How Do Private Insurance Companies Price Their Medicare Supplement Insurance Plan Premiums?
Medicare Supplement insurance plans are offered by private health insurance companies and can help you pay for out-of-pocket costs for services covered under Original Medicare (Plan A and Plan B). These out-of-pocket costs could include copayments, coinsurance, and deductibles, among other costs.
In most states, insurance companies that offer Medicare Supplement insurance plans must sell “standardized“ policies, meaning that each policy offers the same benefits, regardless of which insurance company sells it. However, the Medicare Supplement insurance premium for the same policy may differ widely depending on the insurance company.
Medicare Supplement insurance plan pricing can be affected by the benefits your plan covers, and when you buy the plan. If you buy the plan during your Medicare Supplement Open Enrollment Period, the plan can’t charge you more if you have pre-existing health conditions*.
What do Medicare Supplement insurance plans cover?
Different Medicare Supplement insurance plans cover different benefits, sometimes at different percentages. In most states up to 10 Medicare Supplement insurance plans, labeled A, B, C*, D, F*, G, K, L, M, and N, are available. Medicare Supplement insurance Plan A (not to be confused with Medicare Part A) is the most basic and fully covers four categories:
- 100% of hospital coinsurance up to 365 days after Medicare benefits are used
- 100% of Medicare Part B coinsurance or copayment
- 100% of first 3 pints of blood
- 100% of hospice care coinsurance
* Beginning January 1, 2020, Plan C and Plan F will not be available to new beneficiaries. However, if you already have Plan C or Plan F you can keep it.
The other nine plans also cover these four categories (although Plan K covers Medicare Part B coinsurance, first 3 pints of blood, and hospice care at 50% and Plan L covers them at 75%). Each of the plans labeled B through N offers at least one additional benefit that Medicare Supplement insurance Plan A doesn’t cover, such as:
- Skilled nursing facility care coinsurance
- Part A deductible
- Part B deductible
- Part B excess charges
- Foreign travel emergency (80%, up to plan limits)
How do private health insurance companies price Medicare Supplement insurance plans?
According to eHealth research, the average Medicare Supplement premium in 2019 was $152 per month.
Private health insurance companies can price (or “rate“) their Medicare Supplement (Medigap) insurance policies in three age-related ways, so you may want to ask how the policies are priced as you are shopping for Medicare Supplement insurance coverage.
The three pricing methods of Medicare Supplement insurance premiums are:
- Community-rated (also called “no-age-rated“)
For a “no-age-rated” pricing plan, the same premium is generally charged to everyone regardless of age or gender. This means that someone who is 65 would pay the same monthly premium as someone who is 95. Inflation or other factors could result in a premium increase, but getting older will not.
- Issue-age-rated (also called “entry-age-rated“)
For an “entry-age-rated” policy, the premium is based on your age when you first buy the Medicare Supplement insurance policy. The premium is lower for people who are younger and don’t go up as you get older. This means that someone who is 75 would pay less for a plan they bought at age 65 than someone who is 70 who bought the plan at age 70.
For an “attained-age-rated” policy, the premium is based on your current age and goes up as you get older. This means that the premium for someone who is 75 will be higher than for someone who is 65, regardless of the age when they each bought a policy. Each year, the policy for each person could go up. Attained-age-rated policies can eventually become the most expensive policies.
Medicare Supplement insurance premium costs may be influenced by other factors. For example, the policy may:
- Use medical underwriting and factor in your health history and possible pre-existing conditions* to make decisions about price (Medical underwriting typically cannot be used during your Open Enrollment Period.)
- Offer discounts for signing up for multiple policies or paying yearly. It may also offer discounts to non-smokers and women or people who are married
- Sell Medicare SELECT policies that may cost less, but require you to use certain providers (those in the plan’s network)
As you’re shopping for a Medicare Supplement insurance plan, a good idea might be to first determine what you need and then carefully consider the pricing options various insurers are offering you, as you could save money by comparing plans.
*Pre-existing conditions are generally health conditions that existed before the start of a policy. They may limit coverage, be excluded from coverage, or even prevent you from being approved for a policy; however, the exact definition and relevant limitations or exclusions of coverage will vary with each plan, so check a specific plan’s official plan documents to understand how that plan handles pre-existing conditions.
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