Welcome to Medicare School Daily, where we help you understand Medicare, save money,
avoid mistakes, and above all else, get the most out of your Medicare benefits. Now, today's
topic is the number one danger when choosing a supplemental plan. Now, some people may
think that number one danger would be: will the company that I'm going with be in business
in 5 years or 10 years or 20 years down the road? All the carriers that are national carriers
have been in business for a minimum 50 years, some 100, 150 years. And so really, whether
they be in business or not is really not the big issue. The big issue number one danger
is this: the stability of the rates.
What are my rates going to look like in the future? In other words, what will my rates
be in 5 years or 10 years or 15 years down the road? That is the number one danger. And
so it is stability of rates that we're very concerned about when selecting a Medicare
supplemental plan. Now, I want to remind you, when you buy a supplemental plan, it's always
a letter. And of course, there's 10 letters. I'm not going to get into those today, but
there's a lot of people that have F plans, many they have G plans, some that have N plans.
But when you buy a supplemental plan, whatever letter it is, it is going to be standardized
by Medicare. Standardized. And that means that Medicare sets all the rules for the bills
that are going to be paid; the kind of coverage that you're going to have. And so regardless
of whatever letter you buy, that particular letter, regardless of the carrier that you
buy it from, whether it's ABC Insurance Company or it's XYZ insurance company, that plan is
standardized. So that means the same carriers are going to pay the same bills, the same
type of bills, and the same amount of bills. So when it comes to coverage, folks, there's
no difference whatsoever. But when it comes to stability, there can be a great difference.
That's why we're saying it's a number one danger. Let me explain. Now, anytime that
you buy a supplemental plan or you buy one of those letters, what's happening is you're
going into what we would call a block of business or a group. And these are policy holders that
are buying a policy similar to yours around the same period of time.
So we're going into a group. Now, what happens is we, first of all, have an initial rate.
Now, the initial rate for people in the group is going to be based upon three different
possibilities or three different categories. What we have are: we have some groups that
are rated based upon what we call a community rating. And this means that everybody that's
in the block when they come initially is going to be given the same price,regardless of their
age or regardless of their gender. That's community rated blocks. Now, there are very
few of those. There are some, but that's certainly not the norm throughout the country. The second
and most common one would be attained age policies. That's attained age. Now, I'll explain
a bit more about this in just a minute. But there are plenty of blocks throughout the
country today, when you come in, it's gonna be based upon the attained age. And then we
have some that are issue age blocks. All right? So the most common would be attained, and
this would be second then community, of course, would be last. But our initial rate would
be based upon these particular possibilities. As I said, most are not communities. So let's
deal with these two right here. When we come into an attained age policy or an issue age,
what happens is the carrier is going to give us a variety of rates based upon age. And
so they'll give us rates from65 up to 105. We will have female rates, male rates, non
tobacco, and tobacco rates.
And so we come into the group on attained age or issue age based upon our age, when
we start the policy, our gender, and our tobacco status. OK? So let's just suppose that we
have a 65 year old female that's non tobacco. And again, I'm just going to make this rate
up for simplicity. And she comes in and her rate is $100 a month on well, let’s say,
a plan G. All right? But we have another person in there that's a 67 year old male and he
happens to be a tobacco user. His rate’s probably gonna come in here maybe around $120
a month. So we're going to pay a little bit more because of gender, because of age, and
also because of tobacco status. So we all have this initial rate that we'll be paying
when we come into the group. Now, are those rates going to stay the same? Obviously not.
We're gonna see price increases. Medical inflation is a reality. Things are certainly going to
go up. And so what I'm to do, is I’m going to show you how those rates are going to increase.
Now, those rates are going to increase differently because if I am in what we call the attained
age block. And again, remember, this is what most states are, attained age. We can expect
that we're going to see annual increases as we age, when we attain another age. So I start
a policy at 65. Rest assured, at 66, my rate is going to go up slightly. When I'm 67, and
I move to 68, rest assured, my rate is going to increase slightly.
So every year as we attain another age, as we're in this med supp group, we should expect
our rate to go up a little bit. Now, again, there is no hard and fast rate increase, but
on the average throughout the country, we're gonna see these annual increases in the neighborhood
of about 40 to 50 dollars a year. So when you divide that by 12, that's going to be
right around four dollars a month. So that rate the next year is going to go to $104,
in the next year it is going to go to $108. This is going to go to $124, and then $128.
So it’s gonna go up a little bit every year because we attained a different age. Now,
one of the reasons that most insurance commissioners throughout the country like attained age is
because of the reality of medical inflation. And the whole concept behind attained age
increases is by allowing the carrier the right to raise your rate up and everybody in the
group up just a little bit every year. It's going to offset some inflationary increase,
so that we have group increases, those are minimal. All right? So we expect an age related
increase whenever we have an attained age policy. All right? So we can expect that.
Now, the second way in which we can have rate increases on attained age policy is when the
whole group is going to go up. All right? Now, I said earlier there were three ways
we come into a group. Community rating - everybody has the same price, regardless of gender,
tobacco status.
Attained age, which means we have these increases based upon every year as we get older, we're
gonna see them. And then we said there's another type of policy that is called issue age. Issue
age. Right? Now, issue age is always based upon our original age at the time of issue
of the policy, when we come into the group, gender and tobacco status. But on the issue
age policy, what's going to happen is this initial rate is going to be a little bit higher.
It's probably going to be about $120 right out the gate, and over here is gonna be maybe
about $140, because what happens on an issue age policy is they cannot raise your rate
every year as you get older. They can only raise the whole group up. So issue age policies,
the only way they can go up is if the whole group goes up. Attained age policies, we expect
a slight increase every year. They start lower, but then they inch their way up a little bit,
and then they also can have group increases. All right? And the community age that we talked
about in the beginning, that's the only way they also go up is if the whole group goes
up. All right? So let's talk about how group increases occur. So let's go back to this
example here. We have a female who is an issue age policy. She's non tobacco. And what's
happening is she is paying her $120 every month. Right? $120 is going in. So what's
happening is she is paying her premium into the group.
And just so you know, most people pay their premium today through bank drafts. But the
money is going in by the policyholders, whatever their initial price is, and wherever they're
coming into the group. Their premium is going in.
And then we have money going out. Right? Why is that? Well, because you have transferred
the risk of your health insurance claims to that carrier. So you pay in premium. They
take the risk and they have to pay money out. They're paying the hospitals and doctor bills
and MRI and all kinds of different costs. So money goes in; money goes out.
Now, what's going to happen in all of these groups, whether it's community, attained age,
or issue age doesn't matter. Eventually, more money is going to go out than is coming in.
That absolute is going to happen. But the question is, when will it happen? How much
will it happen? How often is that going to happen? And that's the thing we don't know
for sure. But what we do know is this: there is one way to really mitigate these excessive
claims versus premiums, and that is by going into a larger group. And so what we find is
a carrier is more stable whenever they have a larger group.
Some carriers are going to be this size of a group. Other carriers are going to be this
size of a group. All right? And so we have different sizes.
And again, that's something as you work with your agent or your work with us as brokers,
we're very aware of the size of the groups. The larger the group, the better, because
the risk is spread out to more policyholders, because as we look at this group increase,
this is based upon really health problems in the group. How much cancer is in there?
How many knees and hips are going to be replaced? And all those factors go into these group
increases, because the more cancer we have in the group, the more hips and knees being
replaced, and other issues going on, the more possibility we're going to have more money
going out on claims and more frequently than premiums are coming in. All right? So the
size the group really does matter. But what happens when claims exceed premiums, it means
that the group is losing money. And what the carrier is going to do is they're going to
calculate their losses, claims versus premiums, and whatever that loss is: And let's say it's
five percent. So that means they have five percent claims exceeding premiums. Now that
carrier’s losing money, they don't have to. So they're going to take this five percent
loss regardless of whatever state they're on in the country.
And we're going to take this to the insurance commissioner in the state and whoever the
insurance commissioner is, their office, they're going to actually petition for a rate increase
for the group of five percent. And so with their job to do, their job is to audit the
request because this group increase cannot occur until they approve it. So they audit
it, making sure this is justifiable, that all the paperwork has been done properly.
And if they approve the rain increase of this five percent, it means everybody in the group
is going to go up five percent. Now, one person could be in here and has never, ever had a
claim. Another person could be in here, and they're in the midst of being treated for
cancer, maybe undergoing radiation. They've already been operated on, and chemotherapy
is next. But they've had lots of claims. But it doesn't matter the claims, what matters,
whatever group you're in, if the insurance commissioner approves that increase, then
everybody in the group is going to go up five percent. And so that's why we're saying the
larger the group, the more people that are in that group, the more the risk can be spread
out for these health issues.
All right? Now, doesn't mean to say that small groups won't be stable, because if it's primarily
a group of healthy people, even though it's small, it'll be stable. But you watch out
if you're in a small group that has a tremendous amount of cancer or other health issues that
are going on, and they're not going to be very stable. OK? So that's why we're saying
the number one danger of a med supp plan is the stability of the rate. So these are some
ways that you can mitigate and really make sure that you're selecting a company that
is some very stable in the rates. And this is, by the way, one of the reasons that we've
decided to be brokers, because if you go with a supplemental plan, you can buy it from a
captive agent, which represents only one of these companies. Where you go with someone
like us who are brokers, we represent all the carriers and we look at the stability
of the rates in the last 10 years. We know the size of the groups, and so we do all we
can to mitigate it so that you will have less price increases, less amounts, and less frequency.