Medigap, formally known as Medicare Supplement Insurance, helps pay for certain out-of-pocket costs left by Original Medicare (Part A and Part B). These costs, or “gaps,” typically include copayments, coinsurance, and deductibles. Since private insurance companies offer these standardized plans, the monthly premium cost varies widely. Consumers often ask: Do Medigap premiums automatically increase just because the policyholder ages? The answer depends entirely on the pricing method the insurer uses, which is often dictated by state regulations.
The Three Premium Pricing Methods
The way an insurance company structures its Medigap premiums is determined by one of three distinct rating methods. This choice dictates whether age will be a direct factor in annual premium hikes.
Attained-Age Rating
The most common method is the Attained-Age rating structure. The premium is based on the policyholder’s current age, meaning the cost automatically increases each year as the individual grows older. These plans typically offer the lowest initial premiums, but the rate of increase can be steep, as age-based hikes compound general inflation increases.
Issue-Age Rating
The second method is the Issue-Age rating structure. The premium is fixed based on the policyholder’s age when they first purchased the policy. If a person buys a policy at age 65, their premium will always reflect the rate for a 65-year-old. This structure removes the direct link between advancing age and premium increases.
Community-Rated Structure
The final approach is the Community-Rated structure, which is the most insulated from individual age-based increases. Everyone in a specific geographic area who has the same plan pays the exact same monthly premium, regardless of their age or health status. Community-rated plans offer the most predictable premium over the long term.
Factors That Cause General Premium Increases
While two of the three pricing methods eliminate age as a direct factor, no Medigap policy has a guaranteed, unchanging premium. Every plan is subject to rate increases due to external economic and operational factors. These general increases affect the entire group of policyholders within a plan.
One significant driver is medical cost inflation, which consistently exceeds the general rate of inflation. As the cost of healthcare services, technology, and labor rises, insurers must adjust premiums to cover increased expenses. Increased utilization of medical services also drives up the collective cost of claims paid by the insurer.
If the total claims paid out for a specific plan increase, the company may seek approval from state regulators for a rate action. This adjustment is necessary to maintain the financial stability of the insurance pool. Changes to Medicare’s own costs, such as adjustments to the annual Part B deductible, can also necessitate a proportional increase in Medigap premiums.
Strategies for Managing and Minimizing Costs
Consumers have several strategies to manage and minimize the increasing cost of Medigap premiums, starting with the initial enrollment decision. It is recommended to purchase a policy during the six-month Medigap Open Enrollment Period, which begins the month a person is 65 or older and enrolled in Medicare Part B. During this time, insurers cannot deny coverage or charge higher premiums due to pre-existing health conditions.
Because Medigap plans of the same letter (e.g., Plan G) offer identical standardized benefits regardless of the carrier, consumers should comparison shop. Premiums vary significantly between insurance companies for the exact same coverage. Some carriers also offer discounts, such as a household discount for two or more people enrolling from the same address.
If a policyholder is already enrolled and facing substantial premium increases, they can periodically reevaluate their plan and carrier. While switching policies may require medical underwriting outside of the initial enrollment window, it is a viable option for healthy individuals to secure a lower rate. Certain states also have “Birthday Rules” or other guaranteed issue periods that allow policyholders to switch plans annually without medical underwriting.