Don't Judge a Medigap Policy Only by Its Premium
When you're shopping for a Medigap insurance policy, it can be tempting to focus on one number: The monthly premium. For several reasons, however, it is wise to consider various factors.
A Medigap policy is health insurance sold by private insurance companies to fill the "gaps" in Original Medicare plan coverage by helping to pay some of the health care costs that the Original Medicare plan doesn't cover. In essence, Medigap policies are a way for Medicare enrollees to limit their out-of-pocket costs for health care.
They are paired by insurers with Original Medicare (Parts A, hospital coverage; and B, outpatient coverage) and the Part D prescription drug coverage. They cover part or all of the enrollee's deductibles and copayments for health services.
Medicare Advantage plans, which also cap out-of-pocket costs and provide additional benefits, are popular but not a good fit for everyone. Basic Medicare with Medigap is better for some because it doesn't limit their choices of health care providers and may offer better coverage while away from home.
There are 10 standard Medigap plans, designated by letters (A, B, C and so on.) They differ in what they cover.
For example, some cover all of the Part A deductible, while others cover 50% or 75%. Almost 90% of enrollees buy Plans G and N; some plans are unavailable to those who became newly eligible on or after Jan. 1, 2020. Insurers may offer all or only some of them.
The monthly premiums for these plans vary by hundreds of dollars, depending on the plan, the enrollee's age and where they live. Insurers price them in different ways:
- Community-rated: Everyone who buys the plan pays the same premium rate, regardless of age.
- Attained age: The initial premium rate is based on the enrollee's age at the time of purchase. The premium increases as the enrollee gets older.
- Issue age: The premium rate is based on the enrollee's age at the time of first purchase, but does not increase with age.
Premiums can also increase to reflect health care cost inflation and if claims costs and numbers start rising.
What you should consider
These are factors to consider when evaluating a particular Medigap policy:
- Is foreign travel in your plans? Four Medigap plans do not apply to foreign travel exchange costs.
- What is the insurer's history of premium changes? Some companies will enter a market offering low premiums to build market share, only to hike them in succeeding years as claims start to come in. We can guide you on this question.
- Will you be able to switch to another plan when you're older? If you buy a Medigap policy within six months of first enrolling in Part B, the insurance company will not evaluate your health history. After that, another company can reject you because of your health. If a less expensive plan does not offer what you need, it may be difficult to get a better plan later.
- What about end-of-life costs? Some plans cover only a fraction of skilled nursing facility care and hospice copayments and coinsurance.
The final word
The premium you pay for any insurance policy is very important, but it should not be the only factor you consider before buying.
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