Page 3 - Cover Letter and Evaluation for Kirk Schmidt

4) Medicare Plan L. This is the least comprehensive of the Medigap plans compared in the
evaluation and it also has the potential to save you the most. One nice feature of Plan L
is its low $2,560 out-of-pocket limit – it is the only Medigap plan in your evaluation that
has an OOP limit. But the limit does not include premiums and applies only to the
services the plan covers. As an example, the Part B deductible is not covered by this plan
and so any money you spend on the deductible will not apply to the out-of-pocket limit.
Annual premiums for Plan L are about $1,200.

If you want to consider a less comprehensive Medigap plan like Plan L, the UnitedHealthcare
policies endorsed by AARP will permit you to later upgrade to a more comprehensive plan
without answering health-related questions. Some people choose one of the less expensive
Medigap plans sold by UnitedHealthcare (or UHC) – Plan L, for instance – knowing that if they
later want to upgrade to a different plan, they can do so without going through medical
underwriting. If that is something you want to consider, you should verify with UHC that you’ll
later be able to switch to a higher-level plan withoug being screened for pre-existing conditions.

Before choosing an insurance company to buy your Medigap policy from, it’s a good idea to get
at least three quotes and in most cases to go with the company that has the lowest premiums.
It’s possible that some of the premiums shown in Appendices B1-B5 may not be current, but
these lists can be used as a starting point in identifying the lower-premium companies. To get a
current quote, call the companies’ toll-free numbers shown in Appendix B1.

In addition, it might be helpful to understand how the UnitedHealthcare (UHC) Medigap
policies’ early enrollment discounts work. To make their policies attractive to younger retirees,
UHC offers a discount of 3% a year for each year that a policyholder is younger than 75.
Therefore a 65-year-old receives a 30% early enrollment discount, a 66-year-old a 27%
discount, and so forth. As people age, then, they will likely have two premium increases a year
– one of them a 3% increase as the discount is reduced and the other an increase for health
care cost inflation.

That means that in UHC Medigap policies your premiums are likely to increase between 5% and
6% a year (3% for the lost discount plus 2% or 3% for health care cost inflation). You may want
to take this into account when you choose a company to buy a policy from, although if the UHC
premiums are substantially lower you may save money even though they will probably rise
faster than those of most other companies until you reach age 75.

For future reference, California has a rule that allows Medigap policyholders to switch from
their current insurance company to a different insurance company without having to answer
questions about their health. But policyholders can do this only during the 30-day period each
year following their birthdays. Someone whose insurance company has sharply increased
premiums may want to switch to a lower-premium company during this 30-day period.

This rule is called the birthday rule, and it is described in an attachment to this letter. But this
rule does not give people a guaranteed right to upgrade to a more comprehensive Medigap

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