Virtually all Americans over the age of 65 are enrolled in Medicare Parts A and B, which provide valuable hospital and medical insurance benefits to retirees. While Medicare does lessen the financial burden of healthcare on senior citizens, it doesn't pay for everything. Fortunately, a Medicare Supplemental Insurance policy, also known as Medigap, can help. And most retirees who choose to buy a Medigap plan buy the most expensive type of plan available.
What is Medigap?
Medigap, also known as Medicare Supplemental Insurance, is a form of health insurance that retirees can choose to buy in addition to Medicare. Basically, the idea is that, since Medicare doesn't cover all the healthcare costs retirees could face, Medigap can help cover the uncertain healthcare expenses and provide retirees with peace of mind.
In fact, according to estimates by Medicare.gov, the average Medicare beneficiary can expect to pay a total of $7,620 annually in out-of-pocket healthcare costs, including Medicare premiums, prescription drugs, dental services, and other healthcare services. Furthermore, and this is the key point in favor of Medigap, these costs can vary significantly, especially if you end up with health problems. For example, if you are diagnosed with congestive heart failure, you can expect another $4,000 worth of out-of-pocket expenses per year.
In most states, Medigap policies are standardized in the same way, and are identified by one of 10 letters. Massachusetts, Minnesota, and Wisconsin are the exceptions, and standardize Medigap policies individually.
Each of the 10 plan types provides a different benefit package. Some cover copays and coinsurance, while others cover Medicare deductibles. Medigap Plan A is required to be offered by all insurance companies that sell Medigap plans, and covers Medicare Parts A and B coinsurance and copayments in full, but the deductibles are still the beneficiary's responsibility. Medigap Plan F is the most comprehensive, covering virtually every copay and deductible retirees could face. Here's a chart that compares the various coverage options:
What most retirees choose
Medigap Plan F, as you might expect since it's the most comprehensive plan, is the most expensive plan option. The average monthly premium for Plan F ranges from $159 to $239 per month for a 65-year-old male, depending on where they live.
So, it may surprise you to learn that with 10 different Medigap options available, two-thirds of people who decide to buy a Medigap plan choose Plan F, according to the American Association for Medicare Supplement Insurance.
Why so many retirees are willing to pay more? Simply put, retirees don't like worrying about the cost of anything. When you live on a fixed budget, uncertainty is the enemy. So, if they can afford it, most retirees are more than willing to pay a little bit more if it means no having to worry about paying for healthcare at all in retirement.
It's true that many retirees will go years without the costs of Medigap Plan F being "worthwhile" in terms of the benefits they actually use. However, if they need it, the coverage provided can mean the difference between getting no medical bills at all and complete financial devastation. In fact, Plan F can potentially save a retiree almost $1 million during a year of serious illness, when compared to having just original (Parts A and B) Medicare, according to website Senior65.com.
What's the best move for you?
When you retire, budgeting your money will be extremely important. For this reason, I'm a big fan of anything that adds certainty to your budget, and no Medigap plan does that better than Plan F. Sure, you'll pay a bit more per month, but it's worth it for the peace of mind, which is why two-thirds of retirees are willing to pay for it.
You can compare the coverage options available to you by using Medicare.gov's plan finder. As a final money-saving thought, if you have two possible addresses to use, such as a summer and winter home, it can be a smart idea to compare the options and costs at both.