There has been much talk about not being able to purchase or keep your existing Medigap Plans C or F in 2020. However, the truth is, if you already have a Plan C or F, you can keep it. Also, if you turned 65 before January 1st, 2020, you can still purchase a new plan C or F.
Plan F has long been the plan that people preferred because it made Medicare so simple. Plan F takes care of all the out of pocket expenses left by Medicare Part A and B, and pays all claims automatically, making things so simple. People rarely ever even received a bill.
However, all those great benefits led to an over-utilization of Medicare. People were going to the doctor more often, and congress saw that as a problem. Lawmakers concluded that first-dollar coverage is a problem and as a remedy decided Medigap policies should not pay the deductible.
Lawmakers passed a new law called MACRA, or The Medicare Access and CHIP Reauthorization Act of 2015, and Barrack Obama signed it into law. The law eliminates any supplemental coverage that provides first-dollar coverage. Plans C and F both pay the Medicare part B ($185 in 2019) deductible and the co-insurance for Medicare.
Guaranteed Issue Plans and the Effect on Premium Increases
Medigap plan eligibility not the only thing that is changing. The new law also changes which plans are eligible for guaranteed Issue. Beginning January 1st, 2020, plans D and G will be the Guaranteed Issue plans. Prior to 2020, plans F and C were the plans eligible for guaranteed issue. C and F will no longer be eligible. This rule is important to know when choosing a Medigap plan because plans that are eligible for Guaranteed Issue have higher premium increases than fully underwritten plans.
What is guaranteed issue, you might ask? Guaranteed Issue is a right to enroll in a Medigap policy without answering health questions. This right is used when a person loses their other qualified coverage such as a group insurance or Medicare Advantage Plan. This individual will be able to qualify for certain Medigap plans without answering any health questions. In other words, medical underwriting would not be required.
Medical underwriting is a means insurance companies have to keep premiums stable by selecting healthy people to be covered by the plan. The prospect of having a lower premium encourages people to buy insurance when they are healthy. Medical underwriting benefits everyone insured by the plan.
What happens when someone cannot pass the health questions for a new Medigap policy? Guaranteed Issue plans are offered, under certain circumstances, to people who cannot pass medical underwriting. People in poor health may have limited options unless they qualify for a Guaranteed Issue period. For example, a person can use the Guarantee Issue option when they lose their company-sponsored plan or a Medicare Advantage plan – if they apply within 63 days of losing their credible coverage. The applicant is eligible to buy specific plans without answering health questions. Medical underwriting is not required. Guaranteed Issue rights are a great benefit for people with health problems, but higher claims result in higher premiums for everyone in the plan. That is just the way it is.
Premium Pricing Methods for Medigap Plans
There are other factors that affect premiums. There are premium pricing methods you need to know about. There are three common methods of premium pricing. They are:
- Attained-Age Pricing: Rates are based on your current age and will increase every year as you age. This is the most common pricing plan.
Example: Mrs. Rodriguez purchases Medicare supplement Plan G at age 65. Her monthly premium is $105. At age 66, (with a 6% increase) it is $111.30. By age 70 it is $139.37. Mrs. Pearson is 85 and because she is older than Mrs. Rodriguez, currently pays $160 per month for her Plan G. When she is 86 she will pay $169.60. When she is 87 she will pay $179.78 and so on.
2. Issue-Age Pricing: Rates are based on your age at the time of purchase. Rates can increase for the collective claims in the policy, but not your age.
Example: Mr. Smith purchases his Medigap Plan F at age 65 and pays $162 per month. Mr. Robertson waits until age 72 to purchase his Plan F and pays $184 per month.
As you can see from the example, issue-age plans come with high prices. With an issue-age plan, a 65-year-old would pay roughly the same rate as an 80-year-old on any other pricing plan. Issue age plans also have increases in premium. The increases are not related to age, rather, they are the result of higher claims payments.
3. Community Pricing: Your age doesn’t affect what you pay. However, inflation, utilization, and factors such as tobacco use can. With a community-rate pricing plan, you would pay an identical rate to both those who are your junior and senior.
Example: Mr. Liu is 72 and his Medicare Supplement Plan N costs $164 per month. Mrs. O’Doyle is 86 and has the same Plan N and also pays $164 per month.
It is important to keep in mind that not every type of pricing plan is available in every state. For example, Arizona has a law against Medicare supplement insurance companies increasing rates because of age. Therefore, attained-age plan pricing is not available there. In Mississippi most Medigap policies are mostly attained age. The same is true in Georgia, North Carolina, Texas, and Indiana. We can help you determine which pricing method will work best for you and which are available in your state.
Other Factors Affecting Your Premium
In addition to these pricing methods, inflation and the rising cost of healthcare effect your monthly premium and how it increases over time.
As the overall cost of health care rises, health insurance companies must increase premiums to cover increased claim costs. It is not unusual for a Medigap premium to double over six to ten years, due to a combination of age increase and benefit utilization.
To summarize, these are things to consider when you are shopping for a Medigap plan:
- Did I turn 65 before January 1st, 2020? If so, you are still eligible for Plan F or C.
- Can you pass medical underwriting? If so, you can choose from almost any plan. You should consider a plans F, C, N, or even a high deductible plan F that is not eligible for guaranteed issue.
- If you are in poor health and cannot qualify for a plan that is medically underwritten, are you eligible for guaranteed issue plan? If so, you can choose plan D or G and not have to answer any health questions.
- If you turn 65 after January 1st, 2020, you should consider plans G, N, or even a high deductible Plan F.
- If you don’t mind paying some out of pocket costs, you can save a lot of premium by purchasing a high deductible plan F. With these plans, you will pay the Medicare deductible and co-insurance until you reach the high deductible plan F deductible. The deductible in 2019 was $2300.
If you need more help deciding on Medigap Plans or wonder if you even need a plan, you are welcome to contact us as our services are completely free to you.