The cost of medigap insurance policies, which cover expenses Medicare doesn't pay, can vary wildly. Here's how to sift through the disparities and wind up with the best deal.
By Kimberly Lankford, Kiplinger's
As her 65th birthday approached, Anita Stevens of Holden Beach, N.C., was bombarded with calls and mailings from salespeople hawking supplemental Medicare -- or medigap -- insurance. And she was increasingly skeptical about the wide discrepancies in price among plans that supposedly offered the same coverage.
More than a decade ago, the federal government waded into the medigap marketing swamp to clean things up. The feds had spawned the marketplace by leaving holes in Medicare that were being plugged by private insurance carriers. Stories were legion about shady agents exploiting the confusion and loading policy after policy onto unsuspecting seniors.
To put an end to the rip-offs, Congress ordered medigap policies standardized and made it a crime to sell duplicate policies. Now, medigap plans generally come in 10 variations: Plans A thorough J (although three states -- Massachusetts, Minnesota and Wisconsin -- have their own versions). Plan A offers the least coverage; Plan J provides the most, including prescription-drug coverage. Every Plan A is supposed to offer the same coverage, as is every Plan J.
So why, wondered Anita Stevens, were prices for similarly designated plans so wildly different? For Plan F, the most popular, one company was asking $1,022 a year for a 65-year-old North Carolina woman; another wanted $2,504 -- 145% more. The price range among carriers offering Plan J protection was broad, too, from $2,090 up to $3,511.
Such price gaps are common across the country. A 2001 General Accounting Office study found, for example, that Illinois insurers were charging 65-year-olds from $467 to $1,202 for Plan A medigap policies. In the Empire State, New Yorkers were paying from $1,617 to $2,800 for Plan F. Texans were paying from $2,059 to $5,658 for Plan J.
With such disparities, how can you hope to sort things out when you need medigap insurance? Here's how to find the best deal.
Understand pricing
First, the good news. The coverage offered by competing policies with similar designations is nearly identical.
"Here's a case where the benefits truly are standard," says Tricia Neuman, director of the Medicare Policy Project for the Kaiser Family Foundation, a research organization. "The wide fluctuations in premiums have very little to do with the benefits, but I think people may suspect there's more to it than there really is."
Some policies exclude pre-existing conditions for up to six months, or make it easier to keep your policy if you move, or add on minor extras, such as a prescription-drug discount and AARP's help line staffed by nurses. But otherwise, they're identical.
So, once you know which plan you want, you really can shop by price.
The bad news?
Different companies set prices in different ways. And unfortunately, you have to understand the differences because they affect how premiums will rise in the future. A cheap policy today could become high-priced tomorrow.
In most states, medigap policies can be priced in three ways:
With attained-age policies, premiums will increase as you get older -- typically ratcheting up every one, three or five years. (This is in addition to price increases linked to health-care inflation, a reality that affects all policies regardless of rate structure.) Attained-age policies generally start out less expensive than others, but premiums can rise much faster. For an idea of how fast, ask any insurer whose policy you are considering at age 65 how much it's charging 70-, 75- and 80-year-olds now.
Issue-age policies base your rate on your age at purchase. If you buy the policy at age 65, for example, it's less expensive than if you buy it at 75. But once you buy, the price won't increase just because you get older. (Premiums will rise with health-care inflation.)
"As a general rule, the attained-age policies start out looking inexpensive but end up costing a whole lot more than the issue-age policies," warns Diane Archer, founder of the Medicare Rights Center, which helps senior citizens with their health-care choices.
Community-rated policies are similar to issue-age versions, except that everyone in the same area pays the same price regardless of age (AARP, however, generally provides a discount -- up to 20% -- until about age 68). Once you buy, premiums will not rise simply because you get older.
Lock in premiums
It's usually best to go with an issue-age or community-rated policy rather than an attained-age one, even if premiums are initially a bit more expensive. That way you don't have to worry about rates going up every year. If you aren't in good health, you may have a tough time switching to another policy years later if the steadily rising price gets too high.
To understand the risk, consider this example from the GAO study. A Pennsylvania insurer charged $869 a year for Plan C policies based on attained-age pricing and $1,347 for the same coverage for an issue-age policy. By age 80, excluding increases due to health-care inflation (which would apply to both), the attained-age policy would cost $1,580 while the issue-age policy would remain at $1,347. And the price of the attained-age policy would continue to increase for the rest of the policyholder's life.
The wide gap in first-year premiums in this example -- the 55% difference between $869 and $1,347 -- may make the issue-age surcharge hard to swallow. Fortunately, though, you'll probably find much less of a gap between the lowest-priced issue-age and attained-age policies when you shop.
Again, consider Anita Stevens's situation. For Plan F coverage, the lowest-priced attained-age policy would cost her $1,022 (from United Teacher Associates), while the cheapest fixed-rate issue-age or community-rated policy (AARP's plan) would cost $1,248. For Plan J, AARP's community-rated plan actually costs far less at age 65 ($2,090) than the only attained-age policy available in the state: GE Life and Annuity's $3,511 policy -- and the GE plan's premiums will rise with age.
In almost all cases, then, it's best to go with the lowest-priced issue-age or community-rated policy. You should totally ignore the most expensive ones because you won't get anything in return for the higher premiums.
The standardized plans make it easy to shop around. First, decide which level of coverage you want. Your state insurance department and Medicare have several resources that can help you choose. Also check out the Medicare Rights Center's Web site and its "Filling the Medicare Gaps" booklet.
Then, search for a policy with a keen eye on the insurance company's pricing structure. Most state insurance departments maintain lists of each company's medigap premiums based on age. These are the prices you'd actually pay. As long as you sign up within the first six months of enrolling in Medicare part B, insurers can't raise your rate or deny you coverage because of your health. You can also find a list of prices in your area using the personal plan finder on Medicare's Web site, or Weiss Ratings "Shopper's Guide to Medicare Supplement Insurance" ($45; 800-289-9222). The Weiss report also includes financial-strength ratings.
Don't sweat service
You need not worry that going with a low-priced policy will lead to your being shortchanged on service. With other kinds of insurance, saving a few dollars in premiums can backfire if the insurer hassles you about claims. But service rarely varies with medigap companies, which can't really fight over coverage.
"It's pretty cut-and-dried," says Diane Mahoney, a health insurance agent with the Velco Insurance Agency, in Randallstown, Md. "If Medicare approves the charge, then it's a simple equation. There really is no argument with the doctor." The reverse is true, too: "If Medicare doesn't pay for it, then medigap doesn't either," says Pat Pane of Medical Insurance Assistance in Wilmington, N.C.
Archer of the Medicare Rights Center says, "In 13 years, I've heard fewer than five complaints about medigap policies, because they work automatically. If Medicare pays 80%, then medigap kicks in 20%."
The only thing that may vary is administration. Some companies, including AARP and many Blue Cross and Blue Shield plans, use electronic filing: The doctor's office submits the claim to Medicare, which automatically sends it to the medigap insurer. Other insurers require the doctor to submit the medigap claim, but "it's all invisible to the patient," says Margo Illobre, the billing supervisor for an 18-provider family-practice group in Wilmington, N.C. Only a few companies require patients to submit paperwork themselves.
Find a better policy
It's important to make the right choice when you first buy a medigap policy. During the first six months after signing up for Medicare, insurers can't deny coverage or impose a surcharge based on your medical condition. During this six-month window, you have the most choices.
But if you already have a medigap policy, check out your state insurance department's price lists to see if you can get a better deal. Depending on your health and your state's rules, you may be able to save a lot of money by switching to another company.
Doris and Roy Zehner of Gerry, N.Y., had been paying $306 a month for Plan C through American Progressive. They were satisfied with the service, especially when Roy had heart surgery two years ago. But "the price kept creeping up," says Doris.
As members of AARP, the Zehners discovered they could get the group's Plan C policy for just $220 a month, saving about $1,000 a year for the same coverage. Since most AARP policies are guaranteed-issue (except for plans H, I and J), meaning that you can't be denied because of poor health, Roy qualified despite his surgery.
Before they made the switch, though, the Zehners checked out the company's reputation. First, they talked to a neighbor with heart problems who had a good experience with the AARP plan. Then they talked with Angela Shortino of AMS Insurance Services, in Brockport, N.Y., who's been handling their health insurance claims for years. Shortino vouched for the AARP plan's reputation.
In New York, all plans are guaranteed-issue, making it easy to switch at any age. "I try to do a review with my clients every 12 months," says Shortino. "The policy that was good for them a few years ago may not necessarily be the best one for them now."
In most states, however, you need to be in good health to switch policies after the six-month open-enrollment period (except for a few guaranteed-issue plans like AARP's). But each company's standards are different. One may turn you down, but another may offer a great rate. It helps to work with an agent who knows which conditions each insurer is likely to accept (although some policies, like AARP's, are not sold through agents). And -- especially important -- don't drop your old policy until the new one is issued.
Reporter: Erin Burt
|
