by Lance and Isaac Reedy
In our Have Your Medicare Supplements Rates Gone Up? article we discuss what you can do if your rates have gone up. In this companion article, we talk about the two main causes of these increases. Think of them like two rivers that come together to form a larger one.
Cause #1: This one is the attained-age pricing that most states allow for their Medsupp plans. Here’s how it works. Company X has a rate, let’s say of $100 per month for a Plan G at age 65. Their rate chart says “Attained -age.” Company X takes its first attained-age increase at age 66. From there it increases at the rate of 3.5% per year. Their rate chart would look like this:
Attained-age Plan G
- Age 65: $100.00
- Age 66: $103.50
- Age 67: $107.12
- Age 68: $110.87
- Age 69: $114.75
- Age 70: $119.06
In this case, your premium increases 3.5% beginning at age 66 and every year thereafter. Some companies end their attained-age increases at age 80, and others go to age 99.
There are some variances for attained-age pricing. Company Y takes its first attained-age increase at age 68, again with a rate increase of 3.5% per year. Their rate chart would look like this:
- Age 65: $100.00
- Age 66: $100.00
- Age 67: $100.00
- Age 68: $103.50
- Age 69: $107.12
- Age 70: $110.87
Everything else being equal, I would choose Company Y over Company X for someone signing up at 65.
Just because a state’s insurance department allows attained-age pricing, doesn’t necessarily mean that all companies use it. A company at its own prerogative may choose issue-age pricing instead. Issue-age pricing means that if you sign up for a Medsupp at 65, let’s say with Company Z, you are always in the 65 year-old rate category. Since you are issued at age 65, your premium does NOT increase just because you advance in age.
Company Z’s rate chart may look like this.
Issue-age Plan G
- Age 65: $120.00
- Age 66: $120.00
- Age 67: $120.00
- Age 68: $124.80
- Age 69: $129.79
- Age 70: $134.98
If you come in at age 69, for example, your premium will be $129.79 per month, and then you will always be in the 69 year-old group.
Here’s the breakdown of how attained age pricing (if allowed) works in the five states we work in.
Idaho: An Issue-age state. Does not allow attained-age priced policies. The premiums typically start around $20 per month higher compared to attained-age pricing.
Montana: An attained-age state. Virtually all companies use attained-age pricing. Many of you have a company that is the exception and uses issue-age pricing.
Oregon: An attained-age state. All companies that I know of use attained-age pricing.
Washington: A community rated or flat-rate state. Each companies’ Medsupp plan letter has its own flat rate. It doesn’t make any difference for smoker or non-smoker, your age, or male vs. female. The rate is flat, period. Plan G’s might run around $180 per month.
Wyoming: An attained-age state. All companies that I know of use attained-age pricing.
Here’s the bottom line. Many people in Montana (but not all), Oregon, and Wyoming will have attained-age rate increases. Idaho, Washington, and those in Montana with an issue-age policy do not. However, the trade-off is that premiums usually start higher.
Note: One company in ID, MT, OR, and WY has its own unique pricing structure, which functions similar to attained-age pricing.
Cause #2: All Medsupps eventually increase in premium due to the claims experience that any given company incurs. Let’s say Company W offers Medsupp plans F, G, and N.
As far as claims and premiums go, the people on Plan F are in one bucket, the people on Plan G are in their own bucket, and the Plan N folks have their own bucket. Premiums are money going into the bucket, and claims experiences (losses) and administrative expenses are money going out of the bucket.
Let’s say that the policyholders in Company W’s Plan F bucket as a group, begin to have more medical procedures. For example, John Doe has an unexpected open-heart surgery and Jane Doe starts a chemo therapy regimen after a mastectomy.
Those two cases will incur substantial claims for the company and cause more money to flow out of the bucket. Let’s say that there are also other Company W policyholders that increase their medical utilization of their Medsupp plan. The losses mount.
Finally, it gets to the point where Company W goes to the State Insurance Department, documents their increased losses, and files for a rate increase. If it’s 6%, for example, then everyone in Company W’s Plan F bucket goes up 6%. It makes no differences whether a policyholder has huge bills and another has had no claims at all. If the premium increase is 6%, then everyone goes up 6%.
As the people in any company’s block of business begin to age (I hate to put it that way, but it’s the truth), the claims experience inevitably increases. The older standardized plans purchased prior to June 1, 2010 are all closed blocks of business and have increasingly greater rates of claims experience. That has put more pressure on rates.
More claims experience = more losses = premium increases.
There is another tributary to the Claims Experience River, the North Fork. When Medsupps were initially offered, beginning in 1966, most plans covered the Hospital Part A deductible, just as most plans do today. In 1966 the Medicare Part A deductible was only $40. It wasn’t too long ago that it crossed over $1,000. In 2016 it was $1,284, and in 2017 it’s $1,316. It likely will be pushing $1,350 in 2018.
Each year, as a policyholder is hospitalized, Company W has to pay out more money in claims. Even if the rate of hospitalizations is the same on a per 1,000-policyholder basis, the insurance company continually has to pay out more money.
Other Medicare deductibles and co-insurances also increase. As the Medsupp company continues to pay its own share of the costs, it has to pay out more and more every year coinciding with the increased obligations from Medicare. In fact, the companies usually send their policyholders a notice in the fall stating that they will automatically cover Medicare’s increases.
To sum up: As the company’s block of business ages, you have increasing medical utilization as well as gradually increasing deductibles and co-insurances from Medicare. Both of these flow together causing more losses for the insurance company, and unfortunately, this ultimately leads to claims experience rate increases.
Conclusion: Both attained-age increases (OR, MT, and WY) along with increased claims experience (losses) will cause your Medsupp premiums to go up. The increases in ID and WA are due to claims experience only. While that’s nice for those two states, keep in mind that their rates start higher from the get-go.
What can I do to find lower rates?
Please refer to our companion article, Have Your Medicare Supplements Rates Gone Up? In addition to shopping for lower rates in general, sometimes switching from a Plan F to Plan G or Plan G to Plan N can be a smart more. If you have an older plan that has had substantial rate hikes and your health is stable, the chances are good that we can qualify you for lower rates.
Please contact us, and we’ll start shopping for you. End