One of the most important decisions for pre-retirees and retirees is the type of insurance you select to supplement your Medicare benefits. Since the price you’ll pay for this coverage can range widely among different insurance companies, it pays to comparison shop.
If you participate in Original Medicare, then it’s critical to buy a Medicare Supplement Plan, aka Medigap plan. This plan will cover the substantial deductibles and copayments under Original Medicare, which can add up to thousands of dollars each year if you incur significant medical expenses.
FYI: The other way to participate in Medicare is through a Medicare Advantage Plan, which provides comprehensive medical benefits in a managed care environment. This post doesn’t address those types of plans.
Monthly Medigap premiums can vary widely among insurance companies
You can see the wide range of premiums for Medigap plans in the “2022 Medicare Supplement Price Index,” which was recently released by the American Association for Medicare Supplement Insurance. This price index compares the lowest and highest monthly premium amounts in 10 large cities for a 65-year-old man and woman.
There are several types of Medigap plans with standardized benefits; these plans are identified by a letter. The price index surveys Plan G, the most common form of Medigap insurance, elected by 55% of 65-year-old seniors who buy a Medigap plan.
Just to give you an idea of the possible range of monthly premiums identified by the price index, suppose a 65-year-old woman living in New York City, the city in the index with the highest premium costs, wants to purchase a Medigap plan. Currently, the insurer with the lowest monthly premium would charge $278.25, while the insurer with the highest monthly premium would charge $476.04.
Now let’s suppose this woman lives in Dallas, the city in the Index with the lowest premium amounts. In this case, the lowest monthly premium she would pay is $99.24, while the highest amount she would pay would be $202.16.
What can you do with this information?
If you haven’t yet started Medicare, then you’re in the best position to shop for Medigap coverage. Most people become eligible for Medicare at age 65, although some people become eligible later if they continued working and received medical coverage through their employer.
When you’re first eligible for Medicare, you can select any Medigap policy that’s offered in your geographic area. At that time, insurers aren’t allowed to apply medical underwriting. This means that if you have a preexisting condition, they can’t exclude you or charge a higher premium. In future years, you have the guaranteed right to continue your policy, provided you maintain the policy by paying the premiums. As a result, you should do your shopping and select carefully, since you might need to live with your choice for a long time.
In the years after you’re first eligible for Medicare, you might be restricted in your ability to change Medigap policies. Many states allow insurance companies to apply medical underwriting, which means they can exclude people who have preexisting conditions or charge higher premiums.
There are some situations in which you can switch to a new Medigap policy, and a few states allow some freedom when it comes to switching Medicap policies. This link contains more information on these situations and states, and how insurance companies might apply medical underwriting.
Like many retirement planning decisions, it pays to spend some time learning about your options and doing some comparison shopping. You might be able to save a lot of money over the course of your lifetime so you can continue to afford a medical plan that helps keep you healthy and alive!