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We evaluated over 100 Medicare Supplement plans to find out what the average Medicare Supplement plan costs. Here’s what we learned:
- The amount of coverage the policy offers is the #1 factor.
- Your zip code and age significantly influences Medicare supplement plan cost.
- Costs vary by carrier and rating method (attained-age, issue-age, community).
- Gender and use of tobacco influence costs.
- Several other factors influence average cost, too, so read on.
In this article we’ll answer the following top questions most people have (and many more):
- What’s the best supplemental insurance for Medicare?
- Are Medicare supplement plans worth the cost?
- What is the most cost effective Medicare supplement plan?
How Much Does Supplemental Medicare Insurance Cost?
One of the most frequent questions we get is, “What is the average cost of supplemental health insurance for seniors?”
Medigap, also known as Medicare supplement insurance, is a group of standardized plans that help cover the gaps in Original Medicare health insurance. And, unfortunately, stating an averaged cost wouldn’t do you much good. That’s because plans run anywhere from $50 to $300 or more per month, depending on where you live and the amount of coverage you need.
Let’s ask the question in a couple of different ways. Like, how much coverage can I get that I can afford? And, how can I save money on a Medigap plan and still be covered for my major medical costs?
Those are the questions we’ll help answer and offer additional resources.
Do I Really Need Supplemental Insurance With Medicare?
Let’s start our discussion by addressing the elephant in the room. Is a Medicare supplement plan really necessary, and, if so, why?
As you may already be aware, Original Medicare only covers about 80% of your major medical costs. The remaining 20% of all Medicare-approved costs are the beneficiary’s responsibility. These costs, which include deductibles, copayments, and coinsurance on the healthcare services you use can be paid in several different ways, including:
- Medicaid (if you qualify)
- Medicare Savings Programs (QMB, SLMB, QI)
- Employer Group Health Coverage
- VA Benefits
- TRICARE for Life (for military retirees)
These are the most common ways people cover their major medical costs when they have Medicare. If don’t qualify for one of the benefits listed above, then you self-pay out of pocket, or you buy a Medigap plan.
If you’re thinking about the self-pay option, think twice. This is a very risky proposition. While you can probably swing the cost of regular doctor visits, the cost of advanced diagnostic (e.g., an MRI scan) or hospitalization due to a critical illness or injury, is enough to send most people bankruptcy court.
Think about it. Could you afford to pay 20% of the cost of cancer treatment or a hip replacement? A 2013 cost-effectiveness study reported a total cost of $40,102 for first-line mesothelioma treatment. That’s just the treatment, which does not include your inpatient care. The average cost of a hip replacement in the United States is almost as costly at $32,000.
Most of us simply can’t afford to pay 20% of those kinds of costs out-of-pocket. That’s what makes it necessary to buy supplemental Medicare insurance. As with car insurance, we really don’t have a choice.
How Much Coverage Can I Get with a Medigap Plan?
Now that we’ve talked about the need for supplemental insurance, let’s discuss how Medigap plan coverage works. As its name implies, Medigap covers the gaps in Original Medicare. These gaps include deductibles, copayments, coinsurance, blood, and foreign travel. Medigap covers these gaps through 10 different plans. Each plan is standardized and given a letter code (A through N). This makes Medigap super easy. Simply pick the plan with the coverage you want and go shopping.
The plan with the most coverage is Medicare Plan F. This plan offers full coverage on all of the gaps in Medicare. So, if you have a Plan F policy, and the health services you use are all Medicare-approved, you pay nothing out of pocket. However, be aware that this plan is only available to people who turned age 65 before 1 January 2020.
After Plan F, Medicare Plan G offers the most coverage, and it’s available to everyone turning age 65 with guaranteed issue. This plan is identical to Plan F, with one exception, it does not cover the Medicare Part B (medical insurance) annual deductible. But, most people save enough on their annual premium payments to pay the deductible themselves and pocket some savings.
Another Medigap plan that’s growing in popularity, because it offers good savings, is Medicare Plan N. This Medigap policy is great for healthy people aging into Medicare because it allows you to pay some of the minor costs, but it offers full-coverage on the major costs.
For example, with a Medigap Plan N policy, you pay up to $20 to see your doctor (copay) and up to $50 to use the emergency room. You also pay any excess charges. These are costs above and beyond Medicare’s standard reimbursement rates that your doctor can charge (up to 15%) if they don’t accept Medicare Assignment. Other than that, Plan N covers what Plan G covers, and you pocket the savings.
How can I save money on a Medigap plan and still be covered for all major medical costs?
We just talked about how a Plan N Medicare supplement can save you money, but it’s not the only plan with cost-sharing. Plan K and Plan L are also options. With these two plans, you share a percentage of your Part A and Part B costs, but they protect you from catastrophic costs with a maximum out-of-pocket limit.
Shared cost plans, like K and L, work for healthy people who can afford to take a little financial risk and for people who are good at saving for their healthcare. For example, if you rarely see a doctor and can absorb Plan K’s $5,880 annual deductible in your budget before the plan starts paying, then it could be an option. Likewise, if you put $100 per month or more into a savings account specifically for your healthcare costs, then a shared-cost plan could work for you because you’re basically putting the money you save on premiums into savings.
Saving on a Medigap plan comes down to understanding your both your health and financial needs. Many people, especially the good savers, like the high deductible plan options on Plan F and Plan G. If you choose one of the high-deductible options, you pay all Medicare-covered costs (coinsurance, copayments, deductibles) up to the deductible amount ($2,340 in 2020) before your policy kicks in and starts paying 100%.
For healthy people who know how to put money away, the $2,340 isn’t scary because they know that they can save that amount of money putting just $100 away each month. And, by the way, that’s about how much you’ll save each month on a high deductible policy.
Understanding the Cost of Medicare Supplement Plans
Now that you know Medicare supplement plans are standardized, and that you can choose the coverage you want, it’s time to learn about how plans are priced.
It makes sense that Plan F and Plan G are the most expensive plans because they have the most coverage. But, insurance carriers have more than one way to rate their plans for an initial premium and rate increases. Also, insurance companies must factor in the number of people in their insurance pool, including their demographics. As a result, rates can differ wildly even when the same coverage is offered in the same local area.
When an insurance company has more members it generally has better financial stability, rates are lower, and rate increases don’t come as frequently in comparison to smaller companies with a smaller member pool.
Rate increases are a delicate balance for insurance companies. As premiums increase, healthy people shop around for better rates to reduce their costs. As a result, the pool of healthy people shrinks and the insurance company has to raise their rates even more to cover costs.
As mentioned above, insurance companies have different ways of rating their policies. The rating methods basically determine when a rate will increase. These rating methods include issue age, attained age, or community rating. So, if you are still wondering what is the average cost of supplemental insurance for Medicare, the best thing to do is to get a quote and look at the rates on the plan you want. Here at MedicareWire, we offer a complimentary service that shows you rates from all carriers that offer policies in your area.