Needless to say, money is tight these days and with the prospects of ever increasing health care cost and all of our plans to live to 100. Many people who are turning age 65 go into the decision of whether or not to get a Medicare supplement since this implies additional cost. This is really a two partner and we\’ll analyze both in order of importance. First, let\’s dig into the question of whether it makes sense to just go with traditional Medicare by itself.

What does having only Medicare mean both from a cost point of view and a benefit point of view. Let\’s look at the cost first. You shouldn\’t need to pay for Part A coverage which is the hospital part of traditional Medicare. You will probably have to pay for Part B however which is the physician costs associated with Medicare. This cost is tied to how much income you make so you\’ll need to check on your exact cost. The Part B coverage is also optional. You can choose not to elect it right away but you will likely face a penalty if you choose not to elect Part B once eligible (unless on group coverage). Part B is generally inexpensive enough to get (according to income level) so we\’ll assume we mean having both Part A and Part B when describing \”Medicare only\” coverage. We\’ll estimate the cost of Part B at $100/month. Not this doesn\’t give us medication coverage but we\’ll keep it simple (albeit missing) as our definition of traditional Medicare. So what kind of coverage does that afford you?

Basically, for the cost areas that Medicare covers, you can expect to pay the deductibles (Part A runs around $1000 and Part B runs around $160 in 2011). Once you meet these deductibles, you will pay 20% of the remaining charges indefinitely. Right away, we see where the risk is to having no Medicare supplement insurance. How do we compare with and without? First, what is the cost of a standard Medicare supplement insurance? Let\’s go with a 65 year old in California as an example. Medicare supplement plan rates don\’t tend to vary excessively from State to State although age can affect it quite a bit. Let\’s go with $130/monthly for an F plan as an example of Medigap cost. That\’s about $1500/annually in supplement cost so this is the amount we want to really look at so that we can compare apples and apples with the deductibles mentioned above. In a year with bigger bills (assuming some hospital care), the cost of Medicare supplemental insurance almost equals the Part A deductible and Part B in their entirety. The point of insurance though isn\’t about covering the small bills…it\’s about covering the big bills. That\’s the 20% co-insurance that Medicare doesn\’t cover. If you have a good year health wise (let\’s say no health issues at all to be extreme), you are out of pocket $1500 (cost of Medicare supplement plan). That\’s the best case to not going with a Supplement. What\’s the downside?

Well, there\’s the issue. It\’s unknown. You will have to pay the 20% co-insurance with no cap. If you have a $100K medical expense, you\’re on the hook for $20K. $100K sounds like a lot but in today\’s medical cost world, it isn\’t. A heart stint can run $50K-$100K and any health care treatment that finds you in a facility based setting (i.e. hospital) will get up there pretty quickly. That\’s really the reason to get a Medicare supplement insurance. You don\’t want save pennies and risk dollars especially since a person is more likely to have big bills as they get older.

The second part of the question is a Medicare supplement plan (our example at $1500 annually) versus advantage plan which may have low or no cost. We addressed the comparison of Medigap versus Advantage in a whole separate article since we\’re not comparing apples and oranges. Hopefully, we showed where the risk/reward lies between Medigap and just having traditional Medicare.

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