THE SPECIAL YEARS : 50 AND BEYOND: THE TIME OF YOUR LIFE : The Insurance Gap : <i> The Question for Many: Should I buy or Retain Supplemental Medicare Coverage? </i>

If you are among the nation’s 32 million citizens eligible for Medicare, you can rest easier these days. Congress has expanded Medicare’s coverage, starting this year, to better protect you and other beneficiaries from financial ruin due to catastrophic hospital, doctor and prescription drug bills.

But some notable gaps in Medicare coverage remain. Thus, the question for many seniors is: Should I buy or retain supplemental insurance to cover these gaps?

Your answer may well be yes, at least for this year. But, unfortunately, such insurance--generally considered to have been overpriced even before this year--has become even less of a good buy.

Medicare supplement insurance--known as Medigap--covers less now that Medicare covers more. Despite this reduced coverage, Medigap premiums are rising this year by as much as 30% to 40%, with many plans priced between $400 to $800 a year.

With further enhancements in Medicare coverage to begin in 1990, Medigap policies may become even less valuable next year.

“This year, most people should probably continue to buy it and eat the price increase, with the thought of dropping it next year if prices don’t come down significantly,” says J. Robert Hunter, president of the National Insurance Consumer Organization, a nonprofit group in Alexandria, Va.

Seniors also face another problem with Medigap coverage. Unscrupulous insurance companies and agents continue to use questionable--and in some cases illegal--sales tactics to hawk these policies to unwary people who may already be covered. As a result, many seniors are over-insured, with some having as many as five overlapping policies.

“It’s such a complicated purchase,” says Robin Talbert, senior program specialist in the consumer affairs division of the American Assn. of Retired Persons. “It’s so easy to be misled or to misunderstand what information is provided to you,”

To get the best value and avoid being ripped off, you will need to be diligent in determining your true insurance needs, and then shop carefully.

First, become more familiar with what Medicare covers. Under its new comprehensive coverage, for example, you will be covered for unlimited days of reasonable and necessary hospital care, after you pay a single annual hospital deductible of $560. Previously, Medicare coverage for hospital stays was phased out after the first 60 days a year and terminated completely after 150 days.

Coverages will expand even more in 1990 and 1991. Starting in 1990, for example, Medicare will cover all Medicare-approved expenses (such as physician’s services, inpatient and outpatient medical services and supplies, physical and speech therapy, and ambulance charges) once you have paid $1,370 a year to cover a $75 annual deductible and a 20% co-payment.

And beginning in 1991, Medicare will cover all approved prescription drug charges, after you pay a $600 annual deductible.

This expanded coverage, however, is not free. Premiums are higher. And if you are eligible for Medicare, you will be assessed a federal income tax surcharge if you pay at least $150 in federal income tax, starting with 1989 returns. That surcharge will be $22.50 for each $150 of your tax liability, up to a limit of $800 per person, for taxes you pay on 1989 income. Those amounts will rise in subsequent tax years. (Some members of Congress have proposed reducing the surtax, but the outcome of that effort remains uncertain.)

Covering Medicare’s remaining deductibles and co-payments is where many Medigap policies try to fit in.

Voluntary standards established by the National Assn. of Insurance Commissioners require that any Medicare supplement policy must provide a minimal level of benefits at a reasonable cost. The policies also must be easy to understand and not duplicate Medicare coverage.

Under those standards, for example, Medigap policies must cover all or none of the $560 annual Medicare hospital deductible--nothing in between. Medigap policies also must cover the $25.50 per day you must pay under Medicare for the first eight days in a skilled nursing facility. (Most nursing homes in California are skilled nursing facilities, but most elsewhere in the country are not. Skilled nursing facilities primarily furnish skilled nursing and rehabilitative services and may be part of a hospital or a separate facility.)

Some Medigap policies may include other benefits not covered by Medicare, such as payment for hospitalization in a private room. They may also pay for charges above payment levels approved by Medicare.

However, there are some areas that neither Medicare nor Medigap covers. One such area is long-term nursing home care. For that you may need separate, long-term care insurance, although it, too, is regarded by many consumer advocates as a poor buy because of high premiums and limited coverages.

(One source of more information on long-term care policies is the state Insurance Department’s free publication, “Long-Term Care Insurance: A Consumer’s Guide for Californians.” Get it by calling the department’s consumer hot line at (800) 233-9045.)

Given the limitations and high costs of Medigap policies, do you really need one?

“It’s a very personal decision,” based on your own financial and physical circumstances, says Jerry Whitfield, the state Insurance Department’s special deputy commissioner for problems of the aging.

You generally won’t need it if you are low enough in income to qualify for Medicaid (called Medi-Cal in California). Conversely, you won’t need it if you are wealthy enough to pay for any Medicare deductibles or other gaps without hardship.

You also won’t need Medigap if you are already covered in your current or former employer’s health plan. Some employers may be willing to convert your insurance into a Medigap policy once you hit age 65.

And you may not need Medigap if you are enrolled in a solvent health maintenance organization or other prepaid health plan.

But you might want Medigap if you see doctors who don’t accept Medicare or who charge above the rates Medicare is willing to pay. You also might want a supplemental policy if you expect to need major surgery or other expensive medical procedure during the year or if you simply want greater peace of mind.

Another way of getting Medigap coverage is by enrolling in a solvent health maintenance organization or other prepaid health plan.

Next year, however, the need for Medigap shrinks considerably if your doctors accept Medicare rates. That is because you will only need to pay the $560 annual deductible for hospitalization and no more than $1,370 for doctor’s bills and other medical expenses. That makes an insurance policy costing $500 or so look highly expensive.

“It doesn’t make sense to pay $500 to insure against a $2,000 potential risk,” contends James P. Firman, president of the United Seniors Health Cooperative, a regional nonprofit consumer organization based in Washington. “By next year they (Medigap policies) will be clearly not worth the money unless prices go down dramatically.”

However, because California medical costs tend to be higher than the rest of the nation, many doctors in this state do not accept Medicare rates. Therefore, you may still need Medigap to pay for the difference. Alternatively, shop for doctors who will accept Medicare rates.

Here are some tips to help you decide whether you need a Medigap policy and shop for one:

Become more informed. Several helpful publications are available at little or no cost.

More details about expanded Medicare coverage are contained in the 1989 “Medicare Handbook” from the Health Care Financing Administration, which administers the program. Also available from HCFA is a “Guide to Health Insurance for People With Medicare.” For free copies, check with your local Social Security office.

“Preventing Medigap Abuse: A Protection Kit for California Seniors” contains a short discussion on Medicare and Medigap, along with forms and checklists and a complaint form. For your free copy, call the California Insurance Department’s consumer hot line at (800) 233-9045.

“Catastrophic Coverage Under Medicare: New Health Care Protection for Older Americans” is available free from the American Assn. of Retired Persons. Write: AARP Fulfillment, 1909 K St., N.W., Washington, D.C. 20049.

“Managing Your Healthcare Finances” explains Medicare, its gaps and what to look for in supplemental coverage. It is available for $6.95 from United Seniors Health Cooperative, 1334 G St., N.W., No. 500, Washington, D.C. 20005.

In California, take advantage of free counseling. The state-funded Health Insurance Counseling and Advocacy Program provides free health insurance counseling for California seniors. It also provides legal assistance in certain circumstances involving claims or payments. For referrals, contact the state Insurance Department’s consumer hot line at (800) 233-9045.

Beware of replacing existing coverage. Often, new policies will impose exclusions or waiting periods for preexisting conditions covered by your current policy. Agents trying to sell you new policies may be more interested in earning a fat commission than serving your best interests.

Buy a single comprehensive policy. Multiple policies are duplicative and costly. Tell the company or agent about your existing coverage, and ask whether what they are selling is a duplication.

Make sure the policy meets governmental standards for Medigap policies.

Don’t be pressured into a quick decision. Read any policy carefully before you buy it. Make sure the policy’s premiums, renewal terms and claims procedures meet your needs. Check for exclusions and limitations on coverage.

Take advantage of the “free look” provision. By California law you have 30 days from the date of receiving a new policy to review it and return it for a full refund.

Don’t pay cash. Always pay by check, and make the check payable to the insurance company, not the agent.

Don’t buy any policy that claims to be government-sponsored. State and federal governments do not provide Medigap policies, and anybody making claims that their policy is government sponsorsed is doing so illegally.

Beware of policies endorsed by celebrities. Some of the worst policies, providing little coverage for the cost, are endorsed by famous individuals, says Firman of the United Seniors Health Cooperative.

Look for policies with high “loss ratios.” The loss ratio is what percentage of your premiums are paid as benefits to policyholders. Regulations require it to be at least 75 for group policies and 60 for individual policies. But some still are as low as 40 or 50.

Know how to complain. Report any unscrupulous operator or gripes to the state Insurance Department hot line at (800) 233-9045.