Medigap Prices – Why Pricing Model Matters

When comparing Medigap prices ask about the pricing model

Here’s a secret that insurance companies don’t tell you about. The way your Medigap policy is rated or priced can have a direct relationship on how premiums will increase in the future.

When shopping for a Medigap policy (aka: Medicare supplement) most people are concerned about one thing beyond which standardized plan to choose: How much is the monthly premium?

The monthly premium is surely important but what your premium may be in the future and on what criteria it is increased should be very important to you. Nobody wants to pay less now only to pay too much in the future.  

The 3 different pricing models will be discussed as well as how they may effect your Medigap premium in the future. We’ll also look at some other smoke and mirror tactics that can lead you to believe one company may be head and shoulders above the rest when it comes to Medigap prices.

When is Medigap Open Enrollment?

 

Medigap pricing models

Each insurance company has the freedom to price their Medigap policies in one of 3 ways. The pricing model determines both current price and future prices. Here’s a breakdown of the type of pricing, how it’s priced and what that pricing means to you.

Community-rated (no-age rated)

The same monthly premium applies to everyone who has the Medigap policy regardless of age.

• This means that your monthly premium will not increase based on your age. But premiums may increase due to inflation or other factors as determined by the insurance company.
• The structure of this pricing model may favor older applicants at the expense of those who are younger.

Issue-age-rated (entry age-rated)

The premium is based on your age when you buy a Medicare supplement and it is issued.

• The younger you are when you buy a Medigap policy, the lower your monthly premium. Premiums will not increase because you are getting older but may increase due to inflation or other factors.
• Buying when you are young and holding onto your policy may save you some money in the long run.

Attained-age-rated

The premium is based on your current age and will increase as you get older.

• Premiums are low when you buy at a young age but increase as you age and can increase due t0 inflation and other factors.
• An attained-age-rated policy may be the least expensive when you are young, but may be the most expensive when you are older.

 

Other factors effecting Medigap premiums

Beyond how Medicare supplemental insurance policies are rated there are other factors that you should be aware of when comparing plans.

• Geographical rating – Where you live may have an impact on Medigap prices. A region with historically high claims experience or above average health care costs may mean that Medigap premiums will be higher.
• Medical Underwriting – Your health when you submit an application may have a bearing on the price of coverage. When you are entitled to guaranteed issue rights this is not the case. It should be noted that after a policy is issued, your premium cannot be raised due to your claims or health.

You should also be aware that some insurance companies will offer early enrollment discounts. An example of this would be a company giving you a lower discounted price if you enroll within a certain time frame from turning 65. Often you will receive a larger discount for your first year of coverage and a smaller discount for each subsequent year for a set period of time. You should keep in mind that rates can still be raised for other factors beyond the increase in the discount getting smaller each year.

Without a full and proper explanation of any early enrollment discount and how it works information may be skewed to make one companies prices look very attractive. Be sure to ask questions!

Factoring the discounts and how the policy is rated will help you get an idea of the long term Medigap prices you may pay. Don’t be afraid to ask what pricing model is used to determine the monthly premium. As an informed consumer you will get a better value.