The Cost of Medicare Supplement Plans
Mistake 1–The Cost of Medicare Supplement Plans is Different, but the Plans Are the Same
The line I hear repeatedly is ‘I’m looking for the best coverage for the least amount of money.’ Here are some common mistakes consumers make when selecting their Medigap plan.
The key to understanding the cost of Medicare supplement plans is knowing the law.
Since Medicare’s creation in 1965, insurance companies jumped in to fill in the gap figuratively and literally. They designed Medicare supplements or Medigap policies to fill in the gaps in Medicare coverage. The number and variety of Medigap policies grew exponentially which is the blessing and curse of capitalism. The number and kind of policies were so many that it was a problem for consumers.
Consumers were confused. They could not understand and discern the best plan and policy for their individual needs and budget. Congress eventually went through three different legislative processes over the years to regulate Medicare, the supplements, and plans. One of the purposes was to improve the consumer experience through simplification and consolidation.
The result is that Medicare supplements are limited to a certain number–plans A through N. All of these plans are standardized. They are essentially the same in their structure and coverage. A Plan G is a Plan G. It does not matter which insurance company offers the plan G. It will be the same plan G, or Plan N, or Plan A, etc. with any company.
Prospective clients have a hard time believing that the cost of Medicare supplements plans is different when the coverage is identical. They think supplements should be like other products, e.g., tires, jeans, cell phones, cars, and houses. There should be a measurable qualitative difference to correspond to the higher price.
Medicare supplements, however, are intangibles. They are a promise to provide a service. Consequently, it is more difficult to create a difference with a corresponding price point.
The other incredulity is why some people pay more if the policies are all the same? The reason is people are unaware of what I just shared, and they do not shop. They usually go for the familiar and the big names. It is human nature to go to what is familiar and perceived safe.
Mistake 2–Impartial Shopping the Cost of Medicare Supplement Plans
I suspect people want to shop for a Medicare supplement about as much as they want to go to the dentist to get their teeth drilled. They do not want to do it, so they make as little effort as possible.
Some agents count on that. They show you the most common or popular brand names. They usually are names you are asking for anyway.
Agents do this for several reasons. First, it is easy. They prefer to use the same company, application, brochures, software repeatedly. Second, they may have a preferred contract with the company that pays them or their agency more than other companies.
Sometimes this may include contest prizes, like trips for selling a certain number of policies within the year. If an agent divides up his business among several insurance companies, it is hard to hit that quota. That is why they stick to one company and push it.
And the higher the premium, the more the agent is paid. That is the game of the cost of Medicare supplement plans
Impartial & Objective
I find the best, fairest, and clearest way to show Medicare supplements is with a quoting software that puts the plans side-by-side. The only differentiator is the price. In descending price, I put the quotes assuming most people would rather pay less rather than more for the same coverage.
CSG Actuarial is the software company that I use. I believe the Nebraska & Iowa SHIP offices use the same software. It is a very robust software offering more information than most people realistically need.
The purpose of this tool is to impartially and objectively shop Medicare supplements for prospects and clients. I show you my work. I am not holding back any cards or favoring any companies.
Shop your supplement impartially and objectively.
Mistake 3–Company Strength
Some prospective clients ask me about the insurance company’s strength. I point to the rating agencies. There are four principal rating agencies: Moody’s, A.M. Best, Fitch, and Standard & Poors. AM Best is probably the premier rating agency for insurance companies. The other agencies spread out their expertise among bonds, banks, and other financial institutions and products.
The purpose of the credit rating agencies is to determine the probability a company will pay on all its obligations.
While I don’t wish to discredit the credit agencies, I would like to offer some context. Many of you may remember the Great Recession of 2008. Up until 2007, the credit agencies were still rating the CDO’s (Credit Default Obligations) as AAA. It wasn’t until after the bottom had started to fall out that the credit ratings changed.
There are some great scenes in the movie, The Big Short, where Steve Carell playing Mark Baum, asks a representative of one of the credit agencies–S&P (Standards and Poors)–why they had not downgraded the CDO’s even though the defaults on the loans were through the floor. “If we don’t give the banks the ratings they want, they will go down the street to Moody’s or one of the other rating agencies.”
The ratings that the credit rating agencies put out are helpful, but not infallible, complete, or perfect. Each company has a story. I have been around for several years, so I am familiar with many of the companies. I have worked with some, watched others, heard from other agents about some. There are many factors that should be weighed when selecting a company with which to entrust your Medicare plan.
Mistake 4–Age & Rate Increases
The two ways an insurance company prevents itself from going broke when medical costs increase, or claims are unexpectedly higher is through age increases and rate increases.
Age increases are hard-baked into the price of the supplement. There is a schedule that goes out a certain number of years. As the client ages, the price goes up.
Secondly, insurance companies can increase the premiums across the board on everyone in a pool of policyholders. Clients submit claims. The insurance company has factored in the approximate number of claims in a particular zip code, county, region, or state.
That is the art of actuarial science. Sometimes they are spot on. Other times, they miss, even a great amount. The number they are shooting for, of course, is always moving as medical costs rise due to inflation–or pandemics.
Insurance companies cannot pick out an individual or group that may cost them more because of claims. It must be on the wider group or pool of policyholders.
Mistake 5–Understanding Customer Service
Customer service is a perennial concern. We have all been on hold with customer service with different companies and had atrocious experiences. They hang up on us after a long wait. The customer service rep’s accent is too strong to understand. We are caught in a labyrinth of auto prompts that take us in a circle.
Medicare supplements insurance is quite simple. If Medicare pays, the supplement pays. If Medicare does not pay, the supplement does not pay. It is rare for someone to need to call about bills. Generally, then you call Medicare itself, not the insurance company.
Quality of Service
Not all companies’ customer service is created equal. The difficulty I sometimes have with clients is convincing them that one insurance company with which they had a good experience on their employer health plan is not so good on the Medicare side.
On the reverse, clients who had a negative experience with a certain insurance company on a particular plan are great when it comes to Medicare.
It is funny that people generally blame the insurance company for a bad plan when an insurance company has many different health insurance plans from which to choose. People do not often deduce that their employer is the one who picked the plan, and if they picked a poor-quality plan–to save on employee overhead–employees may have a poor experience of healthcare from that company.
Feedback On Customer Service
One of the experiences I have had as an insurance agent is daily feedback. That is why I am not a great fan of the SHIP programs. SHIP is a semi-government group of paid and unpaid volunteers who help citizens with Medicare. They are supposed to be impartial. The problem is they do not get feedback from consumers on the advice they gave. Policyholders are not calling them complaining when something goes wrong when procedures are denied when Medicare or the insurance companies mess something up. No one calls them two years later to say, “I got a 15% increase to my Medigap policy with the company you suggested.” The person they talked to is probably no longer there.
Dealing with many insurance companies over time and in various situations and circumstances is important in helping consumers get a fuller context for their plan selection.