Surprising Spike in Medigap Insurance Costs
Imagine being a seasoned insurance broker and for the first time in your long career, you witness an immediate 45% increase in the premiums of over 80 of your clients. That's exactly what happened to one Illinois-based broker. The unexpected surge affected clients who were all part of the same Medicare supplemental plan. It falls to the broker to now find more affordable solutions for these clients.
Medicare supplemental plans, otherwise known as Medigap, covers costs not included in traditional Medicare. Those without such a plan face potentially unlimited out-of-pocket expenses each year. While a 45% increase is an outlier, brokers are noticing that double-digit premium increases are becoming standard for Medigap policies.
The Widespread Impact
About 43% of those on traditional Medicare, amounting to over 12 million people, have a Medigap policy. Without supplemental coverage, about 13% of traditional Medicare participants face the risk of hefty costs in the event of serious illness. Others rely on retiree employer coverage or alternative backup plans.
Following considerable increases last year, rates seem to be rising once again. For the most popular type of supplement plans, the Plan G policies, rate increases ranged from just over 12% to more than 26% in the first quarter. This suggests that insurance carriers are attempting to adjust their premium rates due to the upward pressure on their claims.
Reasons Behind the Rising Rates
Several factors contribute to the escalating premiums. These include increased use of medical services by beneficiaries, an aging population, rising labor and medical costs, state rules governing Medigap plans, and changes in enrollment in private Medicare Advantage plans.
It wasn't long ago that rate increases of more than 10% were rare. However, it's now unusual to see a rate increase of less than 10%, and increases over 20% are not unheard of.
For example, in Alaska, one insurer raised the premiums on its Plan G policies by nearly 12% this year. As a result, a 65-year-old woman who would have paid $172 a month last year for a Plan G policy would now be facing a monthly rate of $192.
Possible Solutions
Policy experts suggest possible remedies such as capping out-of-pocket costs for Medicare beneficiaries or subsidizing the purchase of Medigap coverage. However, implementing changes to Medicare that require congressional approval is unlikely in the current legislative environment, especially as adding an out-of-pocket cap would increase the federal budget.
Medigap and Medicare Advantage Plans
When beneficiaries turn 65, they generally qualify for Medicare. They then have six months to purchase a Medigap plan at standard rates without having to answer health-related questions. Later, strict rules apply to when beneficiaries can enroll in or switch Medigap coverage, and the options become significantly more limited.
Some may opt to leave traditional Medicare and enroll in a private-sector Medicare Advantage plan, which have out-of-pocket caps. However, this means beneficiaries must generally depend on a set of in-network doctors and hospitals. And if they change their mind and want to return to traditional Medicare, they have only a 12-month window to purchase a Medigap plan without passing health questions. After that, it can be more challenging.
The Future of Medigap
Brokers mention another option for those seeking to lower their costs: considering one of the two types of Medigap plans that come with a deductible, which is currently just under $3,000 for a year. These plans charge far lower monthly premiums than Medigap plans that cover a much larger portion of annual amounts people must pay toward their Medicare services. However, many people are uncomfortable with a $3,000 deductible.
With all these factors at play, the future of Medigap insurance remains uncertain. However, it's clear that both beneficiaries and brokers are keeping a close eye on developments, ready to navigate any changes that come their way.