How are Medigap Premiums calculated? 7 Quick Facts

While Medicare Advantage prices do not tend to vary from person to person, there can be significant variation in the monthly premiums for Medicare Supplement plans. Read on to understand some of the factors that can impact the price you’ll pay for a Medicare Supplement plan.

1. Your age

Age plays a significant role in determining how much you’ll pay for your Medicare Supplement premiums. Insurers reason that the older you are, the more likely you are to become ill and claim services, so they price policies for older Americans accordingly.

Age is considered both when you first take out your Medicare Supplement plan and also as you age. If you take out a Medicare Supplement premium when you’re first able, usually at the age of 65, you’ll often pay less than someone who waited until the age of 80, for example. You can also expect your Medigap premiums to rise as you age.

2. Your location

Where you live may also make a difference in the amount you’ll pay for your Medigap premiums. The 2016 Medicare Supplement Price Index noted that men and women over 65 living in Manhattan were paying 68 percent more for their premiums than the lowest priced premiums in the country. Insurance companies consider average wealth in any area and charge what they believe residents can afford to pay.

3. Your gender

Some health insurance companies offer discounts on Medicare Supplement premiums for women. These firms reason that women typically live longer and thus pay more for their health coverage over the long term, so they can afford to reduce the monthly rate. Females also tend to enjoy better health and thus claim less because they’re more risk-averse.

4. Your smoking status

Studies show that smokers typically have more health complaints than nonsmokers, so it stands to reason that Medicare Supplement plans are costlier for smokers than for people that don’t smoke. A Kaiser Family Foundation report released in 2013 found that smokers typically pay 12 percent more every month for their Medicare Supplement plan premiums than non-smokers.

5. Your marital status

Discounts, commonly called spousal discounts or marital discounts, help entice couples to take out a Medicare Supplement plan with the same health insurance provider. The insurance provider benefits because it receives two new customers, and the married couple enjoys savings on their premiums. Discount amounts vary from provider to provider and can be significant.

6. Your relationship with the insurance company

Some insurance companies will also offer discounts to customers who utilize certain payment options or hold multiple policies with them.

It costs companies more to process monthly payments than yearly ones, so they will often pass on some of the savings to customers who opt to make annual repayments. It’s also easier and more cost-effective for businesses to handle funds paid electronically (rather than by check or credit card, for example), so some insurance providers will discount the premiums for people who prefer paying with electronic funds transfer.

Customer loyalty is worth a significant amount to any organization. Loyal customers usually remain customers for a longer period of time and tend to be less sensitive to price than casual customers, according to Forbes magazine. Loyal customers are also typically responsible for between 80 and 90 percent of positive referrals. Health insurance companies understand this, so they will often reward the loyalty of customers who take out multiple policies.

To save money, consider buying your Medicare Supplement plan from an insurance company you’re already using for something else. Don’t be afraid to ask for a multi-policy discount if one isn’t offered automatically.

7. Inflation and health care costs

Regardless of circumstances, Americans will usually see their Medicare Supplement plan premiums rising every year because of inflation and rising health care costs. Some health care insurance firms will raise their prices more than others depending on their individual company costs and loss ratios.

According to the Kaiser Family Foundation report, Medicare Supplement premiums across the United States rose by 13 percent on average between 2007 and 2010. That amounts to an annual increase of 4.1 percent, which is modest when compared to premium increases for individual health insurance plans.

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