By now, the majority of the national carriers of Medicare supplements have made their rate adjustments for the next 12 months. The trends indicate that Plans F&G in Illinois will see premium increases on average of 12-15%. One of the key reasons for the high percentage is it is a by-product of the recent supplement reauthorization act, which changed eligibility rules for supplement purchases. In a nutshell, if your 65th birthday is prior to January 1, 2020, you may purchase the F plan. If your 65th birthday is after January 1, 2020, you may not purchase the F plan. This change created pricing challenges for both plans, for similar, yet also different reasons.
F Plan Pricing Challenges:
- The F Plan can only be sold to Medicare beneficiaries whose 65th birthday occurred prior to 01/01/2020. There are approximately 10,000 people who age into Medicare on a daily basis. Due to the birthday rule, the insurance carriers can only sell the F policy to a small percentage of these people. Under the F plan, the carrier is responsible for all claims that Medicare approves but doesn’t pay. As the population of F policy holders dwindle over time due to death and attrition, and revenues cannot be replenished due to a lack of new eligible customers, the only way for the carrier to raise revenues is by raising premiums amongst existing policy holders.
- The F Plan is still the Guaranteed Issue and Open Enrollment plan for beneficiaries age 65 prior to 01/01/2020. Supplements hold their price best when the beneficiaries undergo health and prescription underwriting. This means they successfully pass the health questions and prescription check before their supplement is issued. Under Guaranteed and Open enrollment situations, beneficiaries do not go through underwriting, and automatically qualify for a policy. These enrollments are especially challenging for a carrier because they have no idea what health conditions they are inheriting for their claims projections. Further, since the F policy by its design trends towards an older group of beneficiaries, and older citizens on average have more medical claims than younger people, there are generally more claims billed to F plans than to other plans. More claims mean more premium increases.
G Plan Pricing Challenges:
- The G Plan is the most popular guaranteed Issue/open enrollment plan for those whose 65th birthday occurred after 01/01/2020. Thus, it has the same pricing challenges as the
F does in projecting premiums against the depth of unknown health conditions. Since there are more people aging into Medicare than at any time in history, the number of G policyholders will quickly surpass the total number of F policyholders, as well the number of claims the carrier will need to process. Basically, the plan reacts according to the 80/20 rule. 20% of high claims customers will drive premium increases for the other 80%.
- As the fastest growing supplement, – Plan G policyholders increased from 800,000 in 2015 to 3 million in 2020 – the carriers struggle to achieve the mandated claims -to-premium ratio that Medicare requires without premium increases.
With this in mind, I am suggesting that if you would like to continue with supplement coverage, that you take a good look at the Plan N Supplement. (Benefit Summary attached))
- Unlike the F&G, the N is not a Federally Guaranteed Issue supplement, so it has a higher percentage of underwritten policyholders than the other two plans, and thus holds its value better.
- Among national carriers, the average N premium increase was less than 5%. Aetna featured a 0% increase for Plan N in 2020.
- Both the G and N require meeting an annual deductible (currently $203). The only differences between the G and the N are that in addition to an annual deductible, on the N plan the policyholder agrees to be billed no more than $20 for any doctor office visit, and $50 for any ER visit that did not result in a hospital admission
- The difference in premiums between the G and N plans usually creates a balance large enough to cover the doctor and ER visits over the course of a calendar year under the N plan.
Written by Bob O’Donnell, BARDO Insurance
Feel free to contact me about your Medicare options at (217) 691-6270, or via email at email@example.com.