Medigap Insurance Rates - Calculation Methods for Premiums

The Medicare program is run by the Federal Government and administered by the Centers for Medicare and Medicaid Services, which is a component of the Department of Health and Human Services.

Most people are automatically enrolled in Medicare Part A when they turn 65. The benefits offered by this part of the program are usually premium-free. Part B participants must enroll and pay a premium for the coverage. The premiums are usually deducted from the monthly Social Security checks. Although the supplemental plans have standardized lists of benefits that each one offers, the Medigap insurance rates are not standardized.

It is up to the individual insurance providers to decide how they will set their rates. Depending on the method they use, it could significantly affect how much you will pay now and how much the premiums will increase over time. Before purchasing a plan, check with the provider to find out how their rates are calculated.

Medigap insurance rates are decided in three ways. Community rated is also called “no-age-rated”. The same monthly rates are charged to everyone in the area who has the policy, regardless of age or pre-existing conditions. The second method is called issue-age-related.

The Medigap insurance rates are based on your age when the plan is purchased or “issued.” Premiums are lower for those people who buy the supplemental plan at a younger age. Premiums do not increase due to age.

The attained-age-rated premium is based on the age you have “attained”. This means that as you “attain” greater age, the premiums will increase. They are often the least expensive of the three plan premiums when you are 65, but will become more expensive over time. They reach their highest points when the policyholders are the least likely to be able to pay them, in their 80’s and 90’s.

Regardless of the method that is used, there is an inflationary rate increase periodically. This is not considered a change to the Medigap insurance rates as it is provided for in the guidelines of the program. Because of the different formulas used by private insurance providers, there may be a significant variation in premiums.

It is therefore very important that you find out what basis the rates have been determined by. In some states, only one calculation can be used by all Medicare approved providers. Researching rates as well as plan benefits will ensure you get the product you need at a price you can afford.