Choosing a Medigap Carrier
As I discussed earlier in this section, Plan G is set by the government and everyone’s G is identical to everyone else’s. As Gertrud Stein put it in her famous poem Sacred Emily written in 1913, “A rose is a rose is a rose is a rose.” Had Medigap supplements been around in 1913, upon turning 65, Gertrud Stein might have written, “A Plan G is a G is a G is a G.”
Every carrier’s Plan G gives you the exact same coverage, which is true of the other letter plans as well. It’s as though Pepsi and Coke were forced by the government to use the same recipe. Likewise, if a doctor or hospital takes Medicare at all, they must take every carrier’s supplement equally. They cannot say, “We chose to honor this carrier’s Medigap supplement but not that one.”
Provider networks are an area in which people often get Medigap Supplements confused with Medicare Advantage plans. Medicare Advantage plans have networks and doctors that take some Medicare Advantage plans but not others. Medigap Supplements do not have networks. Here is something else important to know:
Medicare Supplements are Piggybacks
Medicare (CMS) pays 80% and as the saying goes, “He who pays, gets to say.” Medicare sets all the rules and makes all the decisions as to what is covered or not. If Medicare decides to cover something and pays their 80% share then the Medigap supplement must go along and pay their share. They cannot decide independently of Medicare not to approve a medical procedure or test.
If something isn’t covered, such as an experimental procedure or test, then it is Medicare that you would appeal to. Medicare, as the 80% payer, decides on behalf of your Medigap Supplement as well.
The Major Factor In Picking a Carrier: Is Cost
Medigap Supplements are a lot like gasoline. If one station has unleaded gas for $2.69 and the station across the street has it for $2.49 then the $2.49 station will be the one with the lineup of cars. After all, just as one Plan G is the same as another Plan G, unleaded gas at Shell is the same as unleaded gas at Exxon. The government sets the rules and the octanes for that, too.
With a Medigap supplement, however, because carriers are free to charge anything they want to charge, the price difference between one carrier and another can be as though Shell was charging $2.49 a gallon and Exxon $3.49. Many smaller carriers especially can be priced way above the low-price leaders, who are usually the largest most established carriers. The reason for this is because the smaller their member pool, the less operating efficiency they have. The larger the pool, the more the risk is spread around, and the less the overhead amount is per member.
When considering the cost of gasoline you have only one factor to weigh, which is the cost of gasoline right now. There is no Guaranteed Issue with gasoline. Therefore, Shell or Exxon will not lock you in like a Medigap carrier. If Shell is cheaper this week, you can fill up at Shell. Next week, if Exxon is cheaper, you can fill up there. Not so with Medigap supplements. Your carrier now is likely to stay your carrier always.
Therefore there are two things to consider: CURRENT COST and FUTURE COST. Of the two, projecting Future Cost is the most important.
Factor One: Current Cost
That one is the easy part. Just ask and we will be happy to send you a rate sheet. Carriers price by geographical zones. There are typically several zones in a state each one with a list of zip codes. If your zip code crosses the line between one zone and another it could cost you, or save you, 10% or more. These zones, and how they breakdown geographically, are set differently by each carrier.
All carriers will also rate you into two categories: Preferred and Standard. Very simply put, Preferred is anyone who does not smoke and Standard is anyone who has smoked in the last twelve months. Gone are the days when businesses handed out complimentary matches to help people smoke.
While you have Guaranteed Issue carriers are not allowed to charge you more for having medical conditions or even inquire if you do. Smokers, however, are not protected by Guaranteed Issue and if you are a smoker, many carriers will charge you a premium, such as an extra $25 a month. However, not all carriers do so.
Another factor in setting premium amounts is often your gender. In some markets, all carriers rate females and males separately while in other markets, some carriers do so and some don’t. Guess which gender pays less than the other the other gender does?
If you answered, “Females” give yourself the points. Women typically pay around 15% less for a Medigap supplement than men do when carriers rate the two genders separately.
Whenever I tell female clients that they will be charged less they are usually very excited. I often hear, “Finally, something where women pay less than men!”
The reason why is because actuary tables tell insurance companies that women are overall healthier than men. Women are more likely to be proactive at the first signs of medical trouble and get it checked out. Men have that reputation that if three fingers fall off they will wait until a fourth one falls off too before going to the doctor. I say this as a man who is sometimes guilty of just that.
In Summary: How much you will pay initially will vary by where you live, the carrier you choose, and often by your gender. In general though for a Plan G expect to pay in the $100 to $140 range. We will be most happy though to send you a quote specific to you. Just phone or email at the contact information you will see on the Homepage and we’ll email your quote to you.
Factor Two: Future Cost
Here are two facts:
FACT 1: Medical costs go up year after year, always have and no doubt they always will. Some years they go up by a lot.
FACT 2: Insurance companies that sell Medigap supplements need to stay profitable.
Fact one and fact two, when merged, means that your Medigap carrier is going to need to get more money from you as costs go up. But there is one other important fact, FACT 3, to consider:
FACT 3: As we get older our medical needs will increase which means we will cost our Medigap carrier more which is where FACT 2 above also comes into play.
Because of the three facts above, the cost you pay for your Medigap Supplement can go up each year for two separate reasons:
1. Because costs go up which your carrier passes on to the pool through a rate adjustment.
2. Some (But not all Plans) also go up in premium cost as you age.
Aging: The Rating System
It’s been happening our entire lives. Each year on our birthday, guess what, there is an extra candle on our birthday cake that wasn’t there on last year’s cake. It’s called aging and it’s pretty much inevitable.
Another part of aging is the Law of Candles. The Law of Candles states that the more birthday candles we have on our cake the more prone we become to greater medical needs. Different Medigap carriers deal with the Law of Candles phenomenon in one of three ways as prescribed by a rating system that was created by Medicare many years back.
Medigap supplements use one of three rating methods: Issue Age Rated, Community Rated, or Attained Age Rated.
ISSUE AGE RATED: With issue age rating, members are always charged the rate for the age they are at the time they join the plan. The rate then does not change as members age. For instance, if someone enters at 65 they will be charged the rate for a 65-year-old (such as $120) which is the lowest age-based rate. If someone joins the pool at 75 they’ll be charged the 75- year-old entry rate, such as $150.
The good news is that if you enter at 65 your rate will not go to $150 ten years later when you turn 75. In fact, with Issue Age Rating your rate will never go up a dime because you age. When you reach your 100th birthday you will still be charged $120 for aging purposes.
ATTAINED AGE RATED: With attained age rating, your rate does indeed change as you age. At 66 you will pay the rate charged to 66-year-olds, at 67 the 67-year-old rate will take effect, and then your rate will keep going up a little bit each year as your Medigap plan’s way of reminding you that you’re getting older which means each birthday makes you a little riskier for having greater medical needs.
COMMUNITY RATED: Community Rating is somewhere in between the other two ratings. When you sign up for a plan you join a community called a Pool. Everyone in the pool is given a common age. Depending on the carrier and pool, 75 or 80 would be common ages that are used. You are then given a discount for each year younger you are than the designated age of the pool. As you age, this discount is taken away a little bit each year.
Here is how it typically works: At age 65 you get a 30% to 39% discount off the rate you will pay at 75 or 80. This discount amount varies with different carriers. Your discount will stay the same for 3 or 4 years at which time you will start to lose some of your discount each year. For instance, at age 69 your 39% discount might drop to 36%, and then at 70 drop to 33%. From there it will continue to drop 3% a year until your discount is used up. The good news is that unlike Attained Age which keeps going up as you age after 75 or 80, Community Rating does not. It will stop going up once you reach 75 or 80, potentially saving you considerably in later years.
Attained Age is the most common rating because it allows carriers to pass the risk from aging along to their members. In some states, such as Arizona, Attained Age rating is not allowed by state law.
The Second Reason Your Rate Goes Up: Rate Adjustments
Here is an interesting and somewhat frightening statistic. When we were teenagers in 1970 total health spending in the United States was 74 billion dollars. Flash ahead to the year 2000 which was the prime time of our adult lives. Health spending reached 1.4 trillion as we groaned in dismay. But surely, we thought, it wouldn’t go up any more after that. How could it?
But it did. 21 years later now that we are Medicare age medical spending has gone up to 3.8 trillion more than doubling in the last 21 years. Sure the country has a few more people. But double!
As costs soar higher and higher, guess what Medigap insurance carriers need to do to stay profitable? The answer isn’t “Drop the salaries of their key executives.” To stay profitable they need to get more money from their members, you and me. They do this by submitting to the state insurance commission, usually once a year for a rate increase that is in keeping with their added costs that year. As a consumer you may have been paying $120 the prior month, and then a rate adjustment kicks in, and there you are paying more.
Pulling It All Together to Select a Carrier
If you happen to be a pastry chef, it is your job to know what ingredients go together to make a good cake. When it comes to pastry, I myself am more of a bowl licker. Making pastry is just not my talent. On the other hand, I do have a Medigap rate predicting talent. You might say, dealing in the Medicare space over the years has given those of us who deal with Medicare daily an understanding and a knack for projecting the Medigap future.
Picking which Medigap carriers will be the best bet for the lowest future rate increases is not much different than how stockbrokers pick stocks. What we look at in our recommendations to clients on which carrier to choose are:
1. Rating System: In many places, there are only Community Rated or Attained Age rated plans. My preference, if all other things were equal, would be Community over Attained Age because Community Rating won’t go up after you reach 75 or 80, while Attained Age rated plans will keep going up and up with age. Likewise, Issue Age Rated has an advantage over both the other ratings because it doesn’t go up as you age at all.
2. But . . . Plan Rating Isn’t Everything: The bottom line is that if a plan cannot go up in cost by raising your rate as you age, as Issue Age plans cannot, they still need to remain profitable. If they can’t increase rates on members as they age it means they’ll need to ask the state for a larger increase each year to adjust for their increased costs. They have to get their needed increases one way or the other. It’s kind of like sugar calories versus starch calories; either way, it's calories.
3. Size of the Carrier: Size matters for a couple of reasons. The larger the carrier pool then the more that carrier can absorb the risk of some of their members having extreme medical costs. Size is also an indicator of a company being good at what they do. After all, a business usually doesn’t grow big because you’re bad. Size also leads to efficiency in cost and the ability to scale overhead expenses which reduces costs.
4. Past Performance: What has a carrier's cost increases historically been? Have they been in keeping with other carriers, been more, or ideally, less? I tend to lean towards the carriers that have demonstrated performance records of having the lowest year-after-year cost increases. Many small carriers, in particular, often have huge annual cost increases in part because of high overhead costs.
5. Future Outlook: We will look at some other factors as well such as the age of the pool because the older the pool then the older the average age of its members will be, which leads to larger cost increases.