Choosing the right Medicare supplement plan means juggling a number of factors. You have to consider coverage and premiums for the upcoming year as well as look towards rate increases in the future. Beyond having to choose which of the standardized Medicare supplement plans makes sense for you, you’re also choosing an insurance company to work with.
Insurance companies can choose which Medicare supplement plans they offer as well as how they set their rates, but the plans are standardized, so when comparing policies of the same plan, your primary goal should be to find the most cost-effective choice for you. You can often get the best premiums and most options by choosing a plan during your initial Medigap open enrollment period, and it may be difficult to change plans later on.
Understanding Medigap rate types
Medigap plans are priced in three different ways that will have an important impact on how expensive your plan is over time. Those three rates are as follows:
Attained-age-rated
Medicare supplement plans that are attained-age-rated have premiums that will increase with your age, along with standard increases for inflation. Attained-age-rated plans typically are very affordable at first but may be among the more expensive plans over the course of your life.
Issue-age-rated
Issue-age-rated plans have premiums set based on the age you are when you buy the policy, and do not age with you. Premiums may still increase based on inflation and other factors.
Community-rated
Medicare supplement plans that are community-rated simply have one price for the entire group. Community-rated Medigap plans can have higher upfront premiums, particularly for younger purchasers, but may be more cost-effective over time than other options.
How much does rate type affect your costs over time?
Rate type can have a substantial impact on your Medicare costs over time. All Medicare plan premiums should be expected to increase somewhat over time due to inflation and rising healthcare costs, and so the additional increases of an attained-age-rated plan should be factored in on top of that.
On the other hand, having an issue-age-rated plan doesn’t mean your premium can’t go up. Your premium may not increase due to age, but rate inflation may also depend on your insurance company. Some insurance companies have a better history of maintaining lower premiums over time compared to others.
Other factors to consider
There are two major additional factors that can impact which rate type may make the most sense for your situation: which rate types dominate your local offerings, and the history of local plans.
Many counties are dominated by a single rate type Medigap offering, which unfortunately may mean that the choice is out of your hands. However, even when you have a choice, community-rated offers tend to perform better over time in areas where they dominate, while issue-age-rated offers tend to perform better in areas where they’re the majority.
If you can find information about how current plans have performed historically, either from your local network or an insurance broker, that may be the single most important factor in your long-term costs. Be particularly careful when considering plans with less of a history — many are able to offer exceptionally low premiums in their first year or two of operation but then raise premiums sharply based on claims, and it can be difficult to change Medigap plans later on.