Taking Care of Mom and Dad: Medigap Insurance

Medicare won't pick up the tab for all health care needs. Even with Part A and B coverage, financial risks related to deductibles and copayments can be overwhelming if your parents are living on a fixed income. This is particularly true if one or both of them develop a major chronic illness and they turn to you for the tens of thousands of dollars for treatment. Furthermore, since Medicare won't pay for most outpatient prescription drugs, long-term care, hearing aids, eyeglasses and some preventive medicine, it's important to consider the gaps.

Because Medicare covers less than half of all health care bills, your parents will probably need to get supplemental coverage -- commonly called Medigap insurance.

Simply said, Medigap pays for medical expenses that are not covered by Medicare -- such as prescription drugs, long term care and hospital deductibles.

Medigap policies also pay some or all of Medicare's deductibles and copayments. Thirteen million Medicare beneficiaries don't have drug benefits and need some other form of coverage to help pay for these costs. Prescription drugs are the fastest growing health care expenditure in the U.S. and are expected to be 10 percent of all such expenditures by 2010.

A typical senior without prescription drug coverage pays 34 percent of his or her after-tax income on health care. Prescription drug spending is the single largest component of out-of-pocket spending on health care (other than premiums and copayments).

According to the AARP, 80 percent of retirees use a prescription drug every day. And, older Americans account for one-third of prescription drug spending, though they represent only 12 percent of the population. Because of the extra -- vital -- coverage offered by supplemental policies, many older people opt for this coverage.

Medigap policies are sold by insurance companies under standardized formats mandated by the government. This standardization makes it easy to compare policies from different companies.

There are some caveats. Chief among these: Medigap insurers have the right to reject retirees who don't sign up within 63 days of losing a company's supplemental policy. If your parents are forgetful or difficult, they can cause themselves serious insurance problems that will last for years.