Don’t Overpay for Medigap

Medical care expenses are rising. Many retirees compound the problem by paying more for medical expense coverage than they should. The premiums on Medicare are increasing by 17.4% for 2005. You can’t do anything about that. But most people on Medicare also purchase Medicare supplement (or Medigap) insurance policies. Too many of these people overpay for their coverage.

Medigap policies pay for some expenses that Medicare doesn’t cover. These expenses can include the Medicare deductibles and co-payments as well as some medical treatments. There are 10 types of Medigap policies, though not each type is available in every area of the country. Each type covers different expenses. The most expensive policies provide prescription drug coverage.

What many retirees overlook is that prices for Medigap policies with the same coverage vary greatly. Not realizing this can cost a Medicare beneficiary hundreds or thousands of dollars in extra premiums each year. Prices vary not only nationally but also within geographic areas. A recent study found that nationally the prices for one type of policy varied from about $600 annually to over $6,000 annually. Locally prices don’t vary that much, but they do vary considerably. You could save 50% or more by careful shopping.

Premiums differ for several reasons. One factor is the claims experience of the insurer. An insurer that doesn’t screen carefully new policyholders is likely to be surprised by higher than anticipated claims. An insurer that gets significant medical information from applicants is likely to have lower premiums and more predictable premium increases.

More important is the way the premiums are computed. Don’t simply go for the lowest premium. Learn how the premium is computed, so you’ll have an idea of how it will change over time.

An attained age premium is based on the insured’s age and increases as he or she ages. This is a good deal for younger, healthier buyers. But premiums will rise steeply as one ages and could become unaffordable after some years.

Entry age premiums charge the same premium for everyone in an age group. The group might encompass five years. The premiums rise as the group ages, but do not rise as much as for attained age policies.

Community premiums are based on the entire customer base of the insurer. Under this method, younger insureds essentially are subsidizing older insureds. As one ages, the premiums under this method will be lower than for the alternatives. But there is a risk that primarily older and sicker people will be attracted to this type of policy, so there will be fewer younger people to keep the overall premiums low. The premiums could increase more rapidly and to higher levels.

There is no best or worst method. But you need to know which method an insurer is using, so that you will be able to assess how it might rise in the future.

Medicare can help you shop for policies. Go to the Medicare web site at www.medicare.gov or call 800-Medicare. Medicare will be able to tell you which insurers offer Medigap policies to people in your ZIP code. Each insurer won’t offer each type of Medigap policy.

To shop smartly for Medigap insurance, first determine the type of policy you want. The articles in the Health Watch section of the Archive on the members’ web site will be helpful. Then, get the list of insurers in your area from Medicare and contact that in your area that offer the type of policy desired and get premium quotes.

Quotes can be obtained readily from web sites, such as insure.com. But don’t expect that any site will cover all insurers. Take the extra time to make a few phone calls.

This is a little more work than the way most people shop for Medigap policies. But it can save you hundreds of dollars,or perhaps more, each year. November 2004.