Medicare Supplement, also known as Medigap, plans can be quite expensive depending on where you live and which company you purchase from. A lot of seniors are shocked when they start shopping for Medigap plans and see premiums of $150, $200, or even $300 per month. That can add up to thousands of dollars per year!
So why exactly are these popular Medicare plans so expensive for many retirees? There are several factors that impact pricing.
How Medigap Plans Are Price
First, it’s important to understand how Medigap plan pricing works. These plans are sold by private insurance companies and are standardized across the country. That means a Plan G from one company has the exact same benefits as a Plan G from another company.
The only difference is usually the premium amount. Insurance companies get to set their own rates based on a variety of factors.
There is no “national rate” for Medigap plans. Each insurance company decides what to charge in each state where they sell plans.
Major Factors That Impact Medigap Costs
Below are some of the biggest reasons why Medigap premiums can be so expensive for many seniors:
Age is one of the biggest pricing factors for Medigap. Most companies use “attained age” pricing, meaning your rates are based on your current age and will increase as you get older. The older you are, the more you can expect to pay for the same Medigap plan.
For example, a 65 year old may pay $150 per month for Plan G from Company A. A 75 year old may pay $250 per month for the same plan from the same insurer.
Under this model, your premiums will go up every year on your birthday. Other pricing models like “issue age” may be more affordable long-term.
Many insurers charge different premiums for men and women. Women often pay less because they have longer life expectancies.
On average, a woman may pay $75 less per month than a man for the same Medigap policy.
If you smoke or use tobacco, you will almost certainly pay more for Medigap coverage. Tobacco users are viewed as higher risk, so insurers charge them more. The premium difference can be $50 or more per month.
Where You Live
Location has a big impact on Medigap costs. Average monthly premiums can range from around $100 in some states up to $350 in the most expensive areas like New York.
In general, rural areas tend to have lower Medigap costs while urban areas are more expensive. But costs really vary significantly from state to state.
Some reasons your state may have higher Medigap costs include:
- Higher cost of living
- Higher healthcare costs
- More seniors needing policies
- Fewer insurance companies competing
So even within the same company, a Medigap Plan G will be cheaper in Oklahoma than New York. Insurers have to account for regional differences in healthcare expenses.
Many companies offer discounts for married couples or multi-policy households. Getting Medigap coverage for two people from the same insurer often comes with around 10% off each person’s premium.
So unlike some other forms of insurance, being married can actually save you money on Medigap!
Paying annually or via automatic bank draft can lead to discounts of up to 10% with some insurers. They incentivize these payment methods to improve cash flow and guarantee 12 months of premiums.
Higher letter plans like Plan F and Plan G have richer benefits, so they cost more than plans that cover less like Plan A. You’re getting more coverage, so naturally the premium is higher.
Among the most popular plans, Plan G tends to be less expensive than Plan F because there is a Part B deductible you have to pay before coverage starts.
Certain extra features like foreign travel coverage may increase the premium slightly compared to a basic Medigap policy. But most of these riders only add a few dollars per month.
In general, larger insurers that have been selling Medigap plans longer tend to have lower premiums. Their huge membership and experience helps them negotiate better deals and spread risk over more people.
So the same Plan F might be cheaper from a national carrier than a local company. But not always, so it pays to shop around.
How much profit the insurance company builds into their Medigap rates will impact your costs. Some insurers run very lean while others incorporate more padding into the pricing.
Non-profits and state retirement plans sometimes have lower premiums since profit margins are not a factor.
Medigap plans from companies that are more administratively efficient may cost less. Things like labor, marketing, systems, etc. all factor into the company’s expenses…which they pass onto members.
Streamlined operations can benefit members through reduced premiums.
Strategies to Reduce Your Medigap Costs
While some pricing variables for Medigap are out of your control, there are still a few ways to reduce your policy costs:
- Shop around – Always compare rates from multiple insurers. Don’t overpay!
- Change pricing model – Consider an issue age policy to lock in lower premiums.
- Buy during open enrollment – This guarantees you the lowest pricing an insurer offers.
- Join spouse’s plan – Two-person discounts can save you 10% or more.
- Drop tobacco – If you can quit smoking for 12 months, premiums will likely decrease.
- Choose wisely – Only get the coverage you need. Pick lower plans when possible.
- Look at HDHPs – High deductible plans have lower premiums but more out-of-pocket costs.
- Pay annually – You’ll often get a nice discount for paying premiums in full upfront.
- Auto-pay discount – Most companies give a break for setting up automatic payments.
- Move – Relocating even to the next county over could lower your Medigap costs.
- Group plans – Check for group retiree or alumni Medigap options in your state.
- Check subsidies – There may be financial aid programs available in your specific area.
- Drop excess coverage – Eliminate redundant plans like dental insurance or Part D plans with Medigap.
While Medigap plans are expensive, they provide tremendous value by filling in Medicare coverage gaps and giving you the freedom to see any doctor. There are ways to reduce your costs through smart shopping.
At the end of the day, Medigap is still often cheaper than paying 100% out of pocket for things Medicare doesn’t cover!
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