Medigap rates are pretty straight-forward. However, that doesn’t prevent people from doubting the standardization of plans or confusing the issue. Primarily, many people going on Medicare, or even people already on Medicare, are confused by the fact that, although plans are completely standardized, the rates can vary by as much as $100-150 a month. There must be some reason one company is more than another for the same coverage, many people believe. So, what are you getting with the more expensive company that you are not getting with the lower priced company?
The short answer is nothing, but let me elaborate. Medicare Supplement companies are free to set their own pricing and pricing structures. These are very diverse and can range based on the companies unique value proposition, administrative structures and pricing strategies. Here are a few things that go into determining whether a company is on the high-end of the available plan prices or the lower end:
- Underwriting. Is the underwriting more or less stringent than other companies? The more stringent the underwriting is, the more “healthy” the insured would be expected to be. Spread over many hundreds, or thousands, of policyholders, healthier (on average) people would lead to fewer claims, and thus the ability to keep rates lower. More claims would lead, eventually, to more (or higher) rate increases. So, in the long run, it is more advantageous to be with a company that is more stringent on their underwriting.
- Pricing methodology. Different companies use different methods to set their prices. Some of these are attained-age, community-rated and issue-age rated. These can have a major influence on the future sustainability of rates. While ALL companies are going to go up over time – there is no “sliver bullet” to avoid this – it is often more desirable to be with an issue-age company over an attained-age company. That said, issue-age companies still go up over time. So we would not suggest paying more than $10-20/month more for an issue-age company, if there is a lower priced attained-age company available – particularly if you are in good health.
- Administrative costs. Many things go into this category, including advertising, size of company, commissions, and many other factors. This, obviously, goes into determining whether a company can keep rates competitively priced or not.
Now, these are not to be confused with the factors that actually go into determining what rate you will pay for a plan – such as age, zip code, gender, and tobacco usage. These are simply the factors that determine whether a company will be “competitively priced” or be an “also-ran” in the Medicare supplement marketplace.
Overall, it is important to look at a company as a whole before enrolling in their Medigap plan. Medigap rates can vary greatly, and you must look at the big picture in order to make an informed judgement. If you have any questions about this or want a Medigap rate comparison, please visit our website or call us at 877.506.3378.