Question: I have read, and reread, your excellent column this past spring about Medicare supplemental insurance for those over 65. The different twist to my problem, however, may make it a little bit out of the ordinary but still applicable, I believe, to many others in my position.
My situation is this: My wife and I are both 66, both in good health and both with Medicare, Parts A and B, and a good major-medical supplemental group policy (John Hancock) carried over from my former employer. The only problem is that each of us has a lifetime cap of $250,000. Since I am told this is inadequate, I've been searching for something to fill in this potential gap.
The only policy I've found that seems to fill the bill is a "catastrophic protection"-type policy, whereby I would choose a deduction of something like $5,000 to $15,000 and they pay the remainder. This appeals to me because I would be paying for insurance only for those illnesses that I couldn't handle out of my income, savings or the other group-insurance policy. This company informs me, however, that they are not licensed to issue this kind of policy in California.
I have since contacted several other companies to express my need and interest, and all reply with a standard supplemental plan that covers a lot of up-front costs, which I consider minor compared to the relatively uncovered cost of a major operation.
In effect, I am seeking a policy that will, in conjunction with Medicare and my John Hancock major-medical policy, protect me from an economically catastrophic illness; but instead, all the companies are offering me policies that ignore the existence of my John Hancock policy.--S.C.J.
Answer: It's one of those persistent, nagging worries for retirees, but in the opinion of Jules Klowden, the retired insurance man who for the past several years has served as the Medicare supplemental insurance expert for Senior World of California, it is generally a paper tiger. Although, admittedly, a few conditions apply, primarily: The fear of catastrophic medical expenses is generally a paper tiger if the supplemental-insurance policy that covers the normal gap between what Medicare will pay and the actual costs is a good one.
"Essentially," Klowden adds, "a good supplemental policy will cover almost everything that Medicare doesn't--regardless of the cost. The big 'if' here, though, is the question of whether the doctor or doctors involved will accept assignment--whether they will absorb, that is, any of the overage that Medicare doesn't allow.
"But, even so, some companies today are already writing supplemental insurance that covers 100% of the actual costs--although the premiums, of course, are high."
The big question, as always, is whether the supplemental Medicare policy you have is a good one. Klowden isn't familiar with the John Hancock policy that you inherited from your employer. It's a good name in the insurance business, of course, but he also makes the point that while an employer may provide excellent group coverage for employees as long as they are on the job, some of them drop the ball in providing for their retirees.
And he cites the instance of one large Southern California employer that provides a Medicare group supplemental policy for its retirees that is, charitably, for the birds.
"In the first place, the retirees pay 100% of the premiums, there's a $50 deductible for hospital visits, it pays only 80% of the balance, provides nothing for the doctor's services and has a total lifetime cap on the benefits of only $5,000--which is nothing. You can use it up with one hospital visit."
But, in terms of "catastrophic" coverage, Klowden adds, it should be mentioned that when a Medicare supplement policy stipulates a "cap"--in the case you cite, $250,000--this refers to the company's actual out-of-pocket expenses over and above what Medicare covers. And, if you assume that Medicare will cover roughly 80% of the total costs, then any medical problem entailing costs in excess of the company's additional $250,000 coverage would make the adjective "catastrophic" seem almost mild.
Admittedly, though, there's another big caveat in Klowden's downplaying of the impact of a "catastrophic" medical problem: All bets are off if your definition of a catastrophic medical expense involves long-term custodial care as opposed to a grievous need for surgery, a lingering recovery or to some calamitous and terminal disease.
"It's the one really big gap in Medicare," he adds, "because it simply doesn't recognize long-term custodial care, and, unfortunately, that's where you have to lump something like Alzheimer's disease because it is all custodial and can, literally, go on for years."
Interestingly, however, Klowden says: "Some of the major insurance carriers, which haven't been involved in supplemental medical coverage in the past, now indicate that they are getting ready to move into the field of long-term care."
As far as catastrophic coverage is concerned, exclusive of long-term custodial care, "I can't really see it, on the whole, and much of it that is being offered is really foolish. Although I would have to look over this man's John Hancock policy in detail to be sure, it sounds to me as if the $250,000 cap that he has should be adequate.
"I would urge anyone facing the prospect of really enormous medical and hospital costs--even though he may have an excellent supplemental policy--to inquire of his doctor, early in the game, if he will 'take assignment.' "