With many HMOs (health maintenance organizations) dropping their Medicare programs, more and more enrollees are returning to traditional Medicare. Often they supplement traditional Medicare coverage with Medigap insurance. However, though Medigap plans are widely available, benefits can be limited and costs high, according to a recent report by the
U.S. General Accounting Office (GAO), so consider all your options before deciding.

Before buying Medigap insurance, consider alternatives. You may be able to get coverage through your former employer's retiree health care plan, though many companies are either dropping these plans or raising premiums. Low-income retirees may qualify for Medicaid.

Assuming Medigap remains the better option, the challenge becomes finding the policy that's right for you. To qualify for Medigap coverage, you first must be enrolled in Medicare Part B, which covers doctor's bills, outpatient services, X-rays and other services. Part B requires a monthly premium. State and federal law guarantees that you can't be refused Medigap coverage, even with pre-existing health problems, as long as you sign up within six months of enrolling in Part B and have turned at least age 65. Otherwise, you may face restrictions.

Now comes the tougher part: picking the right plan. Although Medigap is sold only through private carriers, federal guidelines standardize the plans into ten models. Plan A is the basic plan, whose features are included in all other plans. Those features include Parts A and B coinsurance and 365 days of additional hospital coverage.

Plans B through J offer a variety of additional features, ranging from skilled nursing facility coinsurance to Part A and B deductibles, foreign travel emergency, home health care, and prescription drugs. According to the GAO report, two-thirds of the policies purchased are mid-level C and F plans.

Interestingly, neither of these plans include prescription drug coverage, a critical feature which many older people mistakenly think all Medigap policies include. The GAO report says that only eight percent of Medigap purchasers buy policies that include prescription drugs. The GAO attributes this small percentage to the higher premiums of such plans, the fact that fewer insurers offer the three plans that provide drug coverage, maximum coverage limits, and because beneficiaries are still required to pay for at least half of the drug costs. A report by Weiss Ratings Inc. also noted that premiums for Medigap plans with drug coverage have risen 37 percent since 1998.

The limited availability of some plans within a state presents another hurdle for Medigap buyers. For example, carriers in Vermont don't offer three of the plans, including the popular F version, according to GAO numbers. Delaware doesn't offer Plan H. Selection is limited in other states. New York, for example, has only one carrier that offers the top-of-the-line plan, J, and in Rhode Island, only a single insurer offers any of the plans with prescription drug benefits. Three states - Minnesota, Massachusetts and Wisconsin - have alternative Medigap programs. Furthermore, only two carriers sold 64 percent of the Medigap policies nationwide in 1999, according to the GAO.

In addition, although the plans are standardized, costs are not. Average annual pren-dums according to 1999 numbers ranged from $877 for Plan A to $1,672 for Plan J. But the GAO report and Medigap experts report a wide range of premium costs even for the same plans. The GAO says premiums may vary by 200 percent for the same model plan within the same state, and they vary widely from state to state. Premiums in California, for example, average 35 percent higher than the national premium average and twice as high as some states, with New York and Florida the next highest. Premiums in Utah, New Jersey and New Hampshire are the lowest.

Even if you buy a Medigap policy, prepare to still shell out of pocket. The GAO report says Medicare beneficiaries with Medigap coverage annually pay $1,392 out of pocket, excluding expenses for a long-term care facility. By the way, many people think Medigap policies cover long-term care, when in fact coverage is nonexistent or limited at best. It remains best to buy a separate long-term care policy.

Before you jump from a Medicare HMO back to traditional Medicare and Medigap, be sure the coverage you want at the price you can afford is available. You have an initial six-month open enrollment period. After that, you may find coverage alternatives limited or expensive, according to the GAO.