One of the criteria applied by most people when choosing Medigap policies is usually price. People want to go for what is most affordable to them while at the same time offering the most benefits. There are 10 available Medicare Supplement Plans to choose from and plans with the highest benefits usually cost the most. Even though the premiums for a certain Aetna Medicare supplement plans may vary from State to State, the benefits for each are similar in all states. When it comes to determining the price of each policy, the Insurer applies a different method to each policy depending on some factors. This determines how much one pays for their policy and whether or not these premiums will increase they age.
Medigap Pricing Methods for Different Policies
Generally, three methods of pricing are usually applied
- Community Rated
- Issue Age Rated
- Attained Age Rated
It is very important to understand these three so that you can know which are the nest Medicare Supplement Plans to invest in. Some policies start off cheap then become unmanageable as you age. This leaves you with a mountain of debt in your old age or without a Medigap Cover when you actually need one. Here is how each of these methods works in simple terms.
Community Rated Pricing
This method is also called the no-age-rated pricing method. In this sort of Medigap Pricing, the premiums are the same for everyone. Age does not matter or count towards anything. Someone that buys a Medigap Policy Part D at 78 will pay the same premiums as someone that buys the same policy when they turn 65. The premiums do not go up as you age. However, they are affected by issues like inflation and economic stability.
Issue Age Rated Pricing
This is also known as the Entry Age Rated pricing method. It works by basing your premiums to the age you are at the point of buying your Medigap Policy. As such, older people tend to pay more for their policies that people that buy them when they are younger. If we consider the same scenario as the one above, then the person that bought the policy at age 78 will definitely pay a higher premium that the person who got theirs at 65. However, once set, age will not affect the premium, later on, only issues out of your control like inflation.
Attained Age Rated Pricing
This method calculated your premiums based on your current age, that is, the age you have attained at that moment in time. The duration you have had the policy for does not really matter. In the above case, the person paying the policy at 78 will definitely pay more than the one buying it at 65. However, each year, both of their premiums will increase by a certain value. Such a policy will always be the least costly at 65 but will be bleeding you dry by the time you get to your late 70s. the increments begin around the time you turn 68 and increment by around 1.5% up to 5% each year. There are some extreme policies that even increment twice annually. These are the policies you should always avoid.