Medicare Supplement

Three Ways Medigap Sets Your Price — and Why It Can Rise

In Inglewood, plenty of Medicare beneficiaries reach a point where their Medigap policy still covers the same gaps it did the day they bought it — yet the bill in the mailbox keeps creeping up. That is not a mistake, and it is not a benefit change. Under federal rules, a standardized Medigap policy's benefits are locked in by letter (Plan G is Plan G, Plan N is Plan N). What can change is the premium, and how it changes depends on which of three pricing methods the insurer used when the policy was sold.

Benefits are fixed. Premiums are not.

Medigap plans sold today follow standardized designs set by federal law. If two companies both sell Plan G, the covered benefits are identical. That is why shopping Medigap really comes down to two things: the company behind the policy and the price — including how that price is calculated now and how it is likely to behave as you get older.

Federal rules also guarantee that once you have a Medigap policy, the insurer generally cannot cancel it as long as you pay the premium, and it cannot cut the benefits. But nothing in the standardization rules freezes the premium. That is set by the insurer under state insurance law.

The three pricing methods

Community-rated (also called "no-age-rated"). Everyone who buys the same policy from the same insurer pays the same base premium, regardless of age. A 68-year-old and an 80-year-old with the same plan letter and the same company pay the same starting rate. Your premium does not go up simply because you had another birthday.

Issue-age-rated (also called "entry-age-rated"). Your premium is based on the age you were when you first bought the policy. Buy in at 65 and your rate is tied to age 65 for as long as you keep the policy. Buy the same plan at 72 and you start at a higher rate. Your premium will not go up just because you get older, but it can still change for other reasons.

Attained-age-rated. Your premium is based on your current age and typically increases as you get older — sometimes each year, sometimes in age bands. These policies often look least expensive at 65 and become more costly over time.

Why the premium can still climb under any method

Even community-rated and issue-age-rated policies are not immune to increases. Under all three methods, premiums can rise because of:

• Inflation in the cost of medical care, hospital services and administration.
• Claims experience — how much the insurer is paying out for the pool of people in that plan.
• State-approved rate adjustments filed by the insurer.

The difference is what age does. With attained-age pricing, age is a built-in escalator on top of those other factors. With issue-age and community-rated pricing, age is not the driver — but the other factors still apply.

Which method will you be offered?

This is where it gets local. Which pricing methods are available depends on the insurer and the state. Some states require or restrict certain methods; others leave it to the market. Inglewood is in Los Angeles County, and California has its own Medigap rules, including a "birthday rule" that gives existing policyholders an annual window to switch to certain equal-or-lesser Medigap plans without new medical underwriting. That is a California-specific consumer protection worth knowing about before you shop.

When you compare policies, ask the agent or the company directly: "Is this policy community-rated, issue-age-rated, or attained-age-rated?" Then ask how premiums have changed for existing policyholders over the last several years. A low starting rate does not tell you much on its own.

How to think about the trade-off

There is no single "right" method — it depends on your budget today, your expected budget later, and how long you plan to keep the policy.

• An attained-age policy may cost less at first but rise steadily with age.
• An issue-age policy may cost more up front but not climb because of birthdays.
• A community-rated policy spreads age out entirely; your age at purchase is not the pricing factor.

For any of them, remember: switching Medigap policies later usually means medical underwriting outside your initial Medigap open enrollment period or a guaranteed-issue situation. That means an insurer can look at your health and decline you or charge more. California's birthday rule is one exception; ask about it if you already have a policy.

Where to get straight answers

For official Medigap rules, the guide "Choosing a Medigap Policy" at medicare.gov is the best starting point. You can also call 1-800-MEDICARE (1-800-633-4227), 24 hours a day, seven days a week.

For free, unbiased, one-on-one help in Inglewood, contact California's State Health Insurance Assistance Program (SHIP), known locally as HICAP (Health Insurance Counseling and Advocacy Program). HICAP counselors do not sell insurance — they help you understand your options. The California Department of Insurance also publishes rate comparison information for Medigap policies sold in the state.