Buying a Medicare supplement when you turn 65 sounds like a relatively easy thing to do, but most people don’t realize that this decision could be a 20-30 year partnership. When you turn 65, you are eligible for the Social Security, Medicare Parts A and B programs. These programs cover 70% to 80% of your health care expenses, which leaves 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 without being asked about your health. This means that you are guaranteed acceptance into any company you choose.

Choosing the right insurance company for you can impact 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, the money in 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 firms 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 customers, 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 pass the new company’s health questions, you have no choice but to stay with your current plan and pay by the increases. This also compounds the problem because as healthy people leave the group, the number of paying people in the group 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% to 80% over the first five years to make up for initial losses.

Captive companies only allow their own agents to sell their products and generally have much larger groups. These companies charge more up front, but annual increases are typically 5% to 15%, so for people on fixed incomes it helps them budget better because they have an idea of ​​their annual or monthly premiums each year.