Medigap plan rate increases are based on a variety of individual factors as well as some calculations made by individual insurance companies. There is no way to be sure of which Medigap plan will increase the fastest, but we can use facts about how rates are increased to make predictions about future premiums.
How Initial Medigap Rates are Set
There are three rating systems that a company can use to set premium rates for new and existing plan members.
First, the most often used system – attained-age pricing. This method uses your current age to set the premium of your plan initially and then increases your premium each year as you age. This increase is typically around 1-2% annually.
Second, issue-age pricing. Using this method, the company sets your premium based on your age when you enter the policy. After that, your premium will never increase based on your age but can increase based on a variety of other conditions.
Lastly, community-rated pricing. This one is not commonly used today, but there are some companies that still utilize this method. In community-rated pricing, age does not impact your premiums. Your premium will be the same as people who are older and younger than you. Everyone pays the same premium for the plan. Premiums will increase based on inflation and other factors.
Individual Factors that Impact Rate Increases
We’ve said that age can impact your premiums. There are a host of other individual factors that can impact rate increases.
Medigap prices vary by location. Individuals who live in higher cost-of-living states typically pay more for their premiums – sometimes double or even more for the same Medigap plan.
Your gender will also determine your Medigap premium. Women are generally healthier than men, so they enjoy rates that are around $10-$30 less than their male counterparts.
Tobacco users should expect to pay an additional 10% in their monthly premiums since they often have more medical conditions.
You could get a household discount on your premiums if you are a married couple and both choose the same insurance company for your coverage. Some companies even offer discounts for just living in the same house as someone over a certain age. Household discounts range from 5-15% of the standard premium.
Finally, you may save money based on the frequency at which you pay your premium. Insurance companies typically like to be paid monthly and with an electronic debiting system, so they may offer discounts to individuals who do this.
Medigap plan rate increases are based on a variety of individual factors as well as some calculations made by individual insurance companies.
Company Calculations that Impact Rate Increases
Outside of age and other individual factors, companies use data from entire groups to determine rate increases (or decreases on occasion). The biggest factor in determining rates is called the loss ratio.
The loss ratio is determined by looking at how much revenue is coming in versus going out to pay claims. An insurance company will look at one product within one state and calculate its loss ratio. If this ratio is above a certain threshold, the company will (legally) increase its premiums. Most companies are aware of their income and expenditures, so they often see the loss ratio linger around the threshold or go just slightly above. This calculation may cause a 2-5% increase in your premium. On the contrary, if the loss ratio is below a certain threshold, the company may have to decrease its premiums.
We often see that bigger companies have fewer increases due to the loss ratio since they have more members to spread out claim payments. Healthy members make up for the higher cost of unhealthy members.
Rate Predictions for Medigap Plans F, G, and N
It makes sense that plans which have an older, sicker population would have higher premiums. Due to changes brought on by MACRA, no newly-eligible beneficiaries are eligible to enroll in Plan F. That means that the population of Plan F is getting older and has no new (young) beneficiaries (who are typically thought of as healthier) to help balance their healthcare costs. An older company that has a large number of members will probably need to increase their rates for Plan F more significantly over time. However, a new company that offers Plan F may have lower rates because anyone who is just entering Plan F (because they delayed coverage for some reason) would need to pass medical underwriting. If they can do this, they are healthy. Therefore, new members coming into a new company under Plan F will be generally healthy and have lower healthcare costs. We expect to see Plan F rates taper their increases over the next few years.
Ever since MACRA took effect, Plan G began to see the fastest increasing premium rates. The reason for this is twofold. First, many new Medicare beneficiaries are choosing Plan G because it is now the most comprehensive plan on the market. They choose Plan G as soon as they become eligible for Medicare, which also gives them guaranteed issue rights. They must be granted the plan regardless of their medical condition, and they do not have to fill out any medical history forms. This causes companies to accept individuals blindly, without any idea of what their claims may amount to. In order to proactively plan for individuals with high medical costs, companies raise their rates for Plan G. They also may increase their rates as they begin to see claims for Plan G members come in. If they see a high cost of claims, they increase the premiums. We expect rates for Plan G to increase by 7-10% over the upcoming years.
Plan N is currently seeing the lowest increase in premiums. As we mentioned, most beneficiaries with guaranteed issue rights are enrolling in Plan G. Plan N enrollees are usually enrolling after passing medical underwriting. Plus, individuals who enroll in Plan N often do so because they know they are healthy and don’t need the more comprehensive coverage that Plan G offers. All-in-all, this means that Plan N members are generally healthier and have a more predictable claim payout rate. We have even seen Plan N rates stay exactly the same from one year to the next.
If you find that your current Medigap plan is increasing its rates at a significant amount, we can help. We’ll take a look at other companies that offer the same plan and determine if you are eligible to switch carriers. You don’t have to do the work on your own – just schedule an appointment with one of our licensed agents and we’ll do all the work for you. If we do find that you could save money by switching companies, we’ll even help you cancel your current plan and make sure there is no lapse in coverage. Give us a call today!