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 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
Regardless of the pricing method used, every carrier is going to increase rates annually. Most of the best Medicare Supplement companies try to keep increases modest. It’s easier to stay 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
Community Rated Medigap Plans
With community-rated Medigap plans (also known as “no-age-rated” pricing), everyone pays the same rate for a policy. Age doesn’t matter. For example, if you buy a community-rated 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 a 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 good situation for beneficiaries. Thus, many companies don’t use this method.
What States Have Community-Rated Medigap Plans?
Issue-Age-Rated Medigap Policies
Issue age-rated Medigap policies base 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 Florida Medigap premiums for Plan N, everyone in the state who has that policy sees a premium increase. 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 Policies
The attained age-rated Medigap policies 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 costs $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 three policies will increase in price over time, eventually evening themselves out.
How to Find The Best Medigap Rating Method
At MedicareFAQ, we research top insurers to find you the best Medigap rating method available in your state. 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.