Medicare Supplement Rate Increase History: Does It Matter?

Medicare Supplement Rate Increase History

I have many seniors on Medicare like to ask me about  Medicare Supplement rate increase history to determine if a company will remain stable or not. 

Medicare Supplement rate increase history does very little to determine if a company’s rates will remain  stable. Just like the stock market, past experiences do not determine future results. 

In this article, we’ll explore the number of ways that insurance companies increase Medigap plans and how you should evaluate a companies increases over time. 

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Types of Medicare Supplement Ratings

Insurance companies use two types of ratings systems to determine how they will charge premiums of Medicare Supplement plans:

  • Community Rating: This type of rating system does not allow the insurance company to use health status or claims experience to set rates for plans. In these rating systems, everyone in the community pays the same rate.
Companies like AARP/United Healthcare use an adjusted community ratings plan. While they can’t use health status and claims experience to determine premiums, they can use smoking status, age, and location to vary premiums. 
  • Attained Age Rating: This type of rating system sets the premium based on your age when you enroll. This starts lower than a community rating. However, they can also increase due to claims experience. 
Most Medicare Supplement companies use the Attained Age rating system. 

Attained Age Increases

Every year you and your family celebrates your birthday. However, so does the insurance company. They even give you a present in the form of an attained age rate increase.

On average, you can expect your annual increase for age to be approximately 3% of your current premium. 

Claims Experience Rate Increases

Claims experience rate increase are based on the claims that an insurance company receives in a year vs what the collect in premiums from their clients within a specific group.

A group is usually defined as all the members of a specific plan letter. 

So, unlike age increases that are usually around 3% across the board, claims experience rate increase can fluctuate annually based on what the insurance company pays in claims and which plan you are on.

Example: Plan F may have a rate increase of 10% one year and Plan G may have a rate increase of 7%. 

Furthermore, some years you may not have a rate increase due to claims experience at all, since they have to be approved by your state insurance department. 

Does A Companies Medicare Supplement Rate Increase History Matter?

I’m going to start this off with a couple of questions:

If you have the lowest insurance premium consistently that has the highest rate increase consistently, do you care about how much it continues to increase as low as it’s the least expensive?

Probably not. 

If you had the most expensive company that had the lowest rate, would that matter? 

Again, probably not.. it’s still the most expensive company.

Medicare Supplement markets are interesting. Companies enter and exit the market annually. Furthermore, some companies stop writing under one name and create a new insurance company to write under, like Mutual of Omaha

Every time a new company is created, the rate history changes.

In short, looking at rate history alone doesn’t matter for future increases. Any insurance agent that tries to sell you on “rates history” is giving you a smoke screen to make you feel secure. 

How Should I Consider Rate Increase History?

In order to get a true idea of rate history, you need to look at more than a few years of being in the market. Otherwise, the information does not have enough of a sample size to make any reasonable conclusion.

The only time that Medicare Supplement rate increase history should be considered is when the company has been in the market less than four years. 

Here’s why:

Insurance companies that have just entered the market don’t have a claim history. They tend to start off with a really competitive rate initially to get enrollees into their plan. After the first year, the rates have the largest increases because claim history starts to accumulate. By the end of the first four years, the company has stabilized on claims and premium. 

What To Do Instead?

They best way to evaluate a company boils down to four things:

  1. Rate– Does the insurance company charge closer to the lower end of the market or the higher end? 
  2. Customer Service– You want an insurance company that provides great service to its members with a team that is knowledgeable about their products and responds quickly when you contact them.
  3. Time in Market– Personally, I don’t offer companies with less than four years of market history. Most of the companies that I offer have at least 20 years in the Michigan Medicare Supplement market. They tend to have better claims experience and are managed for long term stability. 
  4. The Agent– The truth is if you’ve been with a Medicare Supplement company for more than 5 years, there tends to be a better rate for you. You should work with an insurance agent that keeps an eye on your policy after your purchase one and is available after the sale for customer service questions. 

Conclusions About Rate Increase History

As noted above, Medicare Supplement rate increase history is highly overrated based on the following features:

  1. Rate increase history does not dictate future rate increase.
  2. Most insurance companies are only in the market for a few years and their increases are not enough data to make a reasonable determination.
  3. You should be shopping your Medicare Supplement rate every 2-3 years to ensure you’re getting the best value. 

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Large Medicare Supplement rate increases got you down? For a FREE MEDIGAP INSURANCE QUOTE, fill out the form to your RIGHT ---> if on Desktop or hit the "Request Quote" button above if mobile.