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 20-30 year association. When you turn 65, you are eligible for the Social Security programs, Medicare Parts A and B. These programs cover 70% to 80% of your health care expenses, leaving a 20% to 30% gap on most bills, that’s where your Medicare Supplement insurance comes in. You can sign up for supplemental insurance 6 months before and 6 months after your 65th birthday with no questions asked about your health. This means that you are guaranteed acceptance into any company you choose.
Choosing the right insurance company for you can have an impact on your finances for years to come. First, you need to understand that all insurance is a way that people pool their money so that when someone has a claim, money from the fund pays for it. There are 2 types of insurance companies to choose from for your supplement, Brokers and Captive Companies and they operate in different ways.
Brokerage companies allow anyone with a license to sell their products and captive companies only allow their own agents to sell their products. Now brokerage companies need a way to entice clients to join their groups and the way they do it is by price this way it looks like you are getting a better deal for your money. These groups run at a loss at first to get more clients, but when people get sick and the company has to pay claims, they only have one option, they have to increase their premiums to make up for those initial losses. This increase in premiums isn’t a big deal if you’re healthy because you can always switch to another insurance company, but if you’re sick or can’t get past the new company’s health questions, you have no choice but to stay with your current plan and paying for increases This also exacerbates the problem because as healthy people leave the pool, the number of paying people in the pool becomes smaller and smaller and their health worsens. So, in general, if you sign up with a brokerage company, you’ll see your premiums go up 30-80% for 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 charge more up front, but annual increases are usually 5-15%, so for people on a fixed income it helps them budget better because they have an idea of their annual or monthly premiums each year.
