Medicare supplement insurance, also called Medigap, is a type of insurance policy sold through private carriers. Medigap, as the name suggests, is designed to cover items that are not included in original Medicare. These can include out-of-pocket deductibles, medical bills incurred during international travel, or hospital stays that extend beyond the Medicare time limit.
Medigap policies are available to consumers who are enrolled in Medicare Part A and Part B. There are three different ways that insurance companies may determine the price of Medigap plans, and monthly premiums may change for the same plan from year to year. Below are descriptions of the methods of pricing and how these prices may change.
Age Attained pricing is also referred to as Attained-Age-Rated pricing. The plan’s monthly premium is based on your age at the time you purchased the policy, which will then increase as you get older. Younger consumers may find the lower premiums attractive, but over time the price increase may be a financial burden.
Example: Mrs. Hudson is 65 when she purchases a plan with Age Attained pricing. Her monthly cost is $130.00. The next year, when she turns 66, her premiums rise to $134.00 per month. A few years later, at the age of 70, she pays $150.00 a month for the same plan.
Issue Age pricing means that the monthly premium is based on your current age at the time you purchase the policy. Costs will not go up over the life of the plan as you age. Plans are then less expensive for younger consumers, but premiums may increase due to inflation or other factors. Younger consumers may benefit from the reduced pricing, but if their circumstances change and they need to purchase another plan in subsequent years, their premiums will have increased because of their Issue age.
Example: Mrs. Hudson is 65 and buys a plan with Issue Age pricing. Her monthly premium is $140.00, which will not increase as she ages. When she is 72, she is still paying $140.00 per month. She decides to change insurance plans and purchases another plan with Issue Age pricing. Since she is now 72, her monthly premium is $168.00, which will not increase as she ages.
Community Rated pricing or No Age Rated pricing means that the insurance carrier charges all enrollees the same monthly premium. Costs are not age-based and will not change as the beneficiary ages. Premiums can increase as influenced by other factors like inflation.
Example: Mrs. Hudson, 65, buys a Community Rated plan. Her monthly premium is $150.00. Her neighbor, Mr. Smith, is 76 and purchases the same plan from the same insurance company. His monthly premium is also $150.00.
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