Factors on Which Medicare Supplement Insurance Costs are Based

Medicare supplement insurance costs are determined by numerous factors. Each factor has several components. The most important thing to know is that supplemental insurance policies are regulated on a Federal and State level. According to the Federal guidelines, there can only be plans from A through L, which indicates that there can never be a Plan Z. The three states Minnesota, Massachusetts and Wisconsin do not follow the Federal guidelines.

Federal and State supplemental Rate factors:

  • Attained Age rating: This forms the most common factor for rating and is used by carriers across the US to determine the premiums. In other words, this rating implies you start at a lower rate with the premiums increasing as you age.
  • Issue Age Rating: In this case the premium is not based on your age when the plan was issued. The premiums will go up because of loss ratios and inflation and not due to age.
  • Community Age Rating: This indicates that an individual who has turned 65 will have the same supplement insurance cost an 80-year-old. The whole community with a Plan F endorsed by a carrier will have identical Medigap cost. These costs will differ based on the carriers similar to the two rating classes discussed above.

Demographic Medicare supplement insurance costs factors:

  1. Date of Birth: Age is a big factor when it comes to Medicare supplement insurance costs. However, in states like Connecticut and Washington, this is not a big factor. In these states, Community Age Rating is applicable.
  2. Proposed Effective Date: Medigap rates are only good for a limited amount of time. In case the state approves a rate increase, the carrier will put those Medigap rates into effect.
  3. Gender: Texas and Washington do not have Gender Medigap rates. But the majority of the states do have gender-specific rates. This indicates that a male will have a higher rate than a female. Normally a male has to pay around $15 more per month compared to a female of the same age for the same plan.
  4. Tobacco usage: In most cases, your rates will be higher if you are a tobacco user. The applicant is asked by some states if he/she has used tobacco in the last 12 months. This question is asked in the “health questions” section of the application. However, a beneficiary of Medicare in his/her Open Enrollment or Guaranteed Issue time period is free from answering this question. This implies that such an individual will get non-tobacco rates.

An important point to keep in mind regarding the cost of Medigap policies is that the loss ratio for a provider of Medigap determines the cost hike percentage permitted by the State Insurance Department. An increased loss ratio indicates that they can get approved for a hike in rate.

The above mentioned list of cost factors is not all-inclusive. Your Medicare supplement insurance costs can be affected by other factors. The ones mentioned above are the vital ones you should keep in mind while shopping for a policy.