While Medigap, or Medicare Supplemental Insurance, was designed to help Medicare beneficiaries cover the out of pocket costs associated with their health care, it is not itself without costs. Medigap policies come with monthly premiums associated with them to help beneficiaries pay the out of pocket costs they face. Although Medigap plans are designed to assist Medicare recipients, Medicare does not administer the Medigap program. The program instead is administered by private insurance providers who are contracted through Medicare; and while these providers are free to choose which programs they will sell, they must adhere to federal and state laws designed to protect eligible individuals.
Medigap premiums are not standardized by Medicare or by any federal laws. Each insurance provider that offers Medigap plans is allowed to determine their own premiums and it is important to understand how any company you may purchase a Medigap plan determines their premiums as it will affect your pocketbook now and in the future. Medigap premiums are determined in one of the three following manners:
- Community rated (also known as non-age rated)
- Issue age rated (also known as entry age rated)
- Attained age rated
No specific Medigap premiums are available without actually searching for a policy based upon the needs of a specific individual, but age tends to play a huge role in how high premium rates could be set. There are other factors such as geography, medical underwriting practices, and discounts that can affect the premium an individual will pay for their Medigap plan.
Community rated premiums for Medigap result in everyone paying the same price for coverage regardless of their age. Premium rates for community rated plans can differ by region, and other factors such as inflation can cause prices to increase; but premiums will never go up solely based upon age. Under community rating an individual who attains coverage at age 72 will pay the same amount for the same plan as an individual who purchases the same plan at age 65.
Issue age rated premiums are determined for Medigap plans based upon the age of the individual at the time of purchase. Individuals who purchase plans when they are younger will pay a lower premium and it will not increase with age. On the other hand, individuals who purchase plans when they are older will pay a higher premium but the rate will not increase further with age. Thus, an individual who purchases their plan at 65 will pay less than one who purchases a premium at age 72, but neither individual’s premium will increase. As with community rated premiums, other facts such as inflation can cause premium increases.
Attained age rated Medigap premiums are based upon age at the time of purchase and will increase with age. Younger buyers will pay lower premiums, but their premium will increase with age. Older buyers will pay a higher initial premium and will see their premiums increase with age as well. An individual who buys their plan at 65 will pay less than one who purchases their plan at 72, but both individuals will see their premium rates go up as they age. Just as with other pricing plans, attained age premiums can increase as a result of inflation and other factors in addition to age.
Many Medigap providers do offer discounts to individuals that can be crucial in attaining a better Medigap plan at a lower premium rate. Some of these discounts include those offered to women, married couples, non-smokers, those who choose to pay annually, and those who pay via electronic fund transfers. Factors such as a provider’s medical underwriting policies can affect an individual’s guaranteed issue right and result in higher premiums. Lastly, some providers offer “high deductible” versions of Medigap Plan F which allows individuals to pay a lower premium if they are willing to pay a higher deductible on their coverage.
As many individuals who purchase Medigap plans are often struggling to cover the out of pocket costs associated with their Medicare premiums, saving money is important and that makes it important for these individuals to shop carefully before purchasing a Medigap policy. Compare similar plans from various providers and learn how they determine their premiums to ensure that the most cost effective policy is purchased to help cover the gaps in Medicare.