Medicare Supplement

In Las Vegas, why a Medigap bill can rise even when the benefits can't

LAS VEGAS — If you have a Medicare Supplement policy, sometimes called Medigap, you may have noticed something that feels unfair: the benefits on your plan are locked in by federal law, but the premium you pay is not. Every so often, the bill goes up.

Medicare SupplementLas Vegas, NV

That is not a mistake, and it is not a bait-and-switch. It is how Medigap has always worked. The letter plans — A, B, D, G, K, L, M and N — are standardized, so a Plan G at one company covers the same core benefits as a Plan G at another. What is not standardized is the price, and how insurers set that price. In Las Vegas, which sits in Clark County, shoppers will find policies priced three different ways, and knowing which one you are looking at can save a lot of confusion later.

The benefits are fixed. The price is not.

Under federal Medigap rules, each lettered plan must cover the same set of benefits no matter which company sells it. That is why Medicare's own guidance tells shoppers to compare price and customer service, since the coverage itself will not differ within a given letter.

But "same benefits" is not the same as "same price," and it is not the same as "price frozen for life." Insurers are allowed to raise premiums, and most do at some point. The three pricing methods below determine how those increases show up on your bill.

Method 1: Community-rated (also called "no-age-rated")

With a community-rated policy, the insurer charges the same base premium to everyone who buys that plan, regardless of age. A 66-year-old and an 82-year-old with the same policy from the same company pay the same starting rate.

That does not mean the premium never changes. It can still go up because of inflation or because the insurer's pool of policyholders is using more care than expected. It just will not go up simply because you had another birthday.

Method 2: Issue-age-rated

An issue-age-rated policy sets your premium based on how old you were when you bought it. Buy at 65 and your rate is tied to age 65. Buy the same plan at 72 and you start at a higher price, because older buyers cost the insurer more on average.

After that, your premium is not tied to your current age. It can still rise over time because of inflation and claims experience across the insurer's book of business, but you will not see a jump on your bill just because you turned 75.

Method 3: Attained-age-rated

Attained-age-rated policies are the ones that most often surprise people. Your premium is based on your current age — the age you have "attained" — and it is designed to go up as you get older, on top of any general rate increases.

These plans often look attractive at age 65 because the starting premium can be lower than community- or issue-age-rated options. The trade-off is that the price is built to climb as you age, in addition to the usual bumps for inflation and claims.

Why prices go up when benefits can't

No matter which pricing method an insurer uses, three forces push premiums upward over time:

• Inflation and medical costs. Hospital stays, doctor visits and other services cost more each year, and Medigap picks up a share of those bills.
• Claims experience. If the group of people holding a particular policy uses more care than the insurer projected, rates for that group can be adjusted.
• Age (for attained-age plans only). As noted above, this factor is built into one of the three methods.

Which pricing methods are available to you depends on both the insurer and the state where the policy is issued. Some states restrict certain methods; others allow all three. That is why two neighbors in Las Vegas shopping the same lettered plan can be quoted very different structures — and why it is worth asking, in writing, which method a policy uses before you sign.

What to ask before you buy

A few plain questions can save years of frustration:

• Is this policy community-rated, issue-age-rated, or attained-age-rated?
• How often has this insurer raised premiums on this plan in recent years?
• Are there household or other discounts that could apply?
• What happens to my rate if I move out of Nevada?

Medicare's Medigap policy search tool at medicare.gov lets you see which policies are sold in your ZIP code and can help you narrow the list before you call insurers directly.