Medicare Supplement insurance, also called Medigap, can help pay some of the out-of-pocket costs left behind by Original Medicare. These plans are sold by private insurance companies, so the monthly premium is not the same for everyone.
When comparing Medicare Supplement plans, it is helpful to understand how the insurance company sets its prices. Two plans with the same letter, such as Plan G, generally offer the same standardized benefits in most states. But their premiums may differ based on the company, your location, your age, and the pricing method the carrier uses.
Knowing how Medicare Supplement plans are priced can help you look beyond today’s monthly premium and ask better questions about your choices.
Why can the same Medicare Supplement plan have different prices?
Medicare Supplement plans are standardized in most states. For example, a Plan G from one insurance company generally covers the same Medicare-approved gaps as a Plan G from another company. The main differences may be the premium, customer service, household discounts, rate history, and the way the carrier prices the policy.
Insurance companies can set their own premiums. They may consider factors such as:
- Your age when you apply
- Your ZIP code or county
- Whether you use tobacco
- Your gender, where permitted by state law
- Available household discounts
- The plan letter you choose
- The company’s pricing method
Benefits and premiums can vary by plan, carrier, and state. That is why comparing more than one carrier may be worthwhile, even when you are looking at the same plan letter.
What are the three main Medigap pricing methods?
Most Medicare Supplement companies use one of three basic methods to price policies: community-rated, issue-age-rated, or attained-age-rated. These names can sound technical, but the ideas are fairly simple.
Community-rated plans
A community-rated policy generally charges the same base premium to everyone in a particular area, regardless of age. A person who is 65 may start with a similar base rate as someone who is 75.
This does not mean the premium will never change. A carrier may raise rates over time because of medical costs, inflation, claims experience, or other factors. Your premium may also change if you move to a different rating area or lose a discount.
Community-rated pricing can be appealing because the base price is not tied directly to your age. Still, it is important to compare the current premium and understand that future increases may occur.
Issue-age-rated plans
An issue-age-rated policy is priced based on the age you are when you first buy it. In general, someone who buys a policy at 65 may have a lower starting premium than someone who buys the same policy at 70.
Under this method, your premium does not usually go up simply because you have another birthday. However, the carrier may still raise rates for reasons that affect many policyholders, such as increased health care costs or overall claims.
Issue-age-rated plans may be worth considering if you are comparing how different policies are priced for the long term. But a lower rate increase pattern is never guaranteed, and each carrier’s experience can be different.
Attained-age-rated plans
An attained-age-rated policy is based on your current age. The premium may start lower when you first enroll, especially at age 65. It can then increase as you get older, in addition to any broader rate changes the company makes.
Many people see attained-age pricing in the Medicare Supplement market. A low starting premium may be attractive, but it can be useful to ask how rates have changed in the past and whether the carrier uses age-based increases.
Past rate changes do not predict future increases. Still, asking about a plan’s pricing structure can give you a clearer picture than looking only at the first month’s premium.
Does your health affect your Medicare Supplement premium?
Your health may affect whether you can buy a Medicare Supplement policy in some situations, but it does not always affect the premium you pay. During your one-time Medigap Open Enrollment Period, insurance companies generally cannot use medical underwriting to deny you coverage or charge you more because of pre-existing health conditions.
This enrollment period begins when you are 65 or older and enrolled in Medicare Part B. It lasts for six months. It is often the most important time to consider a Medicare Supplement plan because your options may be broader.
After that window, you may be asked health questions when applying, unless you qualify for a guaranteed-issue right. Acceptance is not guaranteed outside protected enrollment periods. Rules can also vary by state, so it may help to review your local options carefully.
Can a Medicare Supplement premium go up over time?
Yes. Medicare Supplement premiums may increase over time, regardless of which pricing method is used. The reason for an increase matters.
For example, an attained-age-rated plan may increase because you are older and because the carrier adjusts rates for a group of policyholders. An issue-age-rated or community-rated plan may not raise your rate because of your birthday alone, but it may still have carrier-wide or area-wide rate adjustments.
A rate increase does not automatically mean you made the wrong choice. Medical costs and claims can change over time. However, it is reasonable to review your coverage periodically and compare available options, especially if your premium becomes difficult to manage.
What else should you compare besides the monthly premium?
The lowest premium today may not always be the best fit. When comparing Medicare Supplement plans, consider the full picture:
- Plan benefits: Make sure you understand what the plan pays and what you may still pay yourself.
- Pricing method: Ask whether the policy is community-rated, issue-age-rated, or attained-age-rated.
- Carrier history: Ask about past rate changes, while remembering that past results cannot guarantee future rates.
- Discounts: Some carriers may offer household or other discounts if you qualify.
- Financial comfort: Choose a monthly premium that fits your budget today while considering possible future changes.
- Prescription coverage: Medicare Supplement plans do not include outpatient prescription drug coverage, so you may also want a separate Medicare Part D plan.
Medicare Supplement coverage can offer predictable help with many Original Medicare cost gaps, while Medicare Advantage plans may offer a different combination of provider networks, benefits, and cost-sharing. The right path often depends on your budget, preferred doctors, travel needs, health situation, and comfort with out-of-pocket costs.
Understanding Medicare Supplement pricing can make plan comparisons feel less confusing. If you would like free, no-pressure help comparing Medicare Supplement options in your area, reach out to Eric. With 25 years of experience, he can help you review available plans, pricing methods, and questions to consider before you enroll.