If you’re enrolled in Original Medicare (Part A and Part B), then you probably know it doesn’t cover everything. There are gaps in your coverage that leave you on the hook for significant out-of-pocket costs. Medigap plans fill those coverage gaps and help you better manage and budget for your health care costs. But which Medigap plan costs the least?
Here’s what you need to know about Medigap coverage and how to find the most affordable plan for your needs.
How does Medigap work?
Like Medicare Advantage plans, Medigap plans are offered by private insurance companies, which means premiums are set by each individual company. Unlike Medicare Advantage plans, however, Medigap plans have standardized benefits, which are determined at the federal level. This means benefits won’t vary no matter where you live, for the most part.
States may offer up to 10 different Medigap plans, designated by the letters A through N, although a few states offer nonstandard plans (Massachusetts, Minnesota, and Wisconsin). Not all plan types are available in every state, however.
Medigap plans are designed to make up the difference between what Medicare pays and what you are charged for your health care. Each of the plans offers a different combination of benefits, such as all or part of your Part A and Part B deductibles, coinsurance amounts, and excess Part B charges.
Some offer “first dollar” coverage. This means that you don’t pay any out-of-pocket costs for your covered health care services beginning with your very first service. That’s because your Medigap plan covers your Part A and Part B deductibles and coinsurance amounts.
Medigap plan costs then will vary because some plans cover more than others.
It’s important to note that Medigap doesn’t pay for your prescription drug costs or out-of-pocket costs associated with Medicare Part D Prescription Drug Plans. If you want coverage for prescription drugs, you need to purchase a Part D plan.
Also, if you have a Medicare Advantage plan, you cannot enroll in Medigap. You can only combined Original Medicare with a Medigap plan.
How are Medigap plans priced?
As you might guess, plans with more generous benefits, such as Plan C and Plan F, carry higher premiums, because they include first-dollar coverage.
The other factor that affects your premium is called “rating,” which is the method the insurance company uses to price its policies. There are three ways insurance companies can rate a Medigap plan:
- Issue-age-rated, which means your premium is based on your age at the time you purchase the plan.
- Attained-age-rated, which means your premium goes up as you get older, i.e. the age you “attain.”
- Community rated, which means everyone is charged the same premium regardless of attained age or age at time of purchase.
Medigap plan costs will increase over time regardless of which rating method the carrier uses. This is because Medicare increases the deductibles and copays that you are responsible for each year. Your Medigap plan covers these, so nearly all Medigap plans will have a rate increase each year. The insurance companies need that extra premiums to keep up with the larger share that they cover for you with each passing year.
Lastly, we should mention that rates vary widely by state. For example, Medigap plans in Texas are quite affordably priced, while plans in Florida or Connecticut cost considerably more. This is generally due to the cost of health care in your local area. Florida has a high senior population and the cost of healthcare there tends to be higher than in many other states.
Which Medigap plan has the best value?
It’s impossible to make a value judgment because each person has different health care needs and financial circumstances. Medigap plan costs which are important for you to cover may be different from those your neighbor wants to cover.
For many years, people believed that Plan F offered the best value for seniors with significant or chronic medical conditions. Even though it is also the most costly supplement plan, the savings is often deemed worth it. Consider the potential savings in a single year if you’re covered by Plan F and have a catastrophic health care event:
- Part A hospital deductible – $1,340 for each 60-day benefit period (potentially over $6,000 in one year if you have multiple hospitalizations).
- Part A hospital coinsurance for days 61-90 – $335 x 30, or $10,050.
- Medicare Part A hospital coinsurance for “lifetime reserve” days past 90 days – $670 per day for a max of 60 lifetime reserve days, or over $40,000. (We should also mention: if you tapped into your additional 365 days of coverage, you could potentially save hundreds of thousands with your Medigap coverage).
- Part A skilled nursing care coinsurance, days 21-100 – $167.50 per day, or over $13,000 total.
- Part B deductible – $183 annually
Those figures alone add up to over $69,000 and don’t include your Part B coinsurance for doctor visits and any Part B excess charges, which could easily run into the thousands of dollars.
Plan G Value
In recent years, we’ve noticed that Plan G often ends up being a better value annually than Plan F. People on Plan G pay only the Part B deductible on their own. The policy otherwise functions just like Plan F. However, premiums on Plan G are considerably lower, making it worth it for you to pay the Part B deductible.
On the other hand, if you don’t anticipate needing a lot of health care costs, you may just want to know that you are protected against catastrophic out-of-pocket costs. Plan K and Plan L offer more modest benefits but pay 100% of your covered health care costs once you reach your annual maximum ($5,120 for plan K and $2,620 for Plan L in 2018).
It’s important to note, however, that the two most comprehensive plans, Plan C and Plan F, will be phased out in 2020. If you think you want that level of Medigap coverage, you need to purchase it before then. If you already have Plan C or Plan F when these plans are eliminated in 2020, you will be allowed to keep your coverage.
Tips for Keeping Your Medigap Plan Costs Low
Although you can apply for Medigap at any time, you’ll get the best rates if you sign up when you are first eligible, during the six-month Medigap open enrollment period. During this time, no insurance company can turn you down for coverage regardless of your health status. You can’t be charged a higher premium for pre-existing conditions either.
After that period, you may be subject to medical underwriting. Your premium could go up significantly if you have a serious or chronic health condition. In some cases, you may be unable to get coverage at all.
You should also buy Medigap with an eye for the long term. Think about the level of coverage you think you’ll want five or 10 years from now. It can be difficult and expensive to upgrade to a more comprehensive policy later.
If you enroll in your Medigap policy through Boomer Benefits, we’ll help you do some rate forecasting. We can identify the companies in your area that have historically have had the lowest rate increases.
You pay the same amount for your policy regardless. However, individuals who enroll through our agency get access to our Client Service Team for the life of their policy. We are then here to help you when Medicare denies a claim our a billing error occurs.
Find the best Medicare supplement plan for you by calling us today: 1-855-732-9055.