Once you become eligible for Medicare at age 65, you will be inundated with offers from insurance companies for Medigap (supplemental insurance) policies. Sorting through these offers can be confusing; there are 12 standardized plans, with HUGE differences in premiums between companies.
Medicare plans A and B cover only a portion of medical costs. Medigap policies fill in the "gaps" in coverage. The first step is to figure out what coverage you will need. The government currently has 10 standardized plans, each represented by a letter. Medicare publishes a guide, Choosing a Medigap Policy, www.medicare.gov/sites/default/files/2018-07/02110-medicare-medigap.guide_.pdf that explains the differences in plan coverage.
Consider these things when looking at plans:
- If you regularly see doctors who charge above what Medicare pays, Plans F and G, which cover excess charges, may be your best bet.
- Plans C, D, F, G, M, and N include coverage for travel outside the United States.
- If you have a chronic condition with high medical bills, Plan K or L may work best. Both pay only a portion of covered expenses, but have a yearly out-of-pocket cap. Once you reach the cap, the policy pays 100% of all medical services.
Plans that cover the Medicare Part B deductible (Plans C and F in most states) will no longer be sold to most people who become eligible for Medicare after January 1, 2020. If you buy a Medigap Plan C or F before January 1, 2020, you can keep that plan and your benefits won’t change.
Once you've decided what type of coverage you need, you next need to decide which company from which to buy. Medigap Policy Finder, www.medicare.gov/find-a-plan/questions/medigap-home.aspx provides a list of companies in your state.
Each plan covers the same medical services, but premiums can vary significantly. The companies use three different methods to set premiums:
- Attained-age policy premiums are based on your age, so the premium automatically increases as you get older. Before buying an attained age policy, ask the insurance company for premium costs for the next age increments, so you'll know what increases to expect each year.
- Issue-age policy premiums are based on the age you first buy the policy. The premium will never be higher than the amount the company is charging new buyers at the same age. For example, if you buy the policy at age 65, in five years, the premium will be what the company is charging new 65-year-old buyers. While your premiums may increase, the increases may not be large because the company will keep premiums lower to attract new buyers.
- Community policy premiums charge the same price to everyone in your area regardless of age. The premiums go up only when the insurance company raises premiums on all policies of the same type; increases are regulated by state insurance departments.
Although the premiums on an attained-age policy may be lower at first, issue-age or community policies are generally better buys; although more expensive at first, they doesn't increase as much over time.
Some other things to keep in mind when choosing a policy:
- Look for a company that files Medigap claims automatically, which can save time and effort.
- Purchase from a financially sound company. Make certain that the insurer is rated in the top two categories by one of the services that rates insurance companies, such as A.M. Best or Weiss.
- Contact your state insurance department to find out if the insurance company has any complaints filed against it.
Although finding the right Medigap policy can be daunting, these tips can help remove some of the confusion. We also offer a free educational workshop to help with your estate and asset protection planning. Just click here to RSVP for the day and time that works for you