Why Your Medicare Supplement Premiums Keep Increasing—and What You Can Do About It

One of the services I provide to MedicareWire visitors is a Medicare Supplement Premium Report. It’s a free service that provides a close estimate of your actual quote from the insurance carrier or an authorized insurance agent.

This morning, I received an email from Tim Weidemann, a reader from Nevada, who recently received a report from me. After enrolling in a Medicare Supplement (Medigap) Plan G with Physician’s Mutual at age 65, he experienced a 12% premium increase after just one year. To make matters worse, the rates shown on the insurance company’s website for new enrollees his age were significantly lower than he was now being charged.

Tim also said he received a mailer from WMI Mutual Insurance Company advertising a lower rate for the same plan. However, when he cross-referenced that with Medicare’s official website and the report I sent him, the numbers didn’t match.

Like many others, Tim wonders why premiums increase so much and why advertised rates can be different from quoted rates. I thought exploring these issues and what you can do to manage your Medicare Supplement plan premiums would be useful.

What Is the Early Enrollment (New to Medicare) Discount?

When you first become eligible for Medicare, some insurance carriers offer a special discount called the Early Enrollment Discount, also known as the New to Medicare Discount. This discount encourages people signing up for Medicare for the first time to enroll in a Medicare Supplement plan as soon as they become eligible.

The Early Enrollment Discount can significantly reduce your monthly premium during the first few years of coverage. However, you need to understand that the discount is not permanent. It usually phases out over time, meaning that your premiums will gradually increase as you age. This discount generally benefits younger enrollees who are just starting their Medicare journey.

This type of discount can be appealing because it allows you to lock in a lower premium when you first enroll. However, the discount often diminishes or disappears after a few years, leading to higher premiums, which can be a shock if you don’t understand the terms of the discount.

Are Early Enrollment Discounts Legal?

Offering Early Enrollment Discounts for Medicare Supplement plans is legal but subject to specific regulations that ensure transparency and fairness. Gail answers a similar question on AARP’s community site and writes, “Details of the plan should have been disclosed to you in a letter most likely sent with the coverage details of the AARP UHC Medigap plan you selected,” in response to a similar concern as Tim’s.

These discounts allow insurance companies to attract younger, healthier enrollees, which helps balance their risk pool. However, carriers must follow rules to ensure these discounts don’t mislead consumers.

1. Regulatory Oversight: Medicare Supplement plans are standardized and regulated at federal and state levels. The Centers for Medicare & Medicaid Services (CMS) oversees the basic rules, while state insurance departments often regulate the specifics of pricing and discounts. Any discounts, including Early Enrollment Discounts, must comply with federal and state laws.
2. Disclosure of Discount Terms: Insurance companies must disclose the terms and conditions of any discounts they offer, including Early Enrollment Discounts. This means that if a discount is only temporary or decreases over time, that information must be communicated to the consumer before they sign up. The details about how the discount phases out, if applicable, should also be outlined in the policy documents provided to the enrollee.
3. Marketing Materials and Transparency: Insurance companies must ensure that their marketing materials accurately reflect the pricing structure, including discounts. Misleading advertisements that fail to disclose the temporary nature of a discount or the potential for significant premium increases in the future can result in regulatory penalties. This is why you’ll often see disclaimers in mailers or online ads stating that rates are subject to change or that discounts are only available for a limited time.
4. How to Verify Discount Terms: If you’re considering a plan with an Early Enrollment Discount, it’s crucial to ask for detailed information upfront. This includes how long the discount will last, your premium after the discount ends, and whether the company has a history of significant rate increases after the first year. You can request this information directly from the insurance company or a licensed insurance agent.

For Tim, the lower rates he sees advertised for new enrollees with Physician’s Mutual may include an Early Enrollment Discount that’s no longer available as a renewing customer. This type of discount is legal, but transparency in disclosing these terms is critical to avoiding surprises later on.

Why Do Medicare Supplement Premiums Increase?

It’s common for Medicare Supplement premiums to increase after the first year of coverage, and this happens for several reasons. It all boils down to the pricing methods:

1. Age-Attained Pricing: One of the most common pricing structures used by Medigap plans is age-attained pricing. This means that the premium you pay is based on your current age. As you get older, your premiums will increase. For Tim, enrolling at age 65 gave him access to a lower rate, but as he turned 66, that rate automatically went up—this is typical for age-attained plans. These increases can vary significantly between companies and states, but they’re generally expected.
2. Medical Inflation and Cost Trends: Medical inflation is another factor beyond age. As healthcare costs rise, insurance companies adjust their premiums to cover these increases. This applies to all policyholders, not just those in their later years. Over time, insurance companies change their rates to account for the cost of new medical technologies, prescription drugs, and other advancements in healthcare.
3. New vs. Existing Customers: Tim’s suspicion that insurance companies offer better rates to new customers is partially correct. Many insurance companies will aggressively price their plans to attract new enrollees, especially at age 65, when most people become eligible for Medicare. However, after the initial enrollment, those attractive rates may increase more quickly for existing customers. Insurance companies often re-evaluate their risk pool and adjust premiums based on claims experience, leading to higher premiums for those who stay with the same plan year after year.

Are There Companies That Don’t Do This?

While it’s true that many companies use age-attained pricing and adjust premiums more aggressively for existing customers, not all do. Here are a couple of alternatives:

1. Community-Rated Pricing: Some Medicare Supplement plans use community-rated pricing, meaning everyone pays the same premium regardless of age. In these cases, your premium won’t increase just because you get older. Instead, any premium increases will be related to factors like inflation or the overall claims experience of the plan. States like New York and Vermont mandate community rating, but it’s also available from some carriers in other states.
2. Guaranteed Issue States: Massachusetts and Connecticut offer more protections for Medigap policyholders, including community-rated pricing and guaranteed issue rights. These rights require insurers to sell you a policy regardless of your health status or age, and in some states, this can help stabilize premiums over time.

In Nevada, where Tim lives, the state has introduced a “birthday rule,” which allows policyholders to switch Medicare Supplement plans around their birthday without undergoing medical underwriting. This is a significant benefit because it will enable shoppers to shop around for better rates without worrying about being denied coverage due to health conditions.

What Carriers Offer Early Discounts?

Carriers offering Early Enrollment Discounts for Medicare Supplement plans typically adjust their pricing based on various factors, including the enrollee’s age, state regulations, and pricing strategy. Below is a list of some of the top carriers known for providing these discounts, along with an overview of how they typically structure them:

1. AARP/UnitedHealthcare

• Discount Structure: AARP Medigap plans, underwritten by UnitedHealthcare, often offer early enrollment discounts to individuals who sign up at age 65. The discount starts high (e.g., around 30%) and gradually reduces each year until it phases out, usually by the time the enrollee reaches their mid-70s.
• Additional Benefits: AARP/UnitedHealthcare offers additional discounts for households with two or more members enrolling in a plan. These discounts are often around 5%.
• States Available: AARP/UnitedHealthcare plans are widely available across most states, but the discount structure can vary slightly by state due to local regulations.

2. Mutual of Omaha

• Discount Structure: Mutual of Omaha is known for offering early enrollment discounts that can reduce premiums for those who enroll at age 65. These discounts can be up to 12-15%, and like other carriers, the discount decreases over time, typically phasing out by age 75.
• Additional Benefits: Mutual of Omaha also provides household discounts (up to 12%) if two or more individuals in the same household enroll in a Medigap plan.
• States Available: Mutual of Omaha offers Medigap plans in almost every state, with the discount structure and rates subject to state regulations.

3. Cigna

• Discount Structure: Cigna frequently discounts individuals who enroll early (age 65), although the exact percentage can vary by state. Cigna’s discounts typically phase out for years as the enrollee ages.
• Additional Benefits: Cigna offers household discounts (around 7%) for multiple enrollees in the same household.
• States Available: Cigna’s Medigap plans are available in many states, but the specific discount details can vary depending on state regulations.

4. Anthem Blue Cross Blue Shield

• Discount Structure: Anthem often provides early enrollment discounts to those who sign up for a Medigap plan when they become eligible for Medicare at age 65. These discounts may initially reduce premiums by 10-20%, with a gradual reduction over time.
• Additional Benefits: Anthem discounts couples or household members who enroll together, often around 5-10%.
• States Available: Anthem Blue Cross Blue Shield operates under various names depending on the state, so discount availability and structure can differ. Check the specific state’s offerings for details.

5. Humana

• Discount Structure: Humana offers early enrollment discounts in some states, reducing premiums for those who sign up at age 65. The discount typically decreases over 10 years, and the percentage can range from 5% to 15%, depending on the state.
• Additional Benefits: In some areas, Humana provides household discounts (around 7%) and loyalty discounts for long-term customers.
• States Available: Humana’s Medigap plans are available in most states, with variations in discount structures depending on local regulations.

6. Medico

• Discount Structure: Medico offers an early enrollment discount that reduces premiums for enrollees who sign up at age 65. The discount typically decreases over time and may phase out entirely by age 75.
• Additional Benefits: Medico offers a household discount, usually around 7-10%, for those in the same household.
• States Available: Medico operates in several states, with varying availability of early enrollment discounts based on state regulations.

7. Transamerica

• Discount Structure: Transamerica offers early enrollment discounts for younger Medicare beneficiaries (typically at age 65). These discounts significantly reduce premiums during the first few years of enrollment and gradually decrease.
• Additional Benefits: Household discounts are also available, usually around 7%.
• States Available: Transamerica offers Medigap plans in several states, but discount availability and specifics vary by location.

Things to Keep in Mind:

• Household Discounts: Most carriers offer additional household discounts, which can be combined with early enrollment discounts to lead to even more significant savings.
• State Variations: While the above carriers offer early enrollment discounts, the exact structure, percentage, and duration of the discount can vary widely based on state regulations.
• Annual Rate Increases: Early discounts can help lower your initial premium, but remember that annual rate increases could still apply. It’s essential to consider the long-term cost of the plan, not just the initial savings.

NOTE: When you request your personalized report, we provide current rates on all carriers operating in your area, including the carrier’s Medigap rate increase history.

Understanding Nevada’s Birthday Rule (for Tim)

Nevada’s birthday rule is designed to give Medicare Supplement policyholders flexibility in changing plans without facing medical underwriting. Around your birthday each year, you have a window of time—usually 30 days—during which you can switch to a different Medigap plan with equal or lesser benefits without answering any health-related questions.

This rule can be beneficial if you experience a significant rate increase, as Tim did. By leveraging this annual opportunity, you can shop around for a new plan that offers the same coverage at a lower rate. It’s essential to compare rates from multiple companies and consider the premium and the company’s history of rate increases.

For Tim, the birthday rule means he can explore options like the WMI Mutual Insurance Company plan without worrying about whether his health has changed since he first enrolled in his Medigap plan.

Other States with Birthday Rules for Medicare Supplement Plans

As of 2024, nine states have implemented birthday rules that allow Medicare Supplement policyholders to switch plans without undergoing medical underwriting around their birthday. These rules provide beneficiaries with more flexibility to manage their coverage and premiums, similar to the protections available in Nevada:

1. California:
   • How It Works: In California, policyholders can switch to another Medigap plan with equal or lesser benefits within 60 days of their birthday without facing medical underwriting. This rule allows beneficiaries to shop for better rates or coverage annually without worrying about health-related penalties.
2. Oregon:
   • How It Works: Oregon’s birthday rule offers a 30-day window following your birthday each year to switch to a plan with equal or lesser benefits without medical underwriting. Moving to a more competitive plan allows you to avoid premium increases.
3. Idaho:
   • How It Works: Idaho offers 63 days around your birthday to switch to a different Medicare Supplement plan without medical underwriting. This is slightly more generous than some other states, allowing for more time to switch.
4. Illinois:
   • How It Works: In Illinois, the birthday rule allows policyholders to change their Medigap plan within 45 days after their birthday, with no medical underwriting required for plans with equal or lesser benefits.
5. Louisiana:
   • How It Works: Louisiana’s birthday rule allows beneficiaries to switch to a different Medigap plan within 30 days of their birthday without answering health-related questions. This helps ensure that beneficiaries can find better rates annually.
6. Maryland:
   • How It Works: Maryland provides a 30-day window after your birthday, during which you can switch to a Medigap plan with equal or lesser benefits, with no medical underwriting required. This helps Maryland residents manage rising premiums by shopping around for better rates.
7. Nevada:
   • How It Works: Nevada’s birthday rule allows policyholders to switch to a different Medicare Supplement plan with equal or lesser benefits within 30 days of their birthday without medical underwriting, helping beneficiaries like Tim manage their premium costs effectively.
8. Oklahoma:
   • How It Works: Oklahoma’s birthday rule also allows a 30-day window after your birthday to switch to a Medigap plan with equal or lesser benefits and no health-related questions.
9. Kentucky:
   • How It Works: Kentucky passed legislation in 2023 to enact a birthday rule starting in 2024. This rule will give beneficiaries a window around their birthday to switch to a different Medigap plan without undergoing medical underwriting.

These birthday rules provide flexibility for Medicare Supplement policyholders in these states, helping them manage rising premiums and find more competitive rates. For those living in states without birthday rules, exploring other options, such as guaranteed issue periods or open enrollment, is essential to switch plans when needed.

Why Premium Discrepancies Happen

Tim noticed discrepancies between the rates he saw in a WMI Mutual Insurance Company mailer and those listed on Medicare’s official website. This is not uncommon, and there are several reasons why these discrepancies can occur:

1. Advertising vs. Reality: Insurance companies often use marketing materials to showcase their best rates, typically reserved for new customers or those in excellent health. These rates might not account for additional factors that could increase your premium, such as specific underwriting criteria, location, or whether you’re eligible for any discounts. Verifying the rate directly with the insurance company or through an authorized agent before deciding is essential.
2. Rate Classes: Medigap premiums can vary based on several factors, including whether you’re a smoker or non-smoker, gender, and zip code. The $119 rate Tim saw in the mailer might have been the best-case scenario for a non-smoker in a particular area. However, Medicare.gov often reflects broader averages, including higher rates for different demographic groups or those with certain health conditions.
3. Direct Verification Is Key: To ensure you get the best deal, verify the rate with the insurer. Comparing it with authoritative sources like Medicare.gov can give you a more realistic view of what you’ll pay.

NOTE: When you use MedicareWire’s free Medicare Supplement Premium Report (“Get a Quote”) service, the rate information you will receive will be mostly accurate. Your report will contain information I gather from CSG Actuarial, an actuarial consulting service for the senior market. Thousands of agents rely on CSG Actuarial for the same purpose.

What to Do If You’re Facing a Premium Increase

If, like Tim, you’re dealing with a sudden premium increase, here’s what you can do:

1. Shop Around: Take advantage of your state’s rules, like Nevada’s birthday rule, to compare company plans. Look for a plan that offers the same coverage at a lower rate, and don’t forget to check for additional discounts, such as household discounts.
2. Consider Community-Rated Plans: If available in your state, consider switching to a community-rated plan that doesn’t increase your premiums as you age. This can provide more stability over the long term.
3. Consult a Professional: A licensed insurance agent who understands your state’s specific rules and the Medigap market can be invaluable in helping you find the best plan at the best price. They can also help you navigate pitfalls like underwriting requirements or limited enrollment windows.

Conclusion

Medicare Supplement premiums can be a moving target, especially if enrolled in an age-attained plan. But by staying informed and leveraging state protections like Nevada’s birthday rule, you can keep your costs under control. Always remember to shop around, compare rates, and verify the details with the insurer directly. Doing so can help you find the right balance between cost and coverage and ensure you’re not overpaying for your Medigap plan.