toward the deductible does not apply to the OOP limit.

The benefit designs of these four plans and the other Medigap plans are shown on pages 6-7 of
the evaluation.

Medigap premiums from the California Department of Insurance and CSG Actuarial are listed in
Attachments B1 through B5. The California Department of Insurance list includes each
insurance company’s toll-free number, but the CSG Actuarial lists do not include contact
telephone contact numbers. Before purchasing a Medigap policy, we recommend that you call
at least three insurance companies. A government study a few years ago indicated that larger
insurance companies tend to have slightly smaller annual premium increases.

If you choose a less comprehensive Medigap plan like Plan L, the UnitedHealthcare policies
endorsed by AARP may allow you later to upgrade to a more comprehensive plan without
answering health questions. If that is something you want to consider, you should verify with
UHC that you’ll later be able to switch to one of the more comprehensive plans -- from Plan L to
Plan F, for instance -- without answering questions about your health or pre-existing conditions.

In addition, the UHC/AARP plans use a modifed community rating to set premiums. Ordinarily
this would result in high premiums for younger retirees, but UHC offers a discount of 3% a year
for each year that you’re younger than age 75 (this discount is offered to people 68 and
younger). Because you will be (almost) 65 when your policy will go into effect, you should
receive a 30% discount from the standard rate. That explains why the UHC/AARP premiums are
among the lowest. But you need to be aware that as the discount is reduced by 3% each year,
you’ll likely have two premium increases – a 3% increase attributable to the reduced discount
and then another 3% or so for health care inflation.

Finally, one other thing to be aware of is a California law giving Medigap policyholders a
guaranteed right to switch to a different insurance company during the 30-day period following
their birthdays each year. During this period, insurers cannot ask health-related questions.
An explanation of the birthday rule (as it is called) is attached. You cannot, though, use this rule
to upgrade to a more comprehensive plan – you can use it only to move laterally, e.g., from
Plan F sold by one insurer to Plan F sold by a different insurer, or to a less comprehensive plan.

Rx Drug Plan Coverage

If you decide to purchase a Medigap policy, you will also need to enroll in a Part D stand-alone
plan. Even though you do not currently take any Medicare-covered prescription drugs, you will
need to enroll in a Part D plan to avoid paying lifetime late-enrollment penalties (unless you
have creditable drug coverage from an employer-sponsored plan).

3