Medigap policies come in 3 main types. There are attained age, issue age and community rated policies offered by various insurance carriers. The community rated plans are probably the easiest to understand. They basically lump most Medicare beneficiaries into the same group. You pay the same rate as other people living in your area regardless of your gender. The other two are a bit more detailed so let’s dive into the details: Attained Age vs Issue Age Medigap policies.
Rate Increases on Medigap Policies
There is one thing you should understand about all three types of policies, and that’s that they will ALL have rate increases. There are two types of rate increases. Let’s look at these first before we discuss the policy types.
Medigap Rate Increases Due to Age
As we age, we tend to have more health conditions. So in regards to Medigap plans, the insurance carrier will raise the rate a little bit each year upon your birthday. Usually this is just a couple of percentage points. You will find this type of rate increase in the attained age Medigap policies, which are the most common type of Medigap policy.
Medigap Rate Increases Due to Inflation
The cost of medical care in the United States is a like a runaway train. As the cost of health goes up, the cost of your Medigap claims will also go up. Insurance companies will have statewide rate increases nearly every year on every kind of Medigap policy to keep up with this increasing cost of claims.
You should also consider that Medicare itself usually increases the amount of your Part A and B deductibles ever year. Medigap policies often cover this for you, depending on which plan you chose to enroll in. If your Medigap plan is covering a higher deductible for you next year than it did this year, your Medigap rates must go up over time.
The carrier must first file it’s proposed rate increase with the state Department of Insurance for approval. Then they’ll notify you by mail of the effective date of the increase.
Now that you understand the factors that affect Medigap rates, let’s look at the types of policies.
Issue Age Medigap Policies
An Issue Age rated Medigap policy means that you buy your policy based on your age at the time of application. Someone who is 70 will pay a higher premium when they purchase than their neighbor who is 65. However, once the policy is issued, it will never go up specifically based on your age.
This may appear great on the surface but don’t be fooled. Premiums will still go up annually for things like inflation and rising costs of healthcare. Although your policy won’t increase specifically because you had a birthday, your insurance carrier will still raise rates over time. The insurance company can still increase rates for all policies in a certain class across that state. Most carriers have such an increase once per year.
Not all insurance companies offer Issue Age Medigap policies. In some states they are more common than others, but they are increasingly hard to find in other states. For example, most carriers in Arizona, Georgia, Idaho, Florida, Missouri and New Hampshire offer issue age policies. However, we see very few of them in Texas.
Be sure to compare pricing with insurance carriers in your area that offer issue age vs attained age as well as community-rated.
Attained Age Medigap Policies
Attained-age policies, on the other hand, increase in price as you get older. Typically the insurance company has only a small increase for your attained age though. Most of the time these policies are expensive when you purchase them than an issue-age policy might cost you. They are certainly worth comparing so that you get the policy that you feel offers the best financial outlook.
The third type of rating for Medigap policies is community rated. Everyone in the community will be charged the same base rate if they enrolled in the same plan. Things like gender may not affect the rate at all.
There are only a few community rated Medigap insurance companies out there. Usually these companies offer discounts up front for younger policyholders. However, the price increases as you get older because they reduce your discount as you age. We often also find the starting rate is higher than some of the other Medigap policies offered in the area. In the long run, these policies may not be as cost-effective as choosing the plan with the best rate when you first enroll and the most stable history of rate increases.
Which Medigap Plan is Best?
In states where Attained Age is common, we often find that they work out to be most cost-effective for our clients in the long run. However, in states where issue age policies are more common, they work out great. So how do you choose which Medigap plan is best?
In the end, just remember that all three types of plans will have rate increases over time. So, all you need to do is to choose a company with a competitive rate right now that also has a good history of low rate increases. If you are comparing policies, our agency can help you. We’ll provide you financial histories including the rate increase trend histories for a variety of different carriers.
This information is good to have when selecting your Medigap policy and who you will buy it from. Give us a try!