How to Choose a Medigap Policy
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Your choice of a Medigap policy depends on two things: which one provides the set of benefits that comes closest to your needs and preferences and how much you’d pay for it. The first is pretty easy to decide when you compare the benefits that each policy covers.
For example, if you never intend to travel abroad, you don’t need a policy that covers emergency care outside the United States. The second is trickier because what you pay for a Medigap policy depends on several factors:
What type of policy you buy: Policy A has the fewest benefits (four), while policy F has the most (nine). You get what you pay for, so the premiums charged for F tend to be considerably higher than those for A, with the others on a sliding scale in between.
When you buy the policy: Buying during a time frame when you get important consumer protections makes a huge amount of difference to your premiums.
Where you live: Medigap premiums vary according to geographical area. On the whole, premiums are lower in areas where a lot of people are buying policies and higher where they’re not. (For example, a recent government report showed average premiums for Medigap plan F ranging from $129 to $226 a month in different states in 2010. These averages are likely to be higher now.)
Whether the insurer gives you a discount: Some Medigap insurers give lower rates to certain groups of people, such as women or nonsmokers.
How the insurer prices your policy: Insurance companies use one of three rating methods, which can greatly affect the price of the premium:
Community rating: You pay the same premium as everybody else in your area who bought the same policy, regardless of age, and the premium can’t rise each year as you get older.
Issue-age rating: Your premium is based on the age you’ve reached when you buy your policy, and it can’t rise each year as you get older.
Attained-age rating: Your premium is raised each birthday for as long as you keep the policy.
Experts say that if you intend to buy a Medigap policy, you should purchase the one with the most comprehensive set of benefits that you can afford at that time because upgrading to another a few years down the road is more difficult and costly.
When you’ve decided which policy you want, your next step is to call several insurance companies that sell this policy in your area and ask for a quote — that is, what they’ll charge you in premiums. Keep in mind that the policy provides exactly the same benefits regardless of which insurer you choose, so it’s worth shopping around.
When getting quotes, find out in particular what kind of rating method each insurer uses. But be aware that paying more at the beginning may be more economical in the long run. Community-rated and issue-age-rated policies tend to cost more than attained-age-rated policies at first. But as you get older, the latter becomes far more expensive than the other two.
Understand, however, that premiums for all policies — regardless of rating method — can rise from year to year for reasons other than age, such as general inflation.
How do you find Medigap insurers? Mostly, they find you! You can expect to be hit with a torrent of marketing materials in your mailbox around the time you turn 65. But to keep the ball in your court, you may prefer to be the one initiating contact. You can find contact info for insurance companies that sell Medigap on Medicare’s website or by calling your state department of insurance.