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Do you know how insurance carriers price Medigap plans? Well, whether you already
have a Medigap plan in place, or you are researching your options, you may want to
know how Medigap premiums are priced, so you can have a good grasp about how
future rate adjustments might affect you. So, in this video I'm going to share with
you the three pricing techniques that insurance carriers use to adjust
premiums. Hi, Joann Quinn, insurance professional, co-founder of REMEDIGAP.com
and creator of my free Medicare eCourse that has provided thousands of
people step-by-step lessons on how Medicare works. Now, before we dive into
this video and the topic, I just want to clear up some terminology. When you hear
me speak about Medigap, I am also referring to Medicare supplement
insurance. We just use those terms interchangeably, but they do mean the
exact same thing. But, for the most part you will hear me, throughout the video,
refer to medicare supplement insurance as Medigap. So, let's go ahead and dive
into our topic. As I noted earlier, there are three pricing techniques that
insurance companies use. There's Attained Age, Issue Age and Community Rated. What I
will do, in this video, is give you the definition for each one of those pricing
techniques (according to the Centers for Medicare and Medicaid Services). I will
also provide pros and cons of each method, and give you some real-life
examples, so you know how the pricing techniques may affect you. So, let's go
ahead and get started. So, the first pricing technique is Attained Age. Which
is by far the most popular way that insurance companies price plans. Now,
according to the Centers for Medicare Medicaid Services, the definition for
Attained Age is as follows. Attained Age rated premiums are based on your current
age, which is the age you've attained. So, your premium goes up as you get older. So
the pros with an Attained Age plan are that your premium, first of all, will be
very low when you are at age 65. And, with many insurance companies...they will not
raise your rate based on age until you reach age 67, or in some cases age 68. Now,
the con with an Attained Age plan is that not only do you get a rate increase
based on age, but you will also receive one based on inflation. Which means that
the insurance provider may give an increase just due to rising healthcare
costs. Now, in your research, you may have come across some information about
Attained Age plans, noting that this type of plan can get very expensive as you
get older, and certainly this would seem to hold true if we're talking about age
increases along with inflation increases. But, we need to keep in mind that there
are times especially with plans G & N that insurance companies won't adjust rates
based on inflation, but may leave it at a zero percent adjustment for the year. And,
at times, give it a decrease. We have seen that happen, and I'm going to show you
exactly what I'm talking about in our real-life example. So, we're taking a look
right here at an example of an Attained Age Medigap policy. This is a plan G, and
what we see here is that we can look at projected age increases. This particular
company is not giving out an age increase until age 68. We can also look
at what their increase history has been, and we see that they've had some rate
adjustments that have been actual increases along with some decreases. We
can also take a look at another company. Here we see the same sort of thing. This
is a Plan G, Attained Age. We don't get an age increase until age 68. Inflation
based adjustment has been 0% for two years, and then this current year (2017)
they had a decrease. Now, this particular Attained Age plan is getting an
age-based increase at age 67. We can look at their increase history -- again, this is
based on inflation. And, they actually had all increases. So, you can see how different
it is from company to company. So, this just gives you an idea of what to expect
when you're looking at Attained Age plans. The second pricing method is
called Issue Age. But, it's also known as Entry Age. And, the definition according
to CMS is as follows...the premium is based on the age you are when you buy
the Medigap plan. Premiums may go up because of inflation and other factors
but, not because of your age. The obvious pro to an Issue Age plan is that you're
not going to receive rate increases based on age; however, the con is that
you're still going to receive increases based on inflation. The other con is that
Issue Age plans generally do start out at a higher premium compared to Attained
Age plans. There are certain states that only offer Issue Age plans, or at least the
majority of them are Issue Age and those states are Florida, Georgia, Idaho, Arizona,
Missouri and New Hampshire. Again, you will find the majority of plans in
these states are Issue Age, if not all of them. Now, in other states, you will see a
combination of Attained Age, Issue Age and Community Rated, which we're going to
get to. But, when you compare the Issue Age to the Attained Age, you will see
that the premium is a bit higher. And, I'm going to show you a real-life example.
Here's an example of two insurance companies, side-by-side, one offering
Issue age (that's the one on top). The other one is Attained Age (on the bottom).
You can clearly see that the two policies, or the two premiums that is,
are very different. They're both plan G's and they're both
for someone who is 65 and new to Medicare. But, as I stated earlier in
this video oftentimes, Issue Age plans can be a bit
higher from the get-go compared to Attained Age. And, that's
certainly the case in this example. So, here's another example of Issue Age.
Although you won't receive increases based on age, you will receive them based
on inflation, and sometimes those increases can be quite large. And, they
can make up for the difference of not receiving that age based increase. The
final pricing method is Community Rated, and by definition Community Rated
Medigap policies generally charge the same premium to everyone who has the
Medigap policy, regardless of age or gender. Now, the pro to a Community Rated
policy is that as you get older, your premium is going to be exactly the same
as anyone new entering Medicare at age 65. However, the con is for anyone new
entering Medicare at age 65, your premium may be a bit higher compared to Age
Attained because you have other policyholders in your group that are
older than you. And, of course you still get inflation based increases with a
Community Rated plan. But, let's take a look at the state of Washington who only
sells community rated plans, and we'll see exactly how they work. The example
I'm showing you right now is based off one insurance company offering plan G.
And, I'm giving you rates based on age 65, 68 and 75.
And, you will see that regardless of age, the rate is exactly the same. And, if
we switched over to a male at age 65, 68 and 75, in
this zip code for plan G, the rate would still be exactly the same
$158.40. So, this is the pure definition of Community
Rated...where everyone gets the exact same rate, regardless of age or gender in this
area. So, that was pretty clear-cut about how Community Rated policies work, but
where it can get a bit murky is when an insurance carrier offers a Community
Rated plan but also offers an enrollment discount based on age. Now, when we hear
the word discount, we get really excited. And it can be a great thing, but it's
just something that you need to take note of...a Community Rated plan that has
an enrollment discount means that each year as you get older, you are losing a
little bit of that discount. But, let's take a quick look at exactly how that
works. So, I'm starting by showing you an example of what a premium might be
without an enrollment discount; just a Community Rated
straightforward premium at $190. Now, at age 65 if you were
to join this plan you would receive a 36% enrollment discount, which would
dropped the $190 premium down to
$121.60 and that's what you would start out with at age 65. Now,
each year the discount percentage decreases by three percent, so the
enrollment discount doesn't stay with you for the lifetime of this plan. So, for
example, at age 66 you would lose another 3%, so you jump to $125.25
and so on, as you can see at age 67 and age 68. And, if
you want to do the math you can keep (stumbling over words)...I'm sorry, if you want to keep doing the math
you can continue adding 3% until you reach age 77 and
that's usually where it tops out. And, also remember you will receive inflation
adjustments along with losing a little bit of your enrollment discount each
year. And, other states where you will find Community Rated plans are
Connecticut , Arkansas, Maine, Massachusetts, Minnesota, New York, Vermont and of course
Washington as we already noted. So, what's the best pricing method? Well,
there are definitely different opinions about which is the best way to price a
Medigap plan, and it's certainly something to be aware of...which leads me
to my first bonus tip which is -- don't put all your eggs in one basket. Meaning, my
recommendation is, don't rely solely on the pricing technique when you are
choosing your Medigap plan. The reality is you are going to receive rate
increases regardless of which rated plan you choose. You know, there's no guarantee
that an Attained Age plan is going to be more expensive than an Issue Age or
community rated plan ten years down the road. We like to look at other factors
when determining what might be the best Medigap plan or the one that's best
suited for you. We look at the insurance companies financial stability, we like to
look, of course at their increase history and future age rate
projections if it's applicable to that type of
policy. So, how do you get that information? Well, that leads me to bonus
tip number two -- which is -- not on your own. It's really hard to research that type
of information on your own...even online or calling the insurance companies
directly. You will spend a lot of time - a lot of legwork researching. And, in the
end you probably won't have all the information you are looking for.
Sometimes, it's just best to bite the bullet and contact an insurance
professional. Someone who works independently, who is contracted with
multiple insurance carriers. Because we have access to tools, and we have
worked with these companies. We know their tendencies. We can give you their
increase history, their financial stability. We know their future age
projections...those rate increases based on your age. So, we have
that information at our fingertips and we know the tendencies of these
companies because we work with them all the time. So, these are the things that
you want to look for, of course, when you're making your decision about a
Medigap plan. But, again, it's very hard to do on your own. So, reaching out to an
independent broker is a great course of action, and here at REMEDIGAP we do it
every day. And, if you feel like we're a good fit for you, we're happy to guide
you through the process. And, if you like this video. please click the like button
share it with your friends and don't forget to subscribe for future videos.
Thanks for watching and I'll see you next time. Bye Bye!
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