Medicare supplements have gone through quite a few changes as of late and we have some entirely new plans added to the Medigap market which has remained largely the same for decades. Most of these plans were designed to offer more affordable options by cost sharing some of the health care costs but a lower premium to the consumer. Part of this lower priced roll-out is the K Medicare supplement plan. Let\’s take a look to see how it works.

First of all, the K plan covers the biggest gap in traditional Medicare at 100% just like all the other Medicare supplements. This is the Part A co-insurance which is the 20% of hospital related charges that the subscriber must pay after the Part A deductible is met. Hospital and related facility-based care is really where the big costs are these days so having this covered at 100% with the K plan is a great start. Preventative is also covered similarly to the other Medicare plans which is also important although less actual exposure but more likelihood of actually using the benefit on an annual basis. That\’s where the plans are the same. Let\’s look at how they\’re different.

The other categories of gaps in traditional Medicare are where you see the means by which the K Medigap plan can reduce premiums by means of cost sharing. Let\’s go category by category and then we\’ll touch base on the bigger picture of how view whether the trade-off works in your favor. The key number to remember with the K plan is 50%. For the Part A deductible (hospital costs), Part B co-insurance (physician charges, Nursing facility, Home Care, and for first 3 pints of blood, you will play 50% of the charges until you meet a total of $4620 (check annual cap as it may change). This means that you will pay 50% of the charges for these services until your total out of pocket (not total medical expense) hits the $4620. The Part B Deductible, Part B Excess, and Emergency Travel are not covered by the K plan. You will have to pay for all of this. Let\’s take an example.

Let\’s say we have a $3000 hospital charge (maybe an ER visit, MRI, labs, etc). How will that charge play out with the K Medicare supplement plan. We\’ll base our numbers on 2012 deductibles, etc. The Part A deductible for 2012 would be $1156. You would pay 50% of this deductible amount up front. After the $1156 deductible is met (for which you paid half), you then go into co-insurance. The K plan will then pay 100% of the 20% co-insurance that traditional Medicare doesn\’t pick up. Let\’s walk through that. After the deductible, we have $1844 left to pay. Traditional Medicare will pick up 80% of this remaining $1844 which leaves 20% or $369 you would pay if you didn\’t have a Medicare plan. The K plan will pick up all of this $369 since Part A co-insurance is covered at 100% with the K Medigap plan. Essentially, for the $3000 charge, you would pay $578. That\’s not bad. Keep in mind, you would be on the hook for more of charges related to physician costs since the Part B co-insurance would be covered at 50%. Let\’s look at that.

Let\’s say you have a $500 physician charge including labs. The 2012 deductible for Part B or physician expenses would be $140. You would pay this full deductible amount with the K plan. That leaves $360 to go. Traditional Medicare then pays 80% (or $288) of the remaining $360. This leaves $72. With the K plan, you would pay 50% of the remaining charge for a total of $36 out of your pocket. For this $500 charge, you\’re looking at $176 out of your pocket on the Medicare supplement K plan.

So how do we evaluate this option against others like the F Medicare supplement plan? Let\’s look at the worst case issue of very large medical expenses. You would pay these assorted co-insurances till you meet $4620. Compare that against the annual premium difference between the K Medigap and F Medigap plan. Granted, it\’s actually pretty tough to get to the full $4620 amount picking up half of the 20% co-insurance that Medicare doesn\’t get so this is our consideration. Let\’s say the difference for a 65 year old is $70/monthly or roughly $800 annually. You obviously wouldn\’t go that way if you have serious health issues at the time of enrollment. We would hope for more savings than that to take on the risk associated.

Dennis Jarvis is a licensed insurance agent concentrating on medicare supplement insurance.