The ABCs of Selecting a Medicare Supplement Plan
Just like practically every other health insurance plan known to man, Medicare comes with deductibles and co-pays. And, while original Medicare generally offers good coverage, it also comes with some holes.
For instance, I wouldn’t rely on it if you’re planning to go abroad — at risk of Montezuma’s revenge. Basic Medicare won’t cover care received during foreign travel. It also won’t pay for the first three pints of blood should you need a transfusion. And it may let you be billed for “excess charges” should your provider bill for more than what Medicare divines to be appropriate.
You can fill these holes by purchasing a Medicare supplement plan, also known as a Medigap plan. Here are the ABCs (and D) of finding the right plan.
A: Analyze your options
One of the best things about Medicare supplement plans is that they are all standard, and they can all be used anywhere a provider accepts Medicare payments.
Currently, there are 10 plans on the market, and they are labeled with letters from A-N. Because the plans are standardized, Plan A from Company X is exactly the same as Plan A from Company Y. It makes it easy to shop. You simply need to compare prices and look for a company you trust. No need to pull out a spreadsheet and compare deductibles, networks and co-pays.
Your biggest decision will be to pick the right plan. Medicare has this handy chart on its website that may help you out. In addition, here are a few points worth noting:
- Plan A is the most basic plan and will pay for most of your coinsurance and copayments, minus any related to skilled nursing facility care.
- Plan F is considered the most comprehensive and will pay for all co-pays, deductibles, coinsurance, foreign travel and any excess charges that original Medicare will not cover.
- Plans K and L are the only plans with an out-of-pocket limit, which functions much like a deductible. All the other plans will begin paying benefits immediately.
If you live in Massachusetts, Minnesota or Wisconsin, your options will be different because we apparently wouldn’t want to make this too easy, would we? Click on the Medicare link above and scroll to the bottom of the chart to find links to your states’ plans.
B: Buy a community-rated plan
Once you know which plan you’d like, you can begin shopping around. Again, because the plans are standardized, price will likely be your main consideration.
However, don’t automatically jump on the plan with the lowest price. It could be the one that will see rates rise most rapidly as the years pass. You see, Medicare supplement plans have premiums that are calculated in one of three ways.
- Issue-age rated
- Attained-age rated
If you can, you want to buy a policy that is community-rated. These plans may cost a little more initially, but future premium increases should be modest, maybe 4-5 percent each year. That’s because community-rated plans don’t base premiums on your age and instead charge the same amount to everyone enrolled in the plan.
Unfortunately, community-rated plans simply aren’t available in some areas. In that case, an issue-age plan is your next best bet. These plans have premiums based on your age when you initially purchase the policy.
Attained-age policies should be your last choice. They adjust premiums every year to reflect your age. As a result, your premiums may start out low in your 60s and then skyrocket in the years to follow.
C: Call a broker
Still feeling a bit confused?
Then don’t be afraid to pick up the phone and call an insurance broker for help. By law, brokers can’t tack on a commission to the price of a policy, which means you’ll pay the same premium regardless of whether you buy through an agent or direct from a company.
A good agent can help you walk through the various plans and pinpoint which one best suits your lifestyle. However, look for an independent broker who works with a variety of companies rather than someone associated with a specific insurer. Known as “captive agents,” individuals working for one company can certainly be helpful and objective, but you’ll have more choices going through someone independent.
D: Don’t delay
OK, this is the ABCs of Medicare supplement plans, but we’ll throw in a bonus “D” here as well. And that would be “D” for don’t delay in signing up.
When you turn 65, you have an initial enrollment period of seven months that includes three months before your birthday, your birthday month and the three months that follow. If you’re enrolling in original Medicare (versus Medicare Advantage), this is when you want to get your Medicare supplement policy.
During the initial enrollment period, you’re guaranteed coverage without any underwriting. In other words, the insurance company can’t look at whether you have any pre-existing conditions and then decide to deny you a plan or jack up your premiums. Once that initial period ends, you can still buy a Medicare supplement, but the door opens for insurers to start asking all sorts of questions about your health status. Then you could end up paying significantly more for your coverage, or you may be barred from buying certain plans.
This last point is why it’s so important to select the right plan upfront. You should be thinking about your Medicare supplement as a long-term investment and look for a plan that will serve you well today as well as 15-20 years from now. While you may have the option of canceling or switching plans down the road, it could be a costly decision.