Medigap, also known as Medicare Supplement Insurance, helps cover out-of-pocket costs that Original Medicare (Parts A and B) does not pay, such as deductibles, copayments, and coinsurance. These policies are sold by private insurance companies. While the benefits for each standardized plan letter are identical regardless of the insurer, the monthly premium is not. The cost depends on the carrier, the plan selected, and your geographic location. Whether your premium will increase with age depends entirely on the specific pricing structure the insurer uses.
Understanding the Three Medigap Pricing Structures
Medigap premiums change over time based on one of three primary rating methods: Attained-Age, Issue-Age, or Community-Rated. Understanding these methods is the most important factor in predicting future Medigap costs. The specific structure used by a carrier often depends on state regulations, with some states predominantly featuring one type over the others.
Attained-Age Rated
Attained-age rating is the most common method used by insurance carriers, and premiums explicitly increase with age under this structure. The monthly premium is based on the policyholder’s current, or “attained,” age. While these policies often feature the lowest initial premium, they become more expensive each year as the policyholder grows older.
The rate adjustment typically occurs annually, reflecting the increased statistical risk of higher healthcare costs associated with advancing age. A person enrolling at age 65 will pay a lower starting rate than someone enrolling at 75. However, both will experience a premium increase purely due to aging, in addition to general rate hikes.
Issue-Age Rated
In the Issue-Age rating structure, the premium is determined by the policyholder’s age when they first purchase the policy. If you enroll at age 65, your premium is set at the rate for a 65-year-old. It will not increase simply because you age to 66, 70, or 80, effectively locking in an age-based price.
A person enrolling at 65 will generally pay a lower premium than someone enrolling at 75, as the initial price reflects the risk of the younger age. Although this structure prevents increases due to individual aging, the premium is still subject to general rate increases. These increases apply to all policyholders in that plan to cover rising medical costs and inflation.
Community-Rated
The Community-Rated structure completely removes age as a factor in setting the premium. Everyone in a specific geographic area who purchases the same Medigap plan pays the exact same premium, regardless of their age or gender. For example, a 65-year-old and an 85-year-old purchasing the same plan will be charged an identical monthly premium.
Community-Rated policies offer the most stability because they do not increase due to individual aging. Premiums can increase, but these hikes are applied across the entire group of policyholders to cover rising healthcare expenditures and claims. This structure typically results in the highest initial premiums for younger beneficiaries but offers the lowest volatility over the long term.
Factors That Drive Premium Increases Beyond Age
Medigap policies, even Issue-Age and Community-Rated plans, are not immune to premium hikes over time. Premiums for all three rating structures are subject to external factors that necessitate rate adjustments by the insurance carrier. These increases apply to all policyholders within a specific plan class in a given state, regardless of the individual’s age.
One primary driver is healthcare cost inflation, where rising prices for medical services, procedures, and technology force insurers to collect more premium dollars to cover claims. As the cost of care increases across the system, the overall expenses for the insurance pool rise, leading to a general rate increase.
Another factor is increased utilization of services by the entire group of policyholders covered by the plan. As the collective health needs of the covered population increase, the insurance company’s claims costs rise, which must be offset by higher premiums. This effect requires the insurer to request permission from state insurance commissioners to raise rates for the entire plan.
Evaluating Long-Term Costs of Medigap Policies
When selecting a Medigap policy, evaluate the long-term financial trajectory rather than just the initial monthly cost. Attained-Age policies offer a lower starting premium, but this must be weighed against the certainty of annual increases due to aging and general market factors. This model presents the highest risk of significant premium growth over a long retirement.
Issue-Age policies provide a more predictable financial outlook, as the premium increases only due to external factors like inflation, not age. Although the starting premium may be slightly higher than an Attained-Age plan, the stability is attractive for those planning a fixed retirement budget. Community-Rated policies offer the most stability but often have the highest initial cost.
Consumers should obtain quotes from different carriers for the same standardized Medigap plan, such as Plan G, and ask which rating structure is being used. It is wise to calculate a 10-year cost projection for any policy under consideration, applying an estimated annual inflation rate. Since rates for the exact same plan can vary significantly between insurers, shopping around is necessary to find the most financially sustainable policy.