Ask the Medicare Specialist

QUESTION:

From Theresa: I just got notice my Supplement plan premiums are going up again, over $20/month. They rise every year and seem like the increases just keep getting larger each time. What are my options?

ANSWER:

Before we get into her options, let’s discuss the dynamic of rate increases on Supplements (Medigap) including what causes them, why some plans go up higher and faster than others, as well as Theresa’s statement that they seem to be getting more dramatic every year.

I’m constantly writing about the differences between Medicare Supplements vs Advantage Plans and the importance of understanding them as well as the pros and cons of both types of policies.

The number one negative of Supplements is the cost in my opinion. They start out very reasonable, as low as $85/month for a 65-year-old and $111 for a someone age 75 on the most popular among our clients, Plan N. However, as people get older rates can become expensive, even burdensome or unaffordable for seniors on a fixed income, especially for those who chose a plan with a company that has a history of larger and more frequent increases.

Supplement rates are guaranteed to go up. It’s not a matter of if. It’s a matter of when, how often, and how much. This is generally due to medical inflation which almost always outpaces general inflation.

Most Medigap policies have two different types of increases. The first is called “age obtained.” This means once you turn 68, premiums will increase every year as you age. On plan N from 68 to 72 the annual increases averages $2-$3; from 73 to 77, $4-$5; from 78 to 82, $5-$9; and from 83 to 90, $7 to $15. Be advised this is on the least expensive company’s plan N. Those who choose Plans G or F, or those who have a company with rates that start higher, will see larger increases.

The second type of rate hike all Supplement policies employ is what we call “across the board.” Companies can raise every letter plan they sell the same percentage, some letters more than others, or not at all on just one or two plans. Keep in mind rates can’t be raised simply because companies want to make more profit. They must request increases through the Pennsylvania Insurance Commission, prove they’re in danger of not making a net profit, and share their financials before getting an approval.

We just got news of this type of rate increase from a company we do much of our Supplement business with, New Era Life Insurance. Rates went up 5% on every plan they offer except N, a trend we’ve seen for six or seven years now with both New Era and Aetna, the two we have placed over 90% of our Supplement business with since I founded The Health Insurance Store over 12 years ago. It’s also why we recommended Plan N so often. The benefits are negligible between plans G, F and N. However, rates are significantly lower on N and have not gone up as much as other letter plans. I predict in 10 years, the difference in annual premiums for those who choose Plan N in 2020 vs G may be as much as $1,000. Between F and N as much as $2,000.

Why do we use New Era and Aetna almost exclusively? Except for about six months, since 2008, they have been the two least expensive Supplement companies in Western PA. I’m betting Theresa is in her early 80’s, one of the reasons why her rate increases seem to be a bit higher every year. I’m also guessing she has Plan F or C with a company other than the two I just mentioned. What can she and others in her position do? What are the options?

First my advice; Stay away from Plan F and move to N or G immediately if you qualify. Many may also want to consider a move from G to N, especially if you don’t have a policy with Aetna or New Era. Those who don’t are paying higher premiums for the same exact same benefits. Remember, Supplements are highly Federally regulated. The name of the company has nothing to do with what is covered or what doctors or hospitals one can use. Plan N is N is N and G is G is G whether you have AARP, Cigna, Mutual of Omaha, Bankers Life, Highmark Medigap Blue, Humana, Aetna, New Era, or any other of the 100 or so companies that offer Supplements in the US. The only difference between Medigap Policies with the same letter sold by different companies is cost. And in case you weren’t aware, there are no election periods when it comes to changing from Supplement to Supplement. It can be done anytime, not just from October 15th to December 7th, the only time those on Advantage Plans and Part D can make a move, with the exception of those who qualify for what are known as Special Election Periods. If you want a lower cost Supplement plan, you can change now! The other option, and one we’re encouraging our clients to consider once their monthly premiums get in the $250 to $300 range is move to an Advantage Plan HMO or PPO. Here’s the reasoning. Folks who are paying $300 to $400 per month for Supplements are spending $3,600 to $4,800 a year before they even see a doctor. The Maximum Out of Pocket (MOOP), which represents the most one can be billed for medical services annually on Advantage Plans, can be as low as $3,400. Once the cost of your annual premiums approach or exceed the MOOP, Supplements no longer offer the same value they once did. It doesn’t make sense for the majority of people to pay more in premium than the maximum amount of bills they could receive in a worst-case scenario.

If you would like to get a quote on a different Supplement or discuss moving from a Medigap policy to an Advantage Plan, please call, email, or visit our website. There’s never a charge for any consultation, be that over the phone, in person, or via a Zoom meeting.

And don’t forget to listen to my podcasts on the website, as I discuss each week’s column topic in depth.