October 6, 2016
Since Medicare Supplement (Medigap) plans have standardized benefits in most states, consumers sometimes assume that the premiums must be standardized as well. This isn’t true, and premiums can actually vary widely by insurance company. It is important to be aware of all the factors that affect your Medicare Supplement premium cost so you can make an informed decision on the best time to join a Medicare Supplement plan.
How insurers price Medicare Supplement premiums
Medicare Supplement plans each typically charge a monthly premium for insurance coverage. This is separate from the Part B premium you pay for Original Medicare. There are 10 standardized Medigap plans offered in 47 U.S. states, each designated by a letter: A, B, C, D, F, G, K, L, M, and N. Not every plan type is offered in every state, but the benefits will be the same regardless of location or insurance company, although some companies may provide additional benefits. Massachusetts, Minnesota, Wisconsin have their own state-specific standardized Medigap plans.
Insurance companies can charge different premiums for the exact same benefits. When comparing plan costs, make sure you’re comparing plan premiums for the same plan letter. You should also request plan quotes for your specific circumstances. Factors like your age, marital status, gender, and whether you smoke can affect the monthly premium quoted to you.
When shopping for a Medigap plan, you might want to ask how the insurance company sets its premiums. Insurers typically use one of three pricing methods:
- Attained-age-rated: The premium price is based on your current age, so it increases as you get older. Under this plan, premiums are lowest if you enroll when you’re younger, but can quickly go up in price as you age.
- Community-rated: Everyone pays the same premium price, regardless of age or other factors. The price doesn’t increase as you get older, but it can be raised for other factors, such as inflation.
- Issue-age-rated: The premium price is based on your age when you enroll in the plan. The premium won’t increase due to your age, but the plan may increase the price based on other factors, like inflation.
Knowing a plan’s pricing model can help you decide which plan may be best for you in the long term, considering both current and future costs. For example, an age-attained plan may be cheaper when you initially join, but could end up being even more expensive than an issue-age or community-rated plan because of how the price increases annually.
Is medical underwriting required?
Depending on when you enroll in a Medicare Supplement plan, your health status could affect your premium costs. Unlike Medicare Advantage plans, in some situations Medigap plans can use medical underwriting to decide whether to accept your enrollment application and how much to charge you. Medical underwriting is the evaluation of your past and present health status. Depending on your medical history, you might be denied coverage or given a higher rate for coverage.
However, if you apply for Medigap coverage during your six-month Medigap Open Enrollment Period, an insurer cannot use medical underwriting and is generally required to cover any disabilities or pre-existing conditions, although waiting periods may apply. During this time, you typically have a guaranteed right to join any Medigap plan available in your area. Your Medigap Open Enrollment Period begins automatically when you are 65 and have Part B. If you have health issues, this is the main time your health status will not affect the cost of your Medigap premium.
Alongside of the Medigap Open Enrollment Period, there are some situations where you may still have a guaranteed right to join a Medicare Supplement plan. Generally, however, the best time to enroll in a Medigap plan is during your Medigap open enrollment period.
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