If you're turning 65, odds are that you're tired of talking about age and could use a little less attention on that front. The usual comments from kids about age are played out. We understand. If you'll indulge us, there's one more instance we'll talk about age with a focus on Medicare supplement rates but this is important to understand as it might just save you some money over the long run. Hopefully, that got your attention. Let's turn our attention to age bands and how they work with Medigap plans.
First, what are age bands. With health insurance in general and Medicare supplements in particular, rates are generally based on three factors. First, there is your area and some parts of a State can be more expensive than others. It's generally just a few dollars (generally). The second influence is plan selection. This is obvious as each Medigap plan has different benefits...some richer than others. Finally, the factor that probably has the most impact on the cost you will pay monthly is your age. In health insurance's drive to make all things slightly more difficult than they should be, the term age band comes up. An age band is essentially a range of ages that all share a common monthly premium for a particular plan in a particular area. For example, age 65-69 might be an age band where everyone inside of that range will have one rate they will each pay. When you turn age 70, you would then jump into a new age band with a higher rate. Seems simple enough but that's just the beginning.
Different carriers have different ways of applying age bands and these differences can mask the true cost of going with any particular Medicare supplement insurance plan. For example, let's say you've just turned age 65 and you are shopping for a Medigap F plan. Your run your quote based on age 65 (of course) and you check out 3 companies. Company A will charge $120 for the F plan; Company B will charge $125; and Company C will charge $130 based on age 65. Company A's the way to go right? Maybe. Yes, the Medigap plans are standardized so the Medigap F plan benefits will all be the same but age bands might vary. For example, Company A may change the F plan rate each year so that age 66 will have a different rate, age 67 higher, and so on. Company B might change every 2 and 1/2 years so that you will pay more when you turn age 67 and 1/2. Company C might have a 5 year age band which means you can expect the same rate (outside of general annual rate increase which they all will likely experience) for the first 5 years. Now, that's a different story. How do we really analyze this comparison?
Take the average cost over the first 5 years based on the information we know. Obviously, we can't account for the expected rate increases but we can see what the rates are for the 5 year window and the higher out-year rates. Keep in mind that if a plan is priced way too low (below rest of carriers), it's probably going to have higher rate increases over the long term. The Medigap carriers are all dealing with the same basic risks since plan design is identical. Also, watch out for the carriers that give you discounts in the first year (or more) as they will have to make up for this later in the policy when you are more likely unable to change plans due to health issues. Basically, take a 5 year window across the age bands, aim for a solid Medicare supplement carrier with lots of experience in this market, and focus your attention towards the middle to low-middle rates for a good plan (like the F plan) and you'll be a master of the age bands.