How Medicare Supplement (Medigap) Premiums Are Calculated

Pamela Cannaday by Pamela Cannaday | Licensed since 2011
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This article was updated on: 09/16/2018

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One of the main factors in determining which Medicare Supplement (Medigap) policy is right for you is the monthly premium amount, especially if you are on a budget. The monthly premium will depend on the type of Medigap plan you choose (Plan A, B, C, etc.) and the company you buy it from.

States are allowed to offer up to 10 different types of Medigap plans. Benefits are standardized across each plan type, meaning benefits will be the same no matter where you live. The exceptions are Massachusetts, Minnesota, and Wisconsin, which offer different standardized benefits.

Keep in mind that Medigap insurance companies set their own monthly premiums, so costs will vary from company to company. If you are buying a Medigap Plan A, for example, a Plan A from one company may cost more than a Plan A from another company, even though both plans provide the same benefits.

How insurance companies set prices for Medigap polices

One reason why prices vary so much is because each insurance company decides how it will set the premium amounts for its Medigap policies. There are three ways that a company can price or “rate” its Medigap policies:

  • Community-rated: This is also called “no-age-rated” because no matter how old you are, the policy costs the same. Premiums may go up due to inflation or other factors, but not due to your age.
  • Issue-age-rated: Also called “entry-age-rated” because the premium is based on your age at the time of purchase. When you buy your policy, you are charged the same amount as others your age in the plan. With issue-age-rated policies, people will have lower premium amounts if they join the plan at a younger age. Premiums may go up due to inflation or other factors, but not due to your age.
  • Attained-age-rated: With this plan, the premium cost is based on your age when you join the plan. These plans are less expensive to begin with, especially for younger buyers, but the premium amount automatically increases as you age. Premiums can also go up for inflation and other factors.

When comparing plans, always ask how an insurance company prices its policies, because this factor can affect how much you pay now and in the future.

What other factors can affect the cost of Medigap policies?

The biggest factor affecting how much you pay for a Medicare Supplement plan, and whether the insurer even accepts you, is when you enroll. The best time to join a Medicare Supplement plan is during your Medigap Open Enrollment Period, which starts automatically when you’re at least 65 and enrolled in Medicare Part B. This is a six-month period when you have guaranteed-issue rights, meaning you have the right to join any Medigap plan, regardless of pre-existing conditions or disabilities. Insurers cannot deny you coverage if you have health issues or charge you a higher premium.

After this period is over, it may be hard to join or switch Medigap plans. Medigap insurers may require medical underwriting, charge you more, or deny you coverage if you have health problems. There are limited situations where you may still have guaranteed-issue rights after your Medigap Open Enrollment Period. However, generally, you’ll have the most choices available and the lowest costs if you join a Medicare Supplement plan when you’re first eligible.

Also, keep in mind that insurance plans, like other products, are affected by inflation and rising health costs. So the price of your Medigap premium could go up each year, regardless of the type of pricing method. Some companies may increase rates more rapidly than others.

The cost of your Medigap policy may also depend on your gender, where you live, and on whether the insurance company does any of the following:

  • Offers discounts, such as for:
    • Non-smokers
    • Married people who buy two policies
    • Those who pay their premiums using electronic funds transfer
    • Those who pay their premiums yearly
  • Sells Medicare SELECT policies, a type of Medigap plan that requires you to use network providers and may charge a lower premium.
  • Offers a high-deductible option for Medigap Plan F, which may have a lower premium.

Questions to ask when comparing Medigap policy costs

Many private insurance providers sell Medigap policies, so it’s important to shop around and make some calls when you’re ready to buy. Just make sure you compare apples to apples: For example, if you’re looking for a Plan C, make sure you compare the premium rates for Plan C from each company you call.

In order to compare costs, ask each insurance company:

  • How do you price your Medigap policies (community-rating, issue-age-rating, or attained-age-rating)?
  • If attained-age-rated: How often will the premium increase due to my age?
  • What is the premium amount for someone my age?
  • How much has the premium increased in the past few years due to inflation or other factors?
  • Do you offer any discounts?

In general, the more coverage the Medigap policy provides, the higher the premium amount. But because premiums can vary drastically, it pays to compare coverage and costs carefully. If you’d like help finding the right Medigap plan for you, just let me know. You can learn more about my Medicare experience below through my profile. Or, if you’d prefer to speak one-on-one, there’s also links to set up a phone call or have me email you some Medicare Supplement recommendations. If you’re ready to view plans now, you can do that, too: just use the Compare Plans buttons on this page to start browsing plans by zip code.

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