If you’re selecting a Medicare supplement insurance policy now, don’t make a common mistake that could strain your financial health later.
You might be one of the more than 11,000 Americans a day turning 65 and looking to buy a Medigap policy to help cover health care costs that Original Medicare doesn’t.
Policies with low monthly premiums might lure you in, but you might not be aware how fast and how high those premiums can grow as you age.
If you’re an older retiree looking for a lower-priced plan, you might find your options limited.
“Medigap rates are not guaranteed, something few seniors are aware of or think about when picking a carrier,” says Jesse Slome, director of the American Association for Medicare Supplement Insurance (AAMSI), which compiles and analyzes Medicare supplement information.
“Insurers can and do typically increase Medigap rates each year, and you aren’t always guaranteed the ability to switch from one insurer to another following a rate increase,” according to Slome.
While some states offer flexibility for switching policies, it’s best to get it right from the start.
“You are likely to have Medigap coverage for many years, possibly decades,” Slome says. Switching may be difficult “or at the very least very costly.”
Rate hike impacts
Half of all Medicare supplement companies in one state raised premiums for popular Medigap Plan G policies by double digits from May 2023 through April 2024, according to an analysis conducted for AAMSI by Ken Clark, president of Chicago-based KLC Actuarial.
Clark says he focused on rates in Texas, a large state that is representative of the nationwide regulatory environment.
Year-over-year rate increases for companies with 1 million or more Medigap members ranged from zero up to 18%, he says. For companies with 400,000 to 1 million members, rate increases ranged from 7.5% to 20%. Medigap insurers with fewer policyholders, between 200,000 and 400,000 members, reported rate increases between 7.5% and 12.0%.
“Promoting plans with extremely low rates for seniors turning age 65 without a cautionary warning about future rate increases can really impact people,” Clark says.
If you turn 65 today and snag a popular Medicare Supplement Plan G policy with a $175 monthly premium to start, and the price goes up by what Clark calls a conservative 6% annually, you’ll pay about $234 monthly at age 70; $313 monthly at age 75; and, God willing, at age 80, $419 monthly — more than $5,000 a year.
Medigap basics
Medicare enrollees are split almost evenly in how they receive their benefits. About half choose Original Medicare, also known as traditional Medicare, in which health care costs are paid directly by the government. It includes three components:
- Medicare Part A, free for most seniors, covers hospital and inpatient care.
- Medicare Part B, which requires a monthly premium, covers doctor visits and other outpatient care.
- Medicare Part D includes separately sold prescription drug policies.
The other half of enrollees buy Medicare Advantage plans. Called Plan C, this is privately sold health insurance that bundles Part A, Part B and often Part D prescription drug coverage along with other services. See here if that’s right for you.
While Original Medicare will let you see any doctor who accepts Medicare, Medicare Advantage plans usually hold you to the issuer’s network of health care providers.
Medigap policies — also known as Medicare Supplement plans — enter the picture as a way to cover gaps in the coverage offered by Original Medicare. For instance, they may pay for the 20% coinsurance required by Part B.
Just over 1 in 5 Medicare enrollees buy a Medigap policy, says health policy group KFF, and only those enrolled in Original Medicare are entitled to purchase one.
Choose wisely
As the Texas Department of Insurance and others say, it’s best to buy a Medicare supplement plan during your one-time, six-month Medicare supplement open enrollment period that begins when you enroll in Medicare Part B at age 65 or older. That’s the only federally-mandated time companies must sell you a policy regardless of your health history or condition. It’s called your “guaranteed issue” right. The insurance company you choose will automatically renew your policy regardless of how your health changes so long as you keep paying the premiums.
(Don’t confuse your initial open enrollment period with the highly publicized annual fall Medicare open enrollment period. That’s mainly for changing Medicare Advantage and prescription drug plans.)
If you wait until after your initial open enrollment period or your policy lapses, you might not be able to buy another Medigap policy if you have a pre-existing condition. And if you can, you might be charged a higher premium.
Several states do allow annual switching, but details differ over your “guaranteed issue” right.
Missouri, for example, says you can change from one company’s lettered plan to the same-lettered plan from another company within 30 days of your policy’s anniversary date without the new insurer denying you coverage or imposing a waiting period based on pre-existing conditions. Nevada allows similar switching for Medigap policies with the same or lesser benefits, but the 60-day period for making a switch starts on your birthday.
Check with your state’s insurance department to see if you have flexible policy-switching rights.
Standardized policies
As Medicare.gov and others point out, the benefits you receive in each of 10 lettered Medigap plans, A, B, C, D, F, G, K, L, M and N, are standardized so they are the same no matter which insurance company sells them. Only the premium price differs by company. (Exceptions: If you live in Massachusetts, Minnesota, or Wisconsin, your state offers different plans, but they’re still standardized.)
Lettered Medigap plans act like add-ons to your Original Medicare. To varying degrees, they help you pay the out-of-pocket costs not covered by Medicare. Some plans, like basic Plan A, focus on hospital coinsurance and copays and Medicare Part B copays. Others, like popular Plan G, are more comprehensive and can cover copays and other expenses such as foreign travel emergencies.
An insurance company in your state might sell only a few of the lettered plans, not all of them.
Pricing schemes
Medigap plans come in three price schemes, all of which allow rates to rise.
- Attained-age plans: Premiums start low but increase just because you get older, regardless of your health status. Rates can also rise to keep up with inflation and other increased health care costs.
- Community-rated plans: Everyone in a geographic area pays the same. Premiums generally rise only with inflation and other increased health care costs.
- Issue-age rated plans: Premiums are based on your age when you enroll, so people who buy at a younger age pay less than people who first enroll at older ages. Premiums won’t change due to aging but could rise due to inflationary and other cost pressures.
If you use Medicare’s Medigap plan finder tool, you can find an insurer’s pricing scheme when you click on “View Policies” after entering your age, ZIP code and other information, and then click on details for each lettered plan that interests you.
If you get quotes through an insurance agent or online tool, they should clearly identify the plan type and its corresponding premium for your age, Slome says. Don’t hesitate to ask for clarification if anything is unclear.
Double whammy
Don’t forget about prescription drugs. Seniors who have Original Medicare generally must also buy a stand-alone Part D prescription drug plan.
As you age, you’ll likely need more prescriptions to manage chronic conditions. Those changes affect your drug plan premiums and copays.
“That’s why it is so important that seniors annually compare available drug plans during (fall) open enrollment,” Slome says. As your health care needs change, different Medigap and drug plans might offer you better value.
Check a plan’s formulary and tiered pricing system as higher tiers carry steeper costs for specific medications that you might take.
With out-of-pocket prescription drug costs capped at $2,000 beginning in 2025, premiums might rise, but the Inflation Reduction Act is supposed to help mitigate the increases, KFF reports.
Shopping tips
To choose a plan, use Medicare’s plan finder tool or seek the expertise of an “independent, agnostic insurance agent,” Slome advises.
Shop around and ask about rate increases, Slome says. You’ll likely have four to 20 policy options. A low-rate provider might be your best choice or it could be a very costly choice, he says. Watch out for new insurers attracting new clients with teaser rates they can’t sustain, Slome cautions.
Many Medigap insurers offer discounts. They could be simply for enrolling or for women, couples in a household who both buy their policies from the same company, non-smokers, and those paying annually or electronically.
However, some discounts end, and that can feel like a rate increase.
“Professional Medicare insurance agents can and should provide information detailing an insurer’s recent history of rate increases,” Slome says.
