How to Pick a Medigap Policy
More than 10,000 people enroll in Medicare each day, according to the National Council on Aging. If you are getting ready to join these ranks, you may find yourself in the market for a plan to pay costs not covered by original Medicare.
Here are five steps to help you find the right plan for your needs.
Step 1: Decide if you want Medigap or Medicare Advantage.
First, know that Medicare alone will not cover all your health care costs.
“Original Medicare pays about 80 percent,” says Jane Kassel, owner of insurance brokerage firm Kassel Benefits in Phoenix.
Those who want to avoid provider restrictions may want to consider a Medigap policy, also known as a Medicare supplement. These policies cover expenses anywhere Medicare is accepted and may provide what Ross Blair, vice president of eHealthMedicare.com, calls “bumper to bumper coverage” that results in little to no money spent out-of-pocket for health care costs.
For those who decide they want a Medigap plan, the next step is to become familiar with the options.
“The great thing about Medigap plans is that they are standard benefit design,” says Kris Schneider, vice president of insurance product and carrier management at Aon Hewitt.
Standard benefit design means Medigap policies offer a uniform set of benefits. The policies are lettered from A to N, with each letter representing a different set of benefits. Since Medigap plans are regulated at the state level, not every plan is available in all states. In addition, Massachusetts, Minnesota and Wisconsin have nonstandardized plans.
Of the standardized plans, Plan A offers the most basic coverage, paying Medicare Part A and Part B coinsurance costs as well as up to 3 pints of transfused blood. Plan F is considered the most comprehensive, covering coinsurance, blood, deductibles, skilled nursing in facility care, foreign travel and Part B excess charges. “Plan F is the only plan that covers everything,” Kassel says.
“Medicare consumers have to be very thoughtful about their medical costs,” Schneider says. “[They need to consider] what are their costs now and what they will be in the future.”
Schneider suggests Medicare-eligible individuals consider all the following when weighing their options.
- Personal preference
- Risk tolerance
- Ability to pay
- Lifestyle and travel
“It is also important to ask about rate stability,” Schneider says. Looking at historical rate changes is one way to gauge stability. Blair suggests consumers also find out which of the following rating mechanisms are used for the policy they are considering.
- Community rated: Plans that are community rated do not use age as a factor when calculating premiums. Everyone enrolled in the plan, regardless of age, pays the same amount.
- Issue-age rated: The premiums for these plans are based upon an individual’s age at the time he or she purchases the policy.
- Attained-age rated: These policies have premiums that will adjust every year based on an individual’s age.
According to Blair, community-rated plans may cost more upfront, but then rates tend to remain stable. Attained-age plans, which Blair likens to variable-rate mortgages, start out inexpensive, but rates increase rapidly as you age.