Jeffrey Wade
Supplemental medical insurance, also known as Medigap, is offered by private insurance companies to reduce out-of-pocket health care costs that Original Medicare (Part A and Part B) may leave you with, like copays, coinsurance, and deductibles. While it is not required to be a guaranteed issue under the Affordable Care Act, supplemental insurance can be purchased during a one-time, six-month open enrollment period that begins when an individual enrolls in Medicare Part B at 65 or older. After this period, insurance companies may increase rates during the same year, and these rate increases can average between 3% and 10% per year.
| Characteristics | Values |
|---|---|
| What is supplemental medical insurance? | Insurance to help pay some out-of-pocket costs that Medicare won't cover. |
| What is it often called? | Medigap insurance. |
| Who offers it? | Private insurance companies. |
| Who sets the benefits? | The federal government. |
| Who is it for? | People who want to reduce their out-of-pocket health care costs that Original Medicare (Part A and Part B) may leave them with, like copays, coinsurance and deductibles. |
| Can the rates increase? | Yes, and sometimes twice a year. |
| What are the factors that can cause the rates to increase? | Age, inflation, location, gender, increased cost in covering claim expenses, and overall increase in healthcare costs. |
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What You'll Learn
Rate increases are inevitable
Rate increases are an inevitable part of supplemental medical insurance plans. There are several reasons why rates may increase, and sometimes, policyholders experience multiple rate increases in a single year.
Supplemental medical insurance, also known as Medigap insurance, is offered by private insurance companies. These companies determine the rates for their plans, and there are several pricing methods they use to do so. One common method is attained-age pricing, where rates are based on the policyholder's current age and increase annually as the policyholder gets older. Another method is issue-age pricing, where the rate is based on the policyholder's age at the time of purchase and will not increase due to age, but may increase for other reasons such as collective claims. A third method is community pricing, where rates are not affected by age at all.
In addition to these age-based pricing methods, other factors can influence rate increases. One significant factor is inflation and the overall increase in healthcare costs. As the costs of healthcare services, treatments, and medications rise, insurance companies may increase rates to cover these higher expenses. Demographics, such as location and gender, can also play a role in rate determination, with certain locations or genders potentially being considered higher-risk and therefore subject to higher rates.
While rate increases are unavoidable, there are ways to manage and mitigate their impact. Policyholders can review their supplemental insurance plans periodically with a qualified broker to ensure they are getting the best rates and coverage. Additionally, understanding the reasons behind rate increases can help policyholders make informed decisions about their healthcare coverage and budget accordingly.
It is important to note that supplemental insurance is not necessary for everyone. For individuals with comprehensive health coverage, such as group health insurance through an employer or a Medicare Advantage plan, the gaps in coverage may already be filled, rendering supplemental insurance unnecessary.
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Inflation and healthcare costs
It is not uncommon for supplemental medical insurance rates to increase twice a year. These rate increases can be challenging for individuals, especially when they occur within the same year. Medicare supplement rate increases usually fall between 3% and 10% per year, and they can happen more than once annually.
Supplemental insurance rate hikes are influenced by various factors, including age and location. For instance, attained-age pricing plans tie rates directly to an individual's current age, resulting in annual rate increases as one gets older. Certain states, such as Arizona, prohibit Medicare supplement insurance companies from raising rates based on age, while other states like Mississippi, Georgia, North Carolina, Texas, and Indiana, predominantly use attained-age plans.
The rising costs of healthcare services and premiums have consistently outpaced the growth of the overall economy. This trend has resulted in healthcare expenses accounting for a growing proportion of gross domestic product. In June 2024, healthcare prices increased by 3.3%, outpacing the overall inflation rate of 3.0%. Since June 2009, the consumer price index for medical care services (CPI-U) has risen by 54.5%, while the producer price index for healthcare services (PPI) has increased by 40.3%.
Inflation in healthcare costs is influenced by several factors. One significant contributor is the increase in wages for healthcare workers, which puts upward pressure on medical prices. Additionally, the prices paid by private insurance companies are typically higher and increase more rapidly than those of public payers. Private insurance prices are determined through negotiations between health systems and insurance companies, while public payer prices are set by federal and state governments annually.
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Age, location, and gender
Age is a significant factor in determining the cost of supplemental medical insurance. The most common pricing plan is attained-age pricing, where rates are based on the policyholder's current age and increase annually as they get older. For example, a 65-year-old may pay a monthly premium of $105, which increases to $111.30 at 66 and $139.37 at 70. An 85-year-old may pay $160 per month for the same plan, with this increasing to $169.60 at 86 and $179.78 at 87. Over time, as healthcare costs rise, insurance companies must increase premiums to cover higher claim costs, and it is not unusual for premiums to double over six to ten years due to a combination of age and claims history.
Location can also influence the cost of supplemental medical insurance. Different states have different pricing plans available, and not every type of plan is available in every state. For instance, Arizona has a law prohibiting Medicare supplement insurance companies from increasing rates based on age, so attained-age plan pricing is not available there. Conversely, states like Mississippi, Georgia, North Carolina, Texas, and Indiana primarily use attained-age pricing.
Regarding gender, my search did not yield any specific information on how it may influence supplemental medical insurance rates increasing twice in a year. However, it is worth noting that gender-based pricing practices may vary depending on location and insurance provider.
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Initial enrollment period
The Initial Enrollment Period is a critical timeframe for individuals to enroll in a Medicare plan. This period typically begins three months before an individual turns 65 and ends three months after their birthday month, totalling a seven-month window. During this time, individuals can choose to enrol in Medicare Part A, Part B, or both, with their coverage starting on the first day of the month they turn 65.
It's important to note that enrolling in Medicare Part A and Part B during the Initial Enrollment Period is crucial, as late enrolment can result in higher premiums. If you miss the Initial Enrollment Period, you may have to wait for the General Enrollment Period, which occurs annually from January 1 to March 31. However, enrolling during this period may result in a late enrolment penalty, leading to higher premiums.
During the Initial Enrollment Period, individuals can also explore other options, such as enrolling in a Medicare Advantage plan (Part C) or selecting a Medicare drug plan (Part D). These plans are offered by private insurance companies and approved by Medicare, providing additional benefits and coverage options. It is worth noting that Medicare Advantage plans have their own enrolment periods, including an annual open enrolment period from October 15 to December 7, allowing individuals to switch plans or return to Original Medicare.
To enrol in a Medicare plan during the Initial Enrollment Period, individuals can visit the official Medicare website, contact Medicare by phone, or consult a qualified broker or insurance advisor. It is essential to carefully review the available plans and consider factors such as pricing methods, state-specific variations, and the impact of age on premiums. By seeking guidance from experts and periodically reviewing your coverage, you can make informed decisions about your healthcare insurance choices.
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Underwriting and premium rates
Underwriting is a process where insurance companies evaluate an applicant's medical history to decide whether they can be insured, what the policy will include, and how much the premium will be. The insurer will use the applicant's medical records to decide on the policy, including whether it will include pre-existing condition exclusions and/or a premium higher than the standard rate. Medical underwriting is still used by plans that are not regulated by the Affordable Care Act (ACA), as well as by Medigap plans, and life and disability insurers.
In the context of supplemental medical insurance, medical underwriting is still used in short-term health plans, life insurance, and supplemental medical policies. Insurers can review medical records and apply risk assessments to calculate premiums. This means that for large groups, premiums can be based on the group's overall claims history, resulting in higher total premiums for less healthy groups.
There are three pricing methods insurance companies use to determine Medigap premiums: attained-age pricing, issue-age pricing, and community pricing. Attained-age pricing is based on the current age of the insured and will increase every year as they age. Issue-age pricing is based on the age at the time of purchase, and while rates can increase for collective claims, they will not increase due to age. Finally, community pricing does not take age into account at all.
Supplemental insurance rates can increase, and this can happen twice a year. These rate increases can be a source of economic hardship and are impossible to avoid. However, they can be mitigated by periodically reviewing the insurance supplement with a qualified broker.
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Frequently asked questions
Yes, it can. Medicare supplement rate increases can happen twice a year and usually average somewhere between 3% and 10% per year.
There are a few factors that can cause your supplemental medical insurance to increase twice a year, including age, inflation, location, gender, and increased cost in covering claim expenses.
While rate increases are impossible to avoid, you can mitigate them by reviewing your Medicare supplement periodically with a qualified broker.
