While there are different types of Medigap pricing methods at the end of the day letter plan and state have a higher impact on rate increases. Although, understanding the Medicare Supplement pricing methods will give you a deeper understanding of how insurance companies determine local rates.
It’s important to remember that rate increases must have state insurance department approval.
Medicare Supplement (Medigap) Pricing Methods
Understanding pricing methods can give you an advantage when comparing policies. The more you know, the better you understand the myriad of Medigap options.
Every company is going to increase rates annually, and most top-rated insurance carriers try to keep increases modest. It’s easier to keep current policyholders happy than it is to find new policyholders.
There are three types of Medigap pricing methods:
- Community Rated
- Issue Age Rated
- Attained Age Rated
Here are the basic features of each type of Medigap pricing.
Community Rated Medigap Pricing Methods
With community-rated Medigap pricing (also known as “no-age-rated” pricing), everyone pays the same rate for a policy. Age simply doesn’t matter.
For example, if you buy a community-rated Medigap policy at age 72, you’ll pay the same rate as someone who is buying coverage at age 65. Your premium increases because of inflation or other factors.
Younger Beneficiaries End Up Paying More
Someone who is 72 could benefit from paying the same amount as someone who is 65; in most cases, the 65-year-old is paying substantially more in an area with community rating than they’d pay in another area with a different rating method. However, the costs tend to balance out as you age.
This type of rating method doesn’t provide a fair situation for beneficiaries. Thus, many companies don’t use this method.
Issue-Age-Rated Medigap Pricing Methods
Issue age Medigap pricing bases your premium on the age when you first bought the policy. The older you are when you get your policy, the more you’ll pay.
Under this pricing model, a person who buys a policy at age 72 will pay a higher monthly premium than a person who buys the same policy at age 65.
While Rates Aren’t Based on Aging, Costs Are Usually Higher
Once your premium has been set, age doesn’t play a factor in cost. Instead, inflation, administrative costs, or other factors impact your premium.
Insurance companies know that age won’t be a factor in rate increases, and thus they usually charge more in the beginning.
The premiums for these policies increase at the state level; so, when Cigna raises the Plan N premiums in Florida for one person, it goes up for everyone. In some states, insurance companies have no choice but to sell Issue-age policies.
Many companies use a discount for those that sign up at age 65; then, as those beneficiaries age, the discount slowly goes away. This results in a policy that is very similar to an attained age policy during the length of the discount.
Attained-Age-Rated Medigap Pricing Methods
The attained age rated Medicare Supplements are common among insurance carriers. Attained-Age-Rated Medigap pricing always calculates your premium based on your current age (the age you have “attained”), no matter how long you have had your policy.
This means that when you first buy your policy, your premium will be based on your current age, with older people paying more. A person buying a policy at age 72 will pay more than a person who buys the same policy at age 65.
Because premiums are based on your current age, they go up each year as you get older. For example, a policy that cost $120 a month when you bought it at age 65 might be $165 a month by the time you are 72.
Generally Lower Initial Costs
An attained age policy can be the lowest-price option when 65, but as you get older prices are expected to increase. Like the other two pricing models, attained age premiums can go up because of inflation or other factors.
Even though these policies can increase due to multiple factors, the costs of attained age rated policies are usually still a better option.
For someone turning 65, a premium could be $100 monthly for attained age and $140 per month for an issue or community-rated policy. Then, all 3 policies will increase in price over time eventually evening themselves out.
Attained-Age vs Issue-Age
Attained age rated Medigap plan premiums rise as enrollees get older. This rating method uses the age you enroll in coverage.
Issue age rated Medicare Supplement policies are required in four states; including Florida, Arizona, Idaho, and Georgia. In these states, carriers can opt into using community ratings instead if they choose.
Issue age uses inflation and healthcare costs to raise premiums.
Issue-Age vs Community Rated
Many of our clients ask us if they should get an issue age or community-rated Medigap policy.
Neither of these pricing methods for Medigap policies will increase your premium as you age, but they still can increase due to other factors.
Factors such as discounts, high deductibles, and Guaranteed Issue right can affect the price of your policy. Also, the policy available in your service area impacts the method in use; some states require specific rating methods.
There isn’t really a better option, all of the coverage options increase with time.
Attained-Age vs Community Rated
Many seniors wonder about attained age vs community-rated Medicare supplement plans.
When you have a policy that is based on your attained age, that just means the rate is based on the age you enrolled in coverage. This policy will continue to increase as you get older.
Community-rated Medigap plans charge the same rate for everyone enrolled in the same plan in the same area. Premiums will go up due to inflation, but never because of age.
With all the rating methods, there will be an annual increase. Community rating can cost more in the beginning than some of the other pricing methods.
What Medigap Pricing Methods are Community Rated
There are eight states that require community-rated Medigap insurance companies.
These states are community rated Medigap states, they include:
The other states don’t require community-rated policies. The insurance carrier can usually decide the rating type.
Which Medigap Pricing Method is Best
Our clients living in states requiring attained age rating are happy long-term, just like our clients with issue age ratings. Overall, each rating method has rate increases, even policies with community ratings.
The important part is choosing a company with a history of low rate increases and a competitive premium. Our brokers are can advise you on coverage from companies with a strong financial history and low rate increase trends.
No Medigap pricing method is superior to any other one, each option has it’s own increases.
Other Important Information
Aside from understanding the different types of Medicare Supplement pricing methods, it’s important to understand when and what the different types of Medicare Enrollment Periods take place.
There are enrollment periods for Original Medicare, Medigap, Medicare Advantage, and Prescription Drug Plans.
Find Prices on Medicare Supplements Online
At MedicareFAQ, we research top insurers to find you the best Medigap policy for your needs and your budget. We explain your choices and answer your questions, so you understand the pricing methods and other features of all the policies you are considering – before you make a decision.
Give us a call for more information on the different types of pricing methods carriers use to determine your premiums. You can also complete our online rate form here.