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Joanne: When you are looking at all of the Medigap options on the market during your transition to Medicare, it can be easy to only focus on the current pricing of plans and how one's plan's premium compares to another plan's premium. However, what you pay for a Meap plan when you first enroll is only a very small piece of the overall Medigap puzzle.

All Meap premiums are designed to increase over time. In today's episode, we'll break down how companies increase premiums so that you can hopefully make the right Medigap decision for years to come. 

Cameron: But before we start, my name is Cameron Giardini, and together with my co-host Joanne Giardini Russell, we operate Giardini Medicare, which is an independent insurance agency based out of Southeast Michigan.

Although we are based in Michigan, we work virtually over the phone to directly help consumers in about 13 states to find the right Medicare coverage for them. If we do not work in your state, we will connect you with another trusted, independent agent that will be able to help you find the coverage you want.

And even if you choose not to work with us, we know that the information in today's 

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podcast will help you with a successful and stress-free transition to Medicare. So a brief overview of today's episode. We will talk about how Meap plans are rated. These are issue age ratings, attained age ratings, and community age ratings.

If you may have heard of those in the past. We will go over the main factors that go into Medigap premium increases. We will talk about closed versus open books of business. We will talk about it. Choosing a Medigap plan for the long term. And lastly, what happens if your Medigap premiums do end up getting out of hand or increase too much?

But first, we gotta cover the basics. What are Medicare supplements? And Joanne can start with that. 

Joanne: All right, so Medicare supplement plans. Remember we often refer to these as Medigap plans. It's the same. Identical thing, but they're sold by private insurance companies and they're designed to fill the gaps that are left by original Medicare and cover that 20% cost sharing, which is not covered by original Medicare.

These plans allow policyholders to see any provider that accepts original Medicare and rarely will they 

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ever require prior authorization. Meap plans have a higher monthly premium. But lower potential out-of-pocket medical costs compared to Medicare Advantage plans. And they do not usually provide extra benefits not covered by original Medicare, such as routine dental, vision hearing, and more.

Meap plans are standardized by their plan letters and plan letters ranged from A as an apple to N as in Nancy. So take a look at page 76 in the Medicare and New handbook, and you'll see a good chart with all the standardized benefits by Meap plan letter. So these plans are not the same as Medicare Advantage plans.

In today's episodes, we're only going to be referring to Meap plans and how their premiums change. So none of this information is going to be applicable to Medicare Advantage 

Cameron: plans. Exactly. Always good to remember. They are two completely separate things, apples and oranges. And before we talk about how Medigap premiums increase, let's just talk about how they work in the first place.

We just mentioned that Medigap plans are provided by private insurance companies. Your monthly premium, which again, a premium is the amount you are 

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paying to the insurance company to have your coverage. That monthly premium will be paid directly to the private insurance company that you enroll with.

 Just. Throwing out an example of Humana Blue Cross, all those companies you think of, you would directly have a Medigap plan with them. Now you must have both Part A and Part B of Medicare to enroll in a MEAP plan, and you will still be responsible for paying your Part B premiums directly to the federal government.

Remember, original Medicare will still be your primary coverage if you enroll in a Meap plan. And a key point here is your Meap premium. It is in addition to part B. Again, I just wanna highlight that this does not take the place of your Part B premium. Medigap premiums and we've talked about this before, but they can, and they will vary from state to state, and they can even differ within different regions of a state.

So Northern Michigan versus Metro Detroit premiums will be different. And they will typically differ based on your age and your gender. So here are a couple of quick examples just for you to get an 

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idea of some realistic Medigap plan premiums and how they can vary. Right here, we're using a plan G as in George for a 65-year-old male.

Just for this example. So in Lansing, Michigan, which is in the center of Michigan, it is $120 per month, roughly that for a Plan G. Now, Tampa, Florida is $190 per month. We have San Diego, California at 1 35 per month. Now that same plan in Nashville, Tennessee is one 12 per month. And then St. Louis, Missouri.

180 per month. So you can see there's about a $60 to $70 swing from high to low as far as premiums go, and it's highly dependent on where you live. So that's how the premiums themselves work at the base level. Joanne is going to start by talking about how Medigap plans actually increase premiums going forward

Joanne: 

Okay. So we'll talk about the main factors that actually impact the Meap premium increases. We'll talk about a lot of factors that go into Meap premium increases during this episode, but the main ones are your age. Medical claims of all the consumers that are enrolled into 

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your plan. And then there's general inflation, which is just a rising cost of healthcare Overall.

Medical claims of a plan are probably the biggest factor that goes into the Medigap premium increases. These claims are used to calculate what we call a loss ratio for a Medigap company. Now the easiest way to understand a loss ratio is, to think of it, it's an equation that takes into account the medical claims an insurance company has to pay for, and they divide that by the premiums that they're collecting from those people that are enrolled into that plan.

Here's an example. If a Medigap company collects $100 in premiums, They spend $70 for claims. When people use that plan, their loss ratio is 70%. With an individual MEAP plan, there's a mandated minimum loss ratio of 65%, but most carriers are trying to be in the 75 to 80% range. This might seem overly complicated, but it's good for consumers to know since most rate increases are dictated by the changing loss ratios.

Higher loss ratios lead to premium increases and vice versa. And it's also good 

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to know that the Meap insurance companies have to get their rate increase authorized by the state departments of insurance. They have to show the math as to why the premiums are what they are. So a lot of people tend to think they can just go out and charge what they want.

They cannot do that. All right. Don't get too caught up. However, in finding a company with the lowest loss ratio, these can and will change over time. In fact, some companies with very, you know, fewer numbers of enrollees in the plan, can have bigger swings. In the claims. And this is really important to understand.

We get this question a lot. Meap plans do not increase your premium based on your individual medical claims. So even if you're perfectly healthy and never go to the doctor, you will still receive premium increases due to all other consumers enrolled in the same plan with your Medigap company

Cameron: 

And that's really important to understand because a lot of people say, why am I getting an increase? I'm healthy. You know, I, I really don't go to the doctor much. I don't even use my plan. But like Joanne just said perfectly, they are looking at everybody enrolled. In that Plan G or Plan N with the company that you are enrolled with.

So that is super 

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important to keep in mind. Now, how are my plans rated? Now we're not talking about financial ratings, we're not talking about star ratings like you might have seen with Medicare Advantage plans, but we're going to talk about the actual rating systems. There are three of them, and how they work with Meap plans.

So if you've ever been on medicare.gov, you may have seen this, but according to medicare.gov, MEU plans are priced or also known as rated in three ways. So the most common you'll probably see is attained age rated. Now, in this scenario, or with this rating system, your premium is based on your current age.

When you apply and your premiums, they go up due to your age as you get older. So as an example, let's say Mr. Smith enrolls in a meta gap. Plan at age 68, and it's $120 per month for Mr. Smith. Then he turns 69 years old, and now he has, quote-unquote, attained a new age. So because of this, he gets a premium age increase that goes up a few percent.

In this case, we'll say it goes from 20 a month to

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$123/month. Now, a quick pro tip, many Medigap insurance companies don't implement age increases between ages 65 to 68. Just a rough estimate, but most. Increases when they do happen for age, they average about two to 3% per year. And lastly, in addition to your age increases, if you have an attained age-rated plan, you'll still receive a separate increase for inflation and other factors like claims, as Joanne talked about.

Now the second type of premium rating for Meap plans is community rated. Generally, the same monthly premium is charged to everyone who has a Medigap plan with this style of rating, and that is regardless of your age. So premiums may increase due to inflation and other factors, but they will actually not increase just because of your age.

 Another example here uses Mr. Smith, let's say in this case, he buys a MEAP plan at age 72 and it costs $160/month. Now Mr. Jones buys a MEAP plan from the same exact company, same plan, letter, same company. 

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But Mr. Jones is age 77. Now, Mr. Jones will also pay $160/month. Remember, the premiums are not based on your age with this style.

Now, when each of them has a birthday, their premiums won't increase due to their new age, but. They can still, and they will still have increases due to inflation and other factors like claims. Now I know this is complicated, but we have to talk about these cuz a lot of people do see this on medicare.gov and get confused as to what they should choose.

But the last one is issue age rated. That is the last rating system we'll talk about. So with an issue, age-rated plan, the premium is based on the age you are when you buy or when you're issued The Medigap policy. Now, in this case, premiums may increase due to inflation and other factors, but not due to age.

So example, Mr. Smith buys a Medigap plan at age 65 for $140/month. Now, Mr. Jones, on the other hand, buys a Medigap plan with the same plan letter from that same company. But Mr. Jones is 

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73 years old, so his. Premium is $180/month. So this one, they do have different premiums based on their initial age.

However, when each of them has a birthday, their premiums won't increase due to their age. They will only increase due to inflation and other factors like claims. Now that I talked about the technical definitions for the three different rating systems, I'll have Joanne really break down what this means for you, the consumer.

Perfect. 

Joanne: So before you get fixated on all of these pricing structures, understand that your options are gonna vary greatly based on what state you live in. We'll be linking to a map showing which rating system is most common in each state. In the show notes. An example. In metro Detroit, there are approximately 44 insurance companies offering Meap plans.

Of those 44 plans, 41 of them are attained age with the lowest price of $112/month. Two plans are issue age with the lowest price of $167/month. And one plan is community rated at $120/month. We do find that many consumers are 

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drawn to issue age, Medigap plans when they first learn of these three different rating systems.

And it's completely understandable since when you're reading medicare.gov, it literally says premiums are lower for people who buy at a younger age. It won't change as you get older. So consumers, of course, want to lock in the plan as soon as possible, but as we already talked, of course, that's not true.

It's not true. We already talked about this, but issue age, Medigap plans can and will have rate increases due to inflation and the overall medical claims of all of the plan enrollees. So in Michigan, our lowest cost issue age Medigap plan has had an average yearly increase of 2.9% from 2013 through 2021 for Plan G.

Also, remember that issue. Age Medigap premiums typically start higher. Then the attained age premiums to make up for the lack of the age increase. So you can see that in our example where the cheapest attained age plan in Michigan is about $50 a month, less than the cheapest Issue age plan. So just do the math for what makes sense for you.

But at the end of the day, 

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the main takeaway is that all of these rating options, Will have price increases. So if anyone sells you a Medigap plan and says the premiums will never increase, they are lying. They are flat-out lying. 

Cameron: They sure are. That's one thing. That's one thing we can be sure of. Absolutely.

When it comes to premium increases, this is a concept we are going to talk about next that really is not talked about on medicare.gov and it's a little bit harder to find but is probably even more important when it comes to Medigap rate increases. We are talking about. Closed versus open blocks of business.

So it's kind of an advanced concept. We'll try to break it down as best as we can, but just reach out if you have any specific questions. So what is a block of business? What makes a block open or closed? A block of business is essentially a collection of all of the policies of a common coverage type. What that means, for example, is if Company X is selling a meta gap, plan G in a market.

Everyone that's enrolling in that plan 

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will be in that same block of business. So right now, if you and your friend go out and you purchase a Plan G from the same Medigap company, you are entering that same block of business. So hopefully that. Helps a little bit. Now, open blocks of business, are ones that are currently available for consumers to enroll in.

So if you see a company advertising a Meap plan, they are advertising an open block of business closed blocks. On the other hand, they still exist behind the scenes, but they are not available for new consumers to enroll in, and that is super important. If you only remember one thing, Try to remember that.

And in our opinion, this is by far the biggest factor that goes into Medigap rate increases. This typically occurs with either new small companies that start out, they just start a new plan and they just leave the market after a couple of years. Or it can happen with large established companies that create new subsidiaries only to change to a new one later.

And we'll have examples of this to break it down. Why do Medigap companies open 

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and close a block of business? Let's say Company X releases a new, we'll call, really awesome Plan G for $120/month for a 65-year-old, which is among the lowest in the market, and it attracts a lot of new consumers to the plan.

Now, after a few years of rate increases that happen to every plan due to claims. Now that really awesome Plan G. It's still being offered by Company X, but it's $145/month for that same 65-year-old that's just starting out into that plan, while other new companies are still offering Plan G for about $120/month.

So again, company X, they're really awesome. Plan G is raising in price, but there are new companies constantly coming out with lower-priced, more competitive. Meap plans. At this point, company X with the really awesome plan G, it's just not competitive, and the enrollments in the plan are slowing down. Now, company X can't simply lower the price of their really awesome plan G, because as Joanne had talked about, they have 

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to meet certain loss ratios that we mentioned in the earlier part of the episode.

So at this point, company X, could just let the plan continue to raise in price and do nothing but. They wanna make money, they want to get new people enrolling in the plan. And this is exactly where closing and opening a book of business or a block of business comes into play. Now Company X is out of options.

They close that block of business for their really awesome plan G, and now there are no new enrollments that can happen into that plan. And they stop marketing it to people now. Instead, they open a new block of business called SuperDuper. Awesome Plan G. So now that new super-duper awesome plan G is $120/month brand new plan, and it's now competitive again in the market with the other plans and everyone lived happily ever after, right?

Well, that is not how it works for the people that are enrolled in the really awesome plan G, because again, that is now a closed plan. If you remember from past episodes in most states if you 

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want to change to a new Medigap plan, you have to qualify based on your health to change. So now the healthy people enrolled in the closed really awesome plan will get tired of paying higher premiums, and they will apply for a new Medigap plan and they're going to leave that so-called really awesome plan.

However, Those with more health conditions, they're probably not able to qualify for a new plan. So they're stuck with that so-called really awesome plan. This creates a spiral of premium increases. Essentially what's happening is healthy people leave the plan. That leaves a higher percentage of people with health issues in the plan, which again, drives up claims, which forces premiums up, and it just creates a vicious cycle where premiums go up, healthy people leave, and that makes premiums go up faster.

So it's really important if you're in one of these situations, you kind of understand why this is happening. So here are real examples we can use and data that we've collected over the years. We looked at companies in Michigan that have opened or closed blocks of business going back to 2010 all the way until now.

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We pulled the data of 21 different Medigap companies or 21 blocks of business. Keep in mind, this data only applies to the companies we looked at in Michigan, but we do believe that the concept holds true across the country. And here is the data from these companies. The average number of years that these.

Companies kept their block of business open was only 4.67 years, so in less than five years, a block of business remained open. And these are huge companies, little new ones. It really doesn't matter. This is across the board now, the average premium increases of opened versus closed blocks of business, those varied.

Drastically with an open block of business, we saw premium increases on average for Plan F of 5.42%, Plan G, 3.75%, and Plan N 2.71%. Now on those same plans, but with the close block, we saw Plan F at 10.65%, plan G at 10.9%, and Plan N at 9.05%

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Basically, the premium increases on a closed block are triple what they were on an open block, which is huge.

Pretty big deal. Yeah, it's huge. And I just rambled on a lot there and I'll have Joanne kind of wrap things up here and talk about what does this mean for your long-term and how can you best set yourself up to find a Medigap plan for the long term? Right. So, 

Joanne: you know, everybody wants the secret to finding the elusive Medigap carrier that stays stable and it never increases in rates over time.

And this is especially important since the Meap plan that you choose could be your plan for a long time. And it could be permanent as well. Now we can make our best guess, but the truth is that no one really knows what's gonna happen long term. No agent can predict that. So here are some of, what they say they

Joanne: they're lying.

They, it's another feature of lying, but you can't. History is helpful, but we can't predict the future. So here are some of the tips that we have for you to find a Medigap plan for a long-term relationship with this carrier. Listen to our episode that goes more into detail about choosing a Medigap company that's important.

Compare the Medigap plan letters. Plan N may raise the premium slower, in 

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theory compared to plan G and avoiding a plan F in general is also usually a good idea also. A good idea is to work with a broker that can compare multiple options and can compare the rate increase trends. So try to find the open and closed block history of the company that you're considering.

Talk that through with the broker. Um, if you can find it, if you can find it, and if they can find it. Sometimes it's not easy to find the data that Cameron has dug through. Also, expect rate increases. We are just flat-out telling people if they get a Medigap plan, expect it to go up. And it's much easier to know that as you're going into this, it's a lot easier to plan.

Plan 5 to 7% rate increases every year versus hoping for zero, and expect your plan. If it does close its block of business, it's almost inevitable given time that your rates are gonna increase. Unfortunately, if you can get out, you can go through medical underwriting, hopefully. If not, understand that you have a great contract with these plans.

They are fabulous coverage. And then lastly, enroll with a large well-established carrier and don't go chasing the cheapest rate with the newest company. So try to 

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follow the law of large numbers that really does work to your advantage with insurance. The more people that are enrolled in a Medigap plan that you choose will hopefully spread out the risk and minimize some of the large fluctuations in rate increases down the road.

Cameron: Exactly. Yep. So I'll continue talking about the long-term trends and what you can kind of expect for Meap plans going forward and how you can choose that plan for the long term. We've talked about how Medigap plans increase their premiums, but does this actually matter for all consumers in all states?

Obviously, this is a national podcast, so our information is always a little bit different based on where you live. Now we always emphasize that it is very important because, in most states, you will have to medically qualify for a new Medigap plan if you want to change from your current plan to a new one.

This is why choosing a plan for the long term is so important like Joanne just talked about. However, because we say this applies to most states, that also means it does not apply to all states. So in about a dozen states, there are rules that let consumers change to a new Medigap plan with no health questions, whether it's around their birthday

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Or their plan anniversary or even other times during the year. So we will list a link to those states in these show notes so you can see if this information matters as much to you as it does to other consumers. Now, the reason we bring this up is that in some states you may be okay really not stressing and thinking as long-term about your meta gap coverage.

Of course, we are not experts in all of these states, so just consult with an independent broker license in one of those states for more details, or we can connect you with somebody no matter what you do. Meap plan premiums can and they will increase throughout your time on Medicare. Knowing how companies decide to increase their premiums can help you determine what coverage might be right for you for the long term.

It is very easy to pick the cheapest Medigap plan on the market with the hopes that it will never change, but is that really the best thing for you to do? As always, please leave us a review on your podcast app and subscribe so you can listen to future episodes. You can also find more Medicare content from us by going to YouTube and searching Giardini Medicare.

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And if you have any feedback or questions about today's show or the podcast in general, you can send an email to info@gmedicareteam.com. So thanks for listening and have a great day.