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1. Pick a letter. You have nine choices: Coverage and prices generally increase as you move through the alphabet from Plan A to Plan G; plans K and L are high-deductible policies, which can save you money on premiums but have higher out-of-pocket costs. Most popular is Plan F, which tends to offer the best balance of coverage and price (go to www.medicarerights.org for details).
2. Check the pricing method. Premiums for "attained-age" policies increase as you get older. Premiums for "issue-age" policies increase with health-care inflation but not because of your age. "Community-rated" policies are similar to issue-age policies, with everyone in the community paying the same price regardless of age.
3. Compare prices. Plans with the same letter offer exactly the same coverage. Most state insurance departments list prices for medigap policies in your area, or use the Medicare Options Compare tool at www.medicare.gov/mppf.
4. Pick the lowest-cost issue-age or community-rated policy.
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Reader Comments (2)
Posted by: john healey at 02/24/2010 03:00:34 PM
Since the coverage under Plan F is identical with any insurance compnay, is it solely a matter of comparing prices or does the insurance compnay's reputation and quality of serfvice matter? If so how can you determine which are the better service providers?
Posted by: Tim Fields at 09/19/2010 06:47:04 PM
This is extremely flawed logic....here are the basic flaws in this overly simplistic advice: 1. What if the lowest cost issue age policy were twice as expensive as the lowest cost attained age policy? Obviously, the attained age policy, which increases only 2-3% more per year, would never catch up unless you plan on living decades beyond current mortality tables. 2. Everyone writing about this only looks at when the attained age policy begins to cost more, which is typically 15 years or more down the road. What they fail to consider, to my amazement, is how much you have saved on a cumulative basis up until that point with the attained age policy. So if you look at this on a long term cash flow basis, it is typically 20 or more years before you realize one dime of actual out of pocket savings using an issue age policy. 3. Because you are paying more than necessary in the early years in order to presumably save in much later years, you are essentially investing extra dollars in this policy for its issue age feature. So what happens if your issue age company suddenly has a rate increase of 20% based on other factors? Normally, if you are in good health, you would simply switch to a less expensive carrier, but if you have an issue age policy, you would have wasted all those extra premium dollars. In essence you are locking yourself into a policy with not guarantees on future rate increases. The age factor increase is very predictable at 2-3%, but the other factors that still apply to issue age policies are the ones behind the level of increases we are really worried about. 4. Both issue age and community rated policies have been shown by the American Academy of Actuaries to have higher claims costs than attained age policies. Higher claims means higher class basis increases in the future. There is much more to cover in this discussion, but hopefully this is enough to help people realize it is not as simple as choosing the lowest price issue age or community rated policies.