Commentary by Bob Adams
About 10,000 people age into Medicare daily. A majority made their Medicare decision based on a low price or a snazzy advertisement. However, the question is, did they make the best decision?
There are three methods companies are allowed to use in positioning themselves, which determines current and future prices of a Medicare Supplement. One of my philosophies is, “all life is, is trade outs.” I’ll explain the positives and negatives, or trade outs, of each method.
First is the Community Based Rating. The negative is that the price will start higher because it is based on the total population of the state, meaning, included are counties that have much higher claims ratios, and everyone in the state helps to pick up those costs. For example, the average claim per person in Hamilton Co. is about 8 percent lower than Marion Co., but the premiums are the same for everyone. The trade out, rates increase at a much slower pace because the pool of people is huge. Historically, these plans increase at 4.7 percent each year and best fit folks who think they’ll live a long life.
Next is Issue Age Rating, which says, at whatever age you enter this plan, you will always pay that age premium. For example, if you start this supplement at 65, in 10 years, you will still be paying what a 65-year-old pays. The negatives? The premiums start higher, and the pool of people is smaller, as they’re based on zip codes. However, the premiums raise slower also, typically less than 6 percent.
Third is Attained Age Rating, which a majority of supplement plans use. Your primary benefit, and what the salesperson is going to tell you, is “our rates are among the lowest in your area,” which is true. The trade out, because these are based on zip codes (or a small pool of people) and increase each year with your age, the rate increases can be hefty. Recently one of the big names in the state took consecutive annual increases of 15 and 16 percent, but 8 percent is normal. If you have a short life expectancy, say 10 years or less, this would be a good choice.
Bottom line is, if you are working with an agent, and they aren’t telling you about how their rates are adjusted, find a different agent – one that will help you make a good decision. It could save you thousands of dollars.
Bob Adams is the owner of Robert Adams Insurance in Noblesville. For more, visit www.robertadamsinsurance.com or call 402-3171.