Today’s question is: why do Medicare Supplement prices go up?
When you have a Medicare Supplement, you can expect your rate to go up once a year. Very rarely, someone will end up having two increases a year.
So why do these increases happen, and more importantly, how can you mitigate these increases to keep your Medicare Supplement rate affordable when you’re on a fixed income?
Confused about your Medicare coverage options? Watch our free video: How to Find the Best Medicare Coverage Without Paying More Than You Need To…
It’s not just you…
First, it’s important to point out that you will never get a rate increase because of your individual health care costs. Even if you have a year when you’ve been to the doctor more often, or maybe you were hospitalized, that doesn’t affect your rate. Companies do not raise rates on individuals. They raise rates on entire blocks of business.
Loss Ratio
There are three main reasons why Medicare Supplements go up in price.
Number one is the loss ratio. This is calculated by taking the amount of money collected in premiums in a state for a Medicare Supplement product minus the amount of money paid out in claims.
If the loss ratio is above a certain percentage, the insurance company can petition the state to raise their rates. The state department of insurance looks at the loss ratio and determines whether the insurance company has reached the appropriate threshold for a rate increase, and then either approves or declines the proposed rate increase.
Consumers are protected by their state’s department of insurance. Insurance companies can’t arbitrarily raise their rates. Very rarely, due to loss ratio, Medicare Supplement companies will actually decrease their rates. That actually happened in Illinois not too long ago. Again, if you have a decrease that’s not based on your personal medical claims either. It’s always to do with the entire group.
Age
Number two is your age. Most Medicare Supplements sold in Illinois, Indiana, and Wisconsin have attained age pricing, and that means that premiums are designed to increase as you age. They don’t necessarily go up every year, but over the course of several years you will notice an increase, and if the company separates out what part is due to what reason, then you’ll notice how much is due to age increases.
For the first few years, say age 65 to 68, there might be very small or even no increases due to age. Once you near age 70 you can expect a 1.5 to 2 percent increase each year that is just due to age.
As we age, we tend to need more medical care, and that’s why this price increase is built into most Medicare Supplements. Even if you have a community rated Medicare Supplement, which charges everyone the same premium regardless of age, you are still likely to see rate increases as you age because these companies tend to offer really deep discounts to people when they are at the younger end of their time on Medicare, and then those discounts fall away as you get older.
Inflation and Rising Costs of Healthcare
Number three is inflation and rising costs of health care. This relates to the loss ratio because inflation, both regular inflation and rising medical costs, will cause the loss ratio to go up.
Every year, Medicare adjusts the deductibles, coinsurance, and copay amounts that the Medicare Supplement companies have to cover, and if the Medicare Supplement companies are paying out more for people’s medical care, then they are going to have to charge more in premiums to their enrollees.
Insurance Companies Don’t Like Rate Increases Either
No insurance company likes to raise rates. When they do, they know they’re going to lose business because people who are healthy enough to pass underwriting with a different company are very likely to switch to another company.
They raise rates though, because they have to to stay in business. They don’t have the ability to print money in the basement, so they have to take in more money in premiums than they are paying out in claims.
Is there a way to predict rate increases?
Not really. You can look at a company’s past rate increases, but because increases are based on inflation and loss ratios, the past doesn’t necessarily tell you what the future is going to be.
There are a couple of indicators that we go through with our clients though that can give a good idea of whether an increase is likely for a particular company.
One is if a company comes into a state and has far, far lower rates than any other Medicare Supplement company in that state. Over time, what we’ve seen is those really low rates are generally not stable. As the company gets a larger block of business and has to pay out more medical claims, because of the loss ratio, those really, really low rates end up going up.
The other one is if you are looking at a guaranteed issue company. A guaranteed issue company accepts everyone age 65 or older, regardless of health conditions; versus a company that has health questions and underwriting and declines some applicants with certain health conditions. If you are comparing between those two (and remember, the health questions are only allowed to be asked after your first six months on Medicare Part B), generally, the guaranteed issue company rates are going to start higher, and they’re going to go up faster.
The reason again is loss ratio. Because they’re accepting people regardless of their health conditions, guaranteed issue companies tend to have more people with chronic or serious health conditions that are more expensive to treat, so the company is paying out more in claims, which means that they will petition to raise their rates.
These are the reasons why rates go up. The big question is: what do you do when you receive a rate increase?
And that’s where we come in. We not only shop multiple companies for different rates for our clients, we’re also familiar with the underwriting criteria for different companies, so we will not only find a price that is better than what you currently have after a rate increase, we’re also going to find companies that are most likely to accept you in your particular zip code, at your age, and with whatever health conditions you may have.
Experience Counts
Not every company asks the same health questions on their application, and not every company declines or approves people with the same health conditions. Having 40 years experience doing this, we’re familiar with all of these different underwriting criteria, and we can find a company that not only will save you some money, but is also the most likely to accept you.
What should you do when you receive a rate increase notification?
If you’ve had a rate increase and your Medicare Supplement is no longer as affordable as it once was, feel free to reach out by phone, 877-312-1414, or send a message, or schedule a free, no obligation consultation. We’d be happy to go through your options with you, and we’ll do our best to save you some money on your Medicare Supplement premiums!
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