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Medicare Supplement-Medigap Premium Cost Comparisons

Besides the $1,184 deductible that comes with Medicare Part A (hospital insurance), and 20% coinsurance for medical care under Medicare Part B, there are other costs for which you could be responsible when you receive health care. For example, if you're in the hospital for more than 60 days or a skilled nursing facility for more than 20 days, you will owe a flat dollar amount to the facility. And if you're in the hospital for over 150 days, or a skilled nursing facility for more than 100 days, you are responsible for the entire bill. If you're not in the best of health, those costs can drain your pocket fast.

Enter the Medigap policy. Medigap is supplemental insurance that provides protection against costs that Medicare does not pay. Medigap policies are offered through private insurers in each state, and the costs of Medicare Supplement plans can vary widely.

Medigap Plan Pricing - Not All Plans Priced Equally

First, it's important to note that Medigap policies are standardized by the federal government. No matter which insurance company is advertising policies, the policies are virtually the same from one insurer to the next. So, even though Medigap premiums may be different, the products are the same.

There are ten different types of Medigap policies** labeled A through N. Each type of policy covers different benefits. One may cover coinsurance amounts, while another covers coinsurance, deductibles, emergencies during foreign travel and more. Two of the plans even put a cap on your out-of-pocket expenses. None of the newer Medigap policies cover prescription drug expenses.

The trick is to first have an idea of what your future health care needs could be. Then choose the Medigap policy that will offer you the protection you need at a price you can afford. Since the policies are the same, choose the one you're interested in and then shop around for the costs of Medicare supplement in your state. See also "How insurance companies set Medicare supplement premiums" below for more about this.

Enroll in Medigap as Soon as You're Eligible

Even if you're in good health, buying a Medigap policy now may be a good decision. If you buy a Medigap policy during the Medigap Open Enrollment period (that is, the first six months a person age 65 or older is covered by Medicare Part B), you can choose any of the ten policies available no matter what your health status is. But, if you choose the policy with the lowest Medigap premiums because you are in good health, or if you decide not to buy a policy during this period, you might not be able to get one or upgrade later if your health takes a downward turn. With a few exceptions, you are generally guaranteed any policy only during the initial open enrollment period.

Your age when you enroll in Medigap can affect your Medigap premiums. So, keep in mind that if you delay enrolling in Medicare Part B because you have other health insurance, your Medigap open enrollment period still begins when you enroll in Medicare Part B.

Also, if you switch from Original Medicare to a Medicare Advantage Plan, you do not need a Medigap policy (and can't be sold one). But if you move out of your Medicare Advantage Plan's service area, or if the plan leaves Medicare, you can re-enroll in Medigap at that time if you switch back to Original Medicare. You cannot just decide to switch back to Original Medicare and be guaranteed a Medigap plan unless it is within one year of switching to Medicare Advantage in the first place.

How Insurance Companies Set Medicare Supplement Premiums

Your age can have an effect on how much you pay in Medigap costs. Insurance companies have three options for setting Medigap premiums. These methods will impact how much you pay now, and how much you pay in the future. The three methods are:

  • Community-rated (or, "no-age-rated") plans - Everyone pays the same monthly Medigap premiums regardless of age. That means if one person is 65 years old and another is 72 when first enrolling, they both pay the same monthly premium. Premiums do not go up as you age, but they can go up each year because of inflation.
  • Issue-age-rated (or, "entry-age-rated") plans - Medigap costs are based on how old you are when you first enroll. The 65-year-old person will pay less than the person who is age 72. Premiums don't change because you get older, but could increase because of inflation.
  • Attained-age-rated plans - This Medigap premium method is based on your current age. As you get older, your premium goes up. The 72-year-old individual will pay more, but the 65-year old person will get to that price eventually. Inflation can also impact pricing.

When shopping for a policy, you not only want to see who charges the least for the same plan, but also see which pricing method is used to set that price. Your age when you first enroll may have an impact on your decision.

Saving on Medicare Supplement Plans

While it's important to choose the best plan during the Medigap open enrollment period, you may be able to change policies later. Check your state insurance department's Medigap premiums lists to see if you're getting the best deal. You could save on Medigap costs depending on your health status and your state's rules. While you usually have to be in good health in most states, that's not always true. Some plans are guaranteed issue even if you switch after your open enrollment period. Most importantly, never drop your old policy until you secure a new one first.

** If you live in Massachusetts, Minnesota or Wisconsin, you have different choices. Call your state insurance department or read Section 7 in 2010 Choosing a Medigap Policy: A guide to Health Insurance for People with Medicare, available from the Centers for Medicare and Medicaid Services (CMS) and the National Association of Insurance Commissioners (NAIC).

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Medicare Advantage Plans, sometimes called "Part C" or "MA Plans," are offered by private companies approved by Medicare and provide Medicare Part A and Part B coverage. Medicare prescription drug coverage is insurance run by an insurance company or other private company approved by Medicare. A Medicare Supplement plan is a health insurance plan provided by a private company that fills in the "gaps" in original Medicare coverage.

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