Understanding Medicare: The #1 Danger When Choosing a Supplemental Plan
Welcome to the Medicare School Daily! We provide daily content on how to grasp the ropes of Medicare, save money, avoid costly errors and ultimately get the most out of your Medicare benefits. Today, we will deliberate on the number one danger when choosing a Medicare supplemental plan.
Medical insurance carriers have been in the industry for decades, with some national companies boasting a minimum of 50 years of experience, while others have an impressive track record of 150 years. The concerns about their future viability are often overlooked due to their long-standing presence. However, this brings us to the central point of our discussion. The true issue and primary concern lie in the stability of the rates.
Stability of Rates: A Key Consideration
Are your rates certain to remain constant? What will they look like in the future? It is these types of questions that make rate stability a core subject of interest when picking a Medicare supplemental plan.
It’s essential to remember that all supplemental plans are standardized by Medicare. This means that Medicare stipulates all the rules for the coverage your plan provides and ensures a standard payment process for your healthcare expenses.
Medicare Supplemental Plans offer a range of options, including F plans, G plans, N plans, and more. These plans provide consistent coverage, regardless of whether you choose ABC insurance company or XYZ insurance company as your carrier. When it comes to processing claims, every carrier functions in a similar fashion, serving as a secondary payer to Original Medicare and providing coverage based on the specific plan letter type. However, it’s important to note that this uniformity does not extend to rate stability, as there can be significant differences in rates among carriers.
Rate Variability in Supplemental Plans
Let’s explore this topic in more depth. When you choose a supplemental plan, you are essentially becoming part of a group or block of policyholders who have obtained similar policies around the same time.
The initial rate for participants in the group usually falls into three different categories:
- Community-Rated: All participants have the same price regardless of age or gender.
- Attained-Age-Rated: The cost of your premium is determined by your present age (the age you have “attained”), meaning that as you age, your premium will increase. Premiums are more affordable for younger purchasers, but as you grow older, they will rise.
- Issue-Age-Rated: The cost of your premium is determined by your age when you purchase the policy. If you buy at a younger age, your premiums will be lower and they won’t increase as you get older. While premiums may go up due to factors like inflation, they will not be affected by your age.
In each of these rating systems, premiums have the potential to increase due to various factors, including inflation. It’s important to note that there is no policy that guarantees a fixed rate for life.
The majority of blocks around the country utilize the attained-age policy method. Under this method, the carrier offers rates based on age brackets (from 65 up to 105), gender and tobacco usage.
For instance, a 65-year-old non-smoking female might have an initial rate of $100 on a G plan, while a 67-year-old smoking male might be around $120.
These rates are not set in stone because of factors like medical inflation. As a result, they are expected to rise each year as individuals age or when the entire group’s rates increase, as we will discuss later.
Group-Based Rate Increases vs. Age-Related Increases
The reality of medical inflation necessitates annual increases in rates as policyholders age. This notion frames the entirety of the attained-age policies. Your rates increase slightly each year as a result of aging. Despite lacking a fixed increase rate, average yearly increases run around $40 to $50 ($4 per month).
While the attained-age policy features individual year-to-year rate increases alongside group increases, the issue-age policy differs. In this scenario, the initial rates for the female and male are higher, such as $120 and $140, respectively. This is because there are no individual annual increases under this policy. Instead, the rates only go up when the rates of the entire group rise.
When Claims Exceed Premiums
Eventually, every group will experience a moment of imbalance where the amount of money paid out in claims exceeds the premiums collected. The timing, frequency, and magnitude of these occurrences are unpredictable factors that cannot be precisely determined.
However, there is a key strategy to mitigate this issue – becoming part of a larger coverage group. By spreading the risk among a greater number of policyholders, it promotes enhanced stability.
The size of the group does matter, but even a small group can be stable with a generally healthy membership. However, a small group with a high frequency of serious health issues could be significantly unstable.
It’s important to note that the health situation of the group takes precedence over size. When claims exceed premiums, carriers assess their losses and seek rate increases from the state’s insurance commissioner to compensate for these losses. If approved, the rate increase is applied uniformly to all members of the group, regardless of individual claims.
Closing Thoughts
When it comes to selecting a Medicare supplement plan, the most important factor to consider is rate stability. As experienced brokers, we meticulously analyze the rate stability trends of carriers over the last decade and take into account the size of their groups to ensure minimal price increases and fluctuations. We understand the significance of maintaining affordable rates for our clients and strive to provide them with the most stable options available.
Thank you for taking the time to uncover the key to making confident Medicare supplement plan decisions. Stay connected for more insightful posts that will empower you on your Medicare journey!
