What to Look for in a Medigap Policy

I will be 65 soon and have decided on a medigap policy that costs $120 per month. I read your 3 Things to Avoid When Trying to Cut Health Costs column a few weeks ago, which suggests not focusing too much on premiums when picking a health-insurance policy. You wrote that a policy with lower premiums could have higher out-of-pocket costs throughout the year. Does Medicare supplemental insurance fall into the "don't focus on premiums" category? All of my prescription drugs are generic, but I have several chronic illnesses.

Medigap insurance is an exception to that rule: It makes sense to look for a policy based on premiums. And this the perfect time for you to shop -- you can't be rejected for a medigap policy or charged a higher rate if you buy the policy within six months of signing up for Medicare Part B.

To simplify your options, the government allows insurers to offer only certain plans -- nine standardized versions lettered A through G and K and L (Plans H, I and J, which included prescription-drug coverage, stopped being sold when the Medicare prescription-drug plan was introduced). Each Plan A has the same coverage, no matter which insurer offers it, each Plan B has the same coverage, and so on. The most popular choice is Plan F, which tends to have the best balance of coverage and price, paying many of the Medicare deductibles and co-payments for doctor's visits and hospital stays. (For a list of what each plan covers, see the Medicare Rights Center Web site, especially its Medigap Plan Comparison Chart.)

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When picking a plan, see which provides the best coverage for your illnesses. But after you've chosen one, you can shop based on price. Because the plan must have the same coverage from insurer to insurer, you won't get much extra for any additional premium. You can usually compare prices at your state insurance department's Web site -- find a link to your state's regulator at our Insurance Center.

One key question to ask, though, is how the insurer changes its rates over time. Some offer attained-age policies, which means that prices increase because of health-care inflation and because you get older. Others are issue-age policies, which means that prices increase only because medical costs rise, not because you're getting older. Issue-age policies generally don't cost much more than attained-age policies, even though you're likely to see lower rate increases through time.

You'll also want to shop for a Medicare prescription-drug plan to cover your medications. These plans aren't standardized, but they're easy to compare with the Medicare Prescription Drug Plan Finder. Type in your medications and dosages, and you'll see how much your premiums plus out-of-pocket costs will run under each policy over the year.

Another option is a Medicare Advantage plan, which is a private plan you can sign up for instead having to sign up separately for Medicare, a medigap policy and a Part D prescription-drug policy. For more information about Advantage plans, see the Medicare Options Compare tool at the Medicare Web site and the Medicare plan information at MedicareNewsWatch.com.

For more information about both types of plans, see The ABCs of Picking a Medigap Policy and Your Medicare Owner's Manual.