The Medicare program is a great health insurance option for seniors, but it does not cover everything. Medicare supplements are required to fill in these gaps. However, Medicare supplements can become unaffordable if they increase their premiums. Some years, these increases can be up to 10%.
This article discusses how Medicare supplement premiums are set, what factors cause an increase in Medicare supplement premiums, and what you can do to remedy this issue.
How Medicare Supplement Premiums Are Set
Medicare supplements are also referred to as Medigap plans. They are standardized by the federal government. Standardization means that each plan is the exact same, no matter which company you purchase it from. Plan G will always be Plan G with the exact same benefits. These plans never change.
The only difference you will find between carriers is the price you pay for the premium of the plan.
There are three ways insurance carriers can decide to set rates for Medicare supplements.
Attained Age is the most common method for setting supplement plan rates. This initial price you receive for a plan is based on your age at the time the plan is issued. The rates then increase as you age.
This method does not take age into consideration. Every member of the community pricing plan pays the same amount.
Similar to attained-age pricing, this method considers your age into the rate. Your rate is locked in at that time and will not change.
Not every pricing model is available in every state. Arizona, Georgia, Indiana, Texas, and North Carolina do not allow carriers to increase premiums based on the age of the member. This law means that the attained-age pricing method can’t be used in those states.
How Individual Factors Influence Premiums
We’ve learned the overall methods that insurance companies use to set premiums. There are also individual factors that go into the rate determination.
Time of Enrollment
One of the few times when you are guaranteed to be issued a Medigap plan is during your unique Initial Enrollment Period. This period begins 3 months prior to your 65th birthday and extends to 3 months after your 65th birthday.
During this time, you are allowed to choose any Medigap policy you want and a carrier cannot deny you coverage for any reason – not for pre-existing conditions, disabilities, etc. Not only can they not deny coverage, but they also cannot charge you a higher premium.
Once your Initial Enrollment Period has ended, you no longer have guaranteed rights to a Medigap policy. At that time, the carrier will require medical underwriting. You may be denied a policy or charged a higher premium depending on the results of the medical history investigation.
*If you have creditable coverage, you may waive your rights to enroll during your Initial Open Enrollment period. If that is the case, you can still be guaranteed a Medigap policy at a later age.
**There are a handful of other reasons that individuals may not have to undergo medical underwriting. These reasons vary by state.
The cost of your premiums will also be determined by your state and zip code. If you relocate, it’s critical to check your rates, otherwise, you might face a large increase in how much you pay.
Women are typically healthier than men and tend to live longer, according to research. For these reasons, some insurance carriers offer lower premiums to women. On the flip side, living longer may mean women end up paying more for the plan over their lifetime.
Your age becomes a factor depending on the pricing method that the carrier chooses to set rates using. You will still most likely pay a lot less if you purchase a Medigap plan during your Initial Enrollment Period than if you wait until several years later.
Obviously, tobacco use coincides with higher healthcare costs. If you use tobacco of any kind – smoke, chew, or vape – your premium will be about 10% higher than non-users.
Some carriers offer discounts if both members of the household are enrolled with the same carrier. Others even offer discounts if there is an adult over the age of 18 living in the same residence.
You will have several options in how you choose to pay your premiums. Some carriers will offer less frequent payments by having quarterly, semi-annual, or annual payment plans. However, you may pay more for these options as most of them would prefer monthly payments.
Carriers may also give a discount if you choose to pay your premium electronically. Paying electronically saves them time and money, so they are usually happy to pass that benefit onto you.
What To Do If Your Rate Increases
If you notice that your rates are increasing drastically, there may be something you can do to get back to a lower premium.
More often than not, this will entail switching policies. It is also likely that any changes made will leave you with less coverage. However, if your current plan is not affordable, SOME coverage is better than NO coverage.