Trying to contain the cost of a Medicare beneficiary’s Medicare Supplement insurance can be quite a challenge.
The premium pricing method a company utilizes will affect future premium costs. A policy that looks inexpensive when it is first purchased at age 65 could end up being the most expensive when the person hits age 80.
Insurance companies use three different ways of setting premium prices. In some states, those choices are limited to only one or two.
Community-rated plans charge the same premium to everyone, regardless of age.
Issue-age-rated plans base the premium on a person’s age at the time they bought the policy. It won't go up as they age, but it will increase due to the cost of inflation.
Attained-age-rated. The premium starts low but goes up as a person gets older. Typically, these plans will experience a rate increase every year based upon a person’s new age. In addition, these policies also experience secondary rate increases due to the cost of inflation.
Rate stability also varies from plan to plan. For example, Insurance companies base premium increases on the claims-loss-ratios of each individual plan. The companies attempt to protect the plan from experiencing what is referred to as Adverse Selection. This is where they have more unhealthy people than healthy people in the plan.
Companies attempt to do this through their underwriting process of asking health questions. But, what happens when they cannot ask any health questions? For example, people enrolling under Medigap guarantee issue rights.
Not all plans are available under Medicare Supplement guarantee issue rights. For example Plans A,B,C,F,K,L are available and Plans D,G,M,N are not.
When a plan experiences adverse selection, it is more likely to experience significant rate increases. Therefore, plans that underwrite more people may have more long-term rate stability.