Here's Why Medicare Beneficiaries Should Look Beyond Cost When Choosing a Medigap Plan

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  • Medigap policies either fully or partially cover certain cost-sharing aspects of basic Medicare, such as copays or deductibles.
  • For the popular Plan G, monthly premiums range from $90 to $476 for a 65-year-old, according to research from eHealth.
  • Experts say it's worth understanding how policies are "rated," because not all are priced the same way.

Considering a Medicare supplement plan, aka Medigap? Be sure to choose one based on more than just its cost.

These policies, sold by private insurance companies, generally cover part or most cost-sharing — i.e., copays or deductibles — that comes with basic Medicare (Part A hospital coverage and Part B outpatient care). And, they are standardized across most states so you know the benefits are the same regardless of where you live or which insurance carrier is offering, say, Plan G or Plan N.

However, the cost can vary widely among insurers and locations. For instance, monthly premiums for the popular Plan G range from $90 to $476 for a 65-year-old, according to eHealth research that reviewed 67 regions around the country. For Plan N, the range is $78 to $284. (Those two plans are the most popular, accounting for about 87% of Medigap plans newly purchased through eHealth.)

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Regardless of which plan you pick, the premiums generally will rise each year — some more than others — and switching to a different plan may be difficult, depending on where you live and whether you'd need to undergo medical underwriting.

"What happens if you choose a plan strictly by the price, ignoring all other factors and later your health deteriorates, premiums were increased significantly, and now you are stuck with that carrier?" said Elizabeth Gavino, founder of Lewin & Gavino and an independent broker and general agent for Medicare plans.

Here's what to know.

The basics

More than 63 million people — the majority of whom are age 65 or older — are enrolled in Medicare. About 43% of beneficiaries choose to get Parts A and B (again, basic Medicare) delivered through an Advantage Plan (Part C), which offer out-of-pocket maximums and often include other benefits like dental and vision coverage. They also typically include Part D prescription drug coverage. 

The remaining beneficiaries decide to stick with basic Medicare and, often, pair it with a standalone Part D drug plan. In this situation, unless you have additional coverage elsewhere (i.e., employer-sponsored insurance or Medicaid), the option for mitigating your out-of-pocket costs is a Medigap policy. This, too, can limit what you'll pay out of pocket each year.

Reasons for sticking with basic Medicare instead of enrolling in an Advantage Plan differ from person to person, Gavino said. That can include wanting more freedom in choosing providers or needing coverage while away from home  — i.e., you travel a lot, sometimes for extended stays. (Advantage Plans may disenroll you if you remain outside their service area for a certain time — typically six months.)

When you can enroll

When you first enroll in Part B, you generally get six months to purchase a Medigap plan without an insurance company examining your health history and deciding whether to insure you. After that, depending on the specifics of your situation and the state you live in, you may have to go through medical underwriting.

"If you know going in that you have a health condition that will likely prevent you from being able to switch plans down the road, ask your broker for recommendations ... for the long-term," said Danielle Roberts, co-founder of insurance firm Boomer Benefits.

While a number of insurers offer Medigap policies, they can only offer policies from a list of about 10 standardized plans. Each is simply assigned a letter: A, B, C, D, F, G, K, L, M and N, although Plans C and F are not available to people who were newly eligible for Medicare on or after Jan. 1, 2020. Some states also offer high-deductible versions of Plan F and G. (There also are Medicare Select plans, which are network-based Medigap plans that are available in some places.)

The plans differ on what is covered. For example, some offer limited coverage for overseas travel, while others do not. The Centers for Medicare and Medicaid Services has a chart on its website that shows the differences. You also can use the agency's search tool to find available plans in your ZIP code. 

How they are priced

One difference in premiums can arise from how they are "rated." If you know this, it may help you anticipate what may or may not happen to your premium down the road.

Some policies are "community-rated," which means everyone who buys a particular plan pays the same rate regardless of their age. 

Others are based on "attained age," which means the rate you get at purchase is based on your age and will increase as you get older. Still others use "issue age": The rate won't change as you age, but it's based on your age at the time you purchase the policy (so younger individuals may pay less).

Premiums also may go up from year to year due to other factors, such as inflation and insurer increases. 

It's worth choosing an insurance company that has a good track record, Gavino said.

"Some carriers may come into the marketplace with low [premiums] to attract business, but the next year may raise rates by a significant amount once they have a bit of claims history," she said.

Odds & ends

If you work with an agent, you should ask how many insurance companies they work with (or are "appointed with"), according to the American Association for Medicare Supplement Insurance. They may not recommend a particular insurer's policies if they don't get a commission to do so.

Also ask if there's a household discount. Many insurers offer this, the association said, and it can mean savings of 3% to 14%.

You also can call your State Health Insurance Assistance Program, or SHIP, to see if it can give you free help choosing a policy.

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