Buying a Medicare supplement when you turn 65 seems like a relatively easy thing to do but most people don’t realize that this decision could be a 20 to 30 year partnership. When you turn 65 you become eligible for the Social Security programs Medicare parts A and B. These programs cover 70% to 80% of your healthcare expenses, which leaves a 20% to 30% gap on most bills, that is where your Medicare Supplement Insurance comes in. You are able to sign up for supplemental insurance 6 months before and 6 months after your 65th birthday with no health questions being asked. This means you are guaranteed acceptance into which ever company you choose.
Choosing the correct insurance company for you can have an impact on your finances for years to come. First you need to understand that all insurance is, is a way for people to pool their money together so that when someone has a claim, the money from the pool will pay it. There are 2 types of insurance companies to choose from for your supplement, Broker and Captive companies and they operate in different ways.
Broker companies allow anyone who is licensed to sell their products and captive companies only allow their own agents to sell their products. Now broker companies need a way to entice customers to join their pools and the way they do is by price, this way it looks like you are getting a better deal for your money. These pools are run at loss in the beginning to get more customers but when people get sick and the company has to pay out claims they have only one option, they have to raise your premiums to make up for those initial losses. This increase in premiums is no big deal if you are healthy because you can always change to another insurance company but if you are ill or cannot pass the health questions of the new company you have no choice to stay with your current plan and pay for the increases. This also compounds the problem because as healthy people leave the pool the number of people paying into the pool gets smaller and smaller and they are in declining health. So in general if you sign up with broker company you will see your premiums increase by 30% to 80% over the first five years to make up for the initial losses.
Captive companies only allow their own agents to sell their products and generally have much larger pools. These companies do charge more in the beginning but the annual increases are usually 5% to 15%, so for people on a fixed income it helps you budget better because you have an idea of your annual or monthly premiums each year.