Medicare Supplements (Medigap) are additional insurance plans that fill in the coverage gaps left behind by Original Medicare. The rates tend to go up over time, which can be a huge pain point for many seniors.
When you’re turning 65 or initially retiring, you may think that a Medigap plan fits into your budget. However, as the policy rate begins to increase, and somebody is on a fixed income, it can become difficult to afford. There are other options, but sometimes those choices have limited networks or coverage that doesn’t meet your needs.
So, people begin to ask, “How can I keep my Medicare Supplement rate down but maintain the same quality of healthcare coverage that I have today?”
We’ll get to this in a later post, but first — here are the top three reasons why Medicare Supplement rates increase.
1. The Loss Ratio
What is the loss ratio?
It’s when a Medicare Supplement company determines what percentage of overall revenue they’re bringing in on a certain product — in a certain state — is going towards the claims.
How does it work?
If the percentage is over a certain threshold, it’s legal for the company to increase the premium. If it’s under a certain threshold, then they have to decrease the premiums. Most of the time, the rate stays around the threshold or just goes over it, so you see 2-6% increases. But we have seen people who have 10-15% or even 25% rate increases — for the disability supplement range, which are crazy numbers that are hard to afford!
The company has to verify the rate increase with the department of insurance in each state. They also know they lose some of their customers when they do it.
Note: You want a company that protects their block of business and pricing it at a rate that’s sustainable over time.
Lastly, the loss ratio can’t be based on your personal health. It has to be based on the health of everyone with your plan in your state. It’s a group loss ratio — not individual — which suggests that the bigger the company, the more people they have, and the easier it is to sustain their losses, so their ratio isn’t as bad.
Related Post: Top 3 Medicare Supplement Plans
Age is another factor for why Medicare Supplement rates go up, although it isn’t the primary factor.
Some states have age-issue or issue aged where you’re getting a policy based on your age at the time they issue it. Then, the rate doesn’t go up for your age. But the price may still increase based on the loss ratio.
The majority of states are attained age, where you come in at a rate, and it has built-in age increases. Typically, these are 1-2% per year, and normally they don’t do an increase for age 66, 67, or 68 — but around 69 they start doing the age increase.
The other one is community-rated, where they place you into certain age blocks and raise their rate based on what age block you’re in.
3. The Shell Game
Third, the shell game impacts Medicare Supplement rate increases, and it sort of contradicts the loss ratio process. Medicare Supplement companies — especially the big ones — have multiple companies under the same mega-company.
The rates start to go up because the population on that plan is aging, and the loss ratio has made the rates increase. They can’t have a different rate for people coming in as new business than they do for existing customers.
As one of their independent charters’ rates goes up, they bring in a new company underneath their brand and try to grab up the new business at a lower rate.
The older charter they have – there’s healthy people that switch to the new charter. The old charter gets left with a portion of the population that maybe can’t change because of health conditions. In turn, this block gets sicker and drives the rates up faster.
Bigger companies can afford to do this and start new charters. It’s a part of trying to compete in the business world.
Bobby Brock Insurance Will Shop Rates for You
At Bobby Brock Insurance, we’re experts in underwriting Medicare Supplements. As our customers’ rates go up, we help them get their rate back down. We use our knowledge of the questions that are asked by the company and figure out which one will give you the best rate — at any time you request it.
If you’re our customer, please ask us to shop Medicare Supplement rates for you. If not, we want to be your agent! You can give us a call at (662) 844-3300 or fill out a contact form online.