by Russell Noga | Updated December 9th, 2023
Medicare Supplement Insurance (also known as Medigap) helps to cover the expenses that Original Medicare – Part A and Part B – don’t cover. For millions of Medicare beneficiaries, supplementary insurance helps to make the cost of healthcare more predictable and more affordable.
There are several Medigap plans, and they’re sold by private health insurance companies. Since Medicare Supplement plans are additional insurance, they have a separate monthly premium in addition to the premiums for Medicare Part A and Part B.
If you’re planning on purchasing Medicare Supplement Insurance, there are a lot of factors that you’ll want to take into consideration to ensure you choose an option that best meets your unique needs. One of the key factors that you’re going to want to consider is the cost of coverage.
Insurers set their own rates and use three different pricing methods to determine the rates they charge: age-rated and community-rated. Understanding these pricing methods will help assess Medicare Supplement Insurance plans and choose one that best suits your needs.
In this guide, we’ll provide an overview of community-rated pricing, including what it is and how it works, the benefits, and some downsides, too.
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About Medicare Supplement Insurance
For starters, let’s explain what Medicare Supplement Insurance is and how it works. Medicare is a government-sponsored health insurance program that consists of several parts. Part A and Part B combined are known as Original Medicare.
Part A covers the cost of care and services you’ll receive in a hospital or other inpatient settings, and Part B covers the cost of care and services you’ll receive in outpatient settings, such as doctor’s offices, preventative care, and even durable medical equipment. While both Part A and Part B will cover a lot of your healthcare expenses, it won’t cover everything, and you’re responsible for the costs it doesn’t cover; deductibles, coinsurance, and copayments, for example.
Medicare Supplement Insurance is separate insurance coverage that helps to cover Original Medicare’s out-of-pocket expenses. There are 10 different policies that are named for letters, and they’re sold by private health insurance companies and regulated by the government.
All policies of the same letter must offer the same standard benefits, as required by the government, no matter which insurer provides the coverage and where the policy is issued; for instance, Plan F must offer the same coverage, whether it’s issued by Aetna or Blue Cross Blue Shield, and whether it’s issued in California or Florida.
Since Medicare Supplement plans are separate insurance coverage, you’ll have to pay separate monthly premiums for your coverage, in addition to the monthly premiums for Original Medicare. Insurance companies set the premiums for the policies they offer.
What is Community-Rated Medigap insurance?
When health insurance companies set the rates for the Medicare Supplement Insurance plans they offer, they generally use one of three pricing methods: issue-age, attained-age, and community-rated. The method that an insurer uses affects the cost of your monthly premiums, both when you first enroll in coverage and in the long run.
When an insurer uses community-rated pricing, everyone who resides in the same geographic area and purchases the same policy pays the same monthly premiums, no matter their age, health status, or gender. Unlike issue-age policies, the premiums for community-rated Medigap plans do not increase as you age.
The Benefits of Community-Rated Medicare Supplement Insurance
Community-rated Medigap plans offer several benefits. One of the primary advantages is that premiums will remain the same for all beneficiaries who reside in the same area and have the same type of plan, no matter their age or the state of their health. As such, you’ll be able to enroll in coverage at any age and pay the same rate as someone who is younger than you.
For example, if you purchase a community-rated plan when you’re 75, you’ll pay the same price as someone who purchases the same policy at the age of 65. If you’re in poor health or you have a chronic condition and require ongoing medical treatment, this can be particularly beneficial.
Another key benefit that community-rated Medigap insurance offers is that premiums tend to be more stable than other types of Medicare Supplement Insurance plans. With other kinds of plans, such as issue-age or attainted-age coverage, premiums increase as you age.
However, with a community-rated plan, rates are based on claims that all beneficiaries who reside in the same geographic location file. Therefore, it isn’t likely that rates will increase as a result of factors that could affect you individually, such as your age or the state of your health.
The Disadvantages of Community-Rated Medicare Supplement Insurance
While community-rated Medigap plans do offer distinct benefits, there are some downsides, too. For one thing, rates may be higher than they would be for other kinds of Medigap plans for younger beneficiaries because the rates for all policyholders are the same, no matter their age or the state of their health. If you’re younger, you could end up paying a higher rate than you would if you were to purchase an age-rated or issue-attained Medigap plan.
Another possible downside that can be associated with community-rated Medigap plans is that there’s a chance that rates could be unstable, whereas premiums for other types of plans can be more stable. Since rates are based on claims of the whole community of policyholders, rate increases can end up being higher from one year to the next.
Is Community-Rated Medigap Insurance the Right Choice?
To determine if a community-rated Medicare Supplement Insurance plan is the right option for you, you’ll want to consider several factors, including your age, the state of your health, and your budget. For instance, if you have been diagnosed with a chronic condition or you’re older, a community-rated Medigap plan could be a good choice for you since the premiums for your policy will be the same. On the other hand, if you’re younger and in good health, an age-rated or an issue-age policy may be a better option.
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Russell Noga is the CEO and Medicare editor of Medisupps.com. His 15 years of experience in the Medicare insurance market includes being a licensed Medicare insurance broker in all 50 states. He is frequently featured as a featured as a keynote Medicare event speaker, has authored hundreds of Medicare content pages, and hosts the very popular Medisupps.com Medicare Youtube channel. His expertise includes Medicare, Medigap insurance, Medicare Advantage plans, and Medicare Part D.