Find a Better Medigap Deal

The protection is the same, but premiums can vary by hundreds of dollars. Find out how to get the best deal.

By Kimberly Lankford, Contributing Editor, Kiplinger's Personal Finance

February 27, 2003

Congress and the White House are once again grappling with the climbing costs of medicare. While there's little chance for sweeping reform any time soon, at least until the winds of war settle down, there is plenty you can do to lower your medical costs, or help your parents or grandparents find a better deal.

The federal government standardized the ten plans -- A thorugh J -- more than a decade ago. But while all medigap plans are created equally, their premiums and pricing structures vary.

A 2001 General Accounting Office study found huge price ranges throughout the country. In Illinois, one insurer charged 65-year-olds $467 for plan-A coverage; another charged $1,202. Customers of one New York insurer paid $1,617 for plan F (the most-popular plan) while customers of another insurer paid $2,800. And a Texas insurer charged $2,059 for plan J while another required a whopping $5,658 in premiums.

What do you get in return for the extra money? Nothing. That's why it pays to learn the basics of medigap coverage, and to shop around. Many times, the least expensive policy can end up costing more money in the long run.

Start early

It pays to start your research early, either before signing up for medicare part B or shortly thereafter. Once you're enrolled in medicare, the clock starts ticking. As long as you buy a medigap policy within six months of signing up for medicare part B, insurers can't deny you coverage or raise your rates because of your health. 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.

The plans are organized alphabetically. Plan A has the least coverage and the lowest price tag. Plan J is the most-comprehensive and usually the most expensive. The medicare Web site offers complete lists of what each plan covers. The bottom line is that every plan A must have the exact same coverage, no matter which company is selling it. The same is true for plans B, C, D, E, F, and so on.

Whether it's from a big-name expensive company or a cheap and tiny upstart, service rarely varies. Medigap insurance fills in the holes in medicare -- paying for the deductibles, copayments and other bills that medicare doesn't cover. There's no room for bickering over claims: If medicare approves the charge, then the medigap policy must automatically pay its share.

"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.

Diane Archer, founder 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.

Pricing varies

To ensure you're getting the best overall price, ask how your rates will change over time.

Medigap insurers can generally price their policies in three ways:

• Attained-age policies. Premiums increase as you get older, typically ratcheting up every one, three or five years (in addition to price hikes linked to health-care inflation, which affects all medigap policies).
  
  
• Issue-age policies. Rates are based on your age at purchase. Once you buy the policy, the price won't increase just because you get older (although premiums can rise with health-care inflation).
  
  
• Community-rated policies. These policies are similar to issue-age versions, except that everyone in the same area pays the same price regardless of age (although AARP generally provides a discount of up to 20% until about age 68).

Not all variations are allowed in all states, so check with your state insurance regulator to find out what types of rates are charged where you live.

In almost all cases, it's best to go with the lowest-priced issue-age or community-rated policy. If you aren't in good health, you may have a tough time switching to another policy years later if the steadily rising price of an attained-age policy gets too high.

Online resources

There are plenty of resources to help you find the best deal. First, get all the details about medicare and medigap policies. Choosing a Medigap Policy, an 89-page book, can be downloaded (PDF, 993 KB) from the medicare Web site. It offers everything from the basics of medicare to plan choices and more. The Medicare Rights Center also has a lot of helpful information for picking a plan. Its "Filling the Medicare Gaps" booklet, which you can order from the site's publications store, is particularly helpful.

After you've decided on the type of plan, get price quotes. This step is simple. Most state insurance department Web sites list the prices for all medigap policies available in your area.

Other resources include:

• The U.S. government Centers for Medicare & Medicaid Services' Medicare Personal Plan Finder. It lists medigap and medicare HMO options and prices by zip code.
  
  
• Weiss Ratings' Shoppers' Guide to Medicare Supplement Insurance ($45). This book includes 30 pages of information about medicare, a list of medigap prices and policies in your area, and the companies' financial-strength ratings.

Even if you're way past age 65, you may still be able to get a better deal by switching to another company's policy -- especially if you're still in god health. It doesn't hurt to compare prices every few years. But once you've gone beyond your six-month safety net, never drop one medigap policy until a new one is issued. Your prospective insurer could jack up its rates or deny your coverage once it gets a closer look at your medical history.

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