If you’re shopping for Medicare supplemental insurance, one of the most important factors to consider is the cost of the policy.
Also known as a Medigap policy or Medicare Gap, supplemental insurance helps cover the gaps when Original Medicare does not fully cover your medical bills. They can be especially helpful, such as when unexpected medical situations or high healthcare costs arise.
Because Medicare supplemental insurance policies are provided by private insurance companies, they set the premium prices. Figuring out which Medigap policy is right for you can be confusing enough. Add in trying to navigate the costs of these policies, and supplemental insurance shopping can be a frustrating experience.
Below, we’ll explore how supplemental insurance works, how policy prices are set and what you need to know when comparing plans so that you get the coverage you need for the price you pay.
How Supplemental Insurance Works
Supplemental insurance helps cover some of the costs Original Medicare insurance does not. If you’re enrolled in an Original Medicare policy, Medicare will pay its share of the Medicare-approved health care costs first. Then, your supplemental insurance policy kicks in, paying the remaining portion that the policy covers.
In most states, private insurance companies that sell these supplemental insurance plans only sell standardized policies. That means each policy must offer the same benefits, no matter the insurance company.
Examples of what Medigap policies cover include:
- Coinsurance
- Co-payments
- Deductibles
- Emergency foreign travel expenses
They do not cover long-term care like nursing homes, vision or dental care, hearing aids, eyeglasses and private-duty nursing.
To address gaps in coverage under Original Medicare, insurance companies offer Supplement Plans A, B, C, D, F, G, K, L, M, and N. More details about these plans can be found in our article, A Guide To Medicare Gap Insurance.
How Policy Prices Are Set
Each insurance company chooses the price, or premium, of each supplemental insurance policy. It’s important to note that supplemental insurance costs vary based on quite a few factors, including:
- Where you live
- Type of plan you need
- Your age
- If you are a smoker
- The insurance carrier
For instance, if you’re a 65-year-old non-smoker in Los Angeles County, and you’re purchasing Medicare Supplement Plan F, the price would be approximately $180 to over $200 per month.
According to the U.S. Department of Health and Human Services, Medigap policies are priced three ways:
- Community-rated
- Issue-age-rated
- Attained-age-rated
Other factors, such as where you live, medical underwriting and discounts may impact the cost of your premium as well. Looking at these three factors below will better help you understand how much a Medigap policy may cost you now and in the future.
Community-rated
If a policy is community-rated, that means everyone who has the Medigap policy pays the same premium, regardless of age or gender. Premiums may rise for other reasons, such as inflation or other factors, but will never go up because of your age.
Issue-age-rated
If a policy is issue-age-rated, that means the cost you pay is based on your age when you purchase the Medigap policy. Younger people tend to pay lower premiums, and those premium amounts won’t change as you get older because of your age. Like community-rated policies, your cost may go up because of inflation or other factors, but won’t because of age.
Attained-age-rated
If a policy is attained-age-rated, the premium is based on your current age. That means, as your age goes up, so does your premium amount. Premiums are lower for younger buyers, but as you get older, you’ll have to pay more. You’ll notice these policies are inexpensive at first, but over time, they can evolve to be the most expensive options. Costs also may rise because of inflation and other factors.
What To Know When Comparing
Medigap premiums can vary widely among insurance companies, even when the policies are the exact same in coverage.
As you compare policies among the various insurance companies, you’ll want to closely examine the type of pricing model used, as described above. Overlooking this can cost you more in the long-term.
As mentioned above as well, the cost of your supplemental insurance policy may depend on other factors as well, which are important to keep in mind and compare among the insurance companies you’re considering. These factors include whether the insurance company:
- Offers discounts, such as for non-smokers or if you pay annually.
- Applies a different premium if you don’t purchase a policy during an open enrollment period.
- Sells Medicare SELECT policies, which require you to use certain providers to take advantage of the full benefits.
- Uses medical underwriting, a process that examines your medical history to determine whether your application is accepted and whether the insurance company will add a waiting period for pre-existing conditions.
The process of choosing a Medicare supplemental insurance plan, while taking into account all of the factors above, can be overwhelming.
A licensed insurance agent with expertise in Medicare coverage can help evaluate your coverage needs and budget, as well as guide you through the process of understanding how your circumstances affect the costs of Medigap policies.
An agent not only will advocate for you, but work with you to ensure the process of choosing Medicare supplemental insurance is as easy as possible.
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