Significant Medicare Supplement Insurance Premium Increases Raise Concerns

John Jaggi, a broker from Illinois, has been in the insurance business for decades, but he recently encountered an unprecedented situation. Last August, over 80 of his clients enrolled in a specific Medicare Supplement plan from Chubb faced a staggering 45% premium increase.

“In my 49 years in the brokerage field, I’ve never seen such an immediate premium increase applied to everyone, instead of waiting for the policy anniversary,” Jaggi remarked. Brokers across the board have been racing to find more affordable options for their clients since this coverage helps pay for deductibles and other costs not addressed by regular insurance. Without it, consumers might face unmanageable yearly expenses.

While a 45% rise is particularly striking, Jaggi and fellow brokers note that double-digit increases in Medigap premiums are becoming a worrying trend. A representative from Chubb did not respond to requests regarding the premium hikes.

Out of more than 12 million enrollees in traditional Medicare, around 43% possess Medigap insurance, which supplements their coverage. Some individuals rely on retiree benefits or other forms of backup. According to KFF, about 13% of those in traditional Medicare lack any additional coverage, potentially exposing them to significant costs if they encounter serious health issues.

In the supplementary insurance market, rates seem to be increasing again after a notable rise last year. Recent data indicates that prices for Plan G, the most commonly acquired supplement, could rise over 12% to more than 26% in the first quarter of this year, per the Nebraska-based consultancy Telos Actuarial.

Brett Machete, a consulting actuary at Telos, noted, “This is a limited data set covering a few states, but it suggests that insurance carriers are contemplating adjustments to their rates due to increasing claim costs.”

Premium Variability

Premium rates can differ by insurance type, the policyholder’s location, and age. For Plan G coverage, the beneficiary covers the premium. KFF reports that the average monthly premium for those enrolled in Plan G was $164 in 2023, but rates can range significantly. Some states, like Ohio, have seen year-over-year increases in premiums from 3% to 5% for years, but current rates have surged to between 10% and 15%, as mentioned by Amanda Brewton, who heads Medicare Answers Now.

In Alaska, Premera Blue Cross raised premiums for Plan G by nearly 12% this year, while another insurer hiked rates by almost 13%, according to Patricia Mack, an insurance agent.

For instance, a 65-year-old woman previously paying $172 monthly is now looking at a $192 charge, according to Mack. Courtney Wallace, a spokesperson for Premera, explained that Medicare updates its deductible and copayment rates annually, affecting the supplemental plans covering those costs.

Wallace also pointed out the increase in medical service usage among members, which exacerbates claims costs and, consequently, premiums. Various factors, including aging populations, rising healthcare costs, state regulations concerning Medigap plans, and shifts between Medicare Advantage and traditional Medicare, contribute to these rising premiums.

“Five years ago, it was uncommon for insurers to increase rates by over 10%. Nowadays, increases of less than that are the exception,” said Challen Jackson, vice president of government affairs at Integrity, noting a frequent occurrence of more than 20% hikes.

Mr. Jaggi, who co-owns Jaggi Petrie Insurance and Investments, managed to find alternative solutions for many affected customers but indicated that it wasn’t an easy task and anticipated further increases in costs.

“This is an astonishing hike,” he expressed, forecasting increases exceeding 15% among various insurers this year.

Experts suggest potential remedies, such as Congress setting limits on out-of-pocket costs for Medicare recipients and subsidizing Medigap insurance purchases. Senator Ron Wyden stated, “Traditional Medicare lacks out-of-pocket maximums, and it needs updating to safeguard guarantees for older Americans.” However, substantial changes requiring Congressional approval seem unlikely amidst the current legislative landscape.

Future Implications

Typically, individuals become eligible for Medicare upon turning 65, and they have a six-month window to enroll in traditional pay-as-you-go service programs and purchase Medigap plans at standard rates, without needing to answer health-related questions.

After this initial enrollment period, the options and rules governing enrollment and transitioning to Medigap insurance become significantly more restrictive, often leading to tough decisions.

In at least 16 states, there are provisions allowing Medigap enrollees to switch plans without undergoing medical underwriting around their birthdays—a rule designed to help consumers, especially those with existing health conditions.

Additionally, four states—Connecticut, Massachusetts, Maine, and New York—mandate that insurers provide at least one Medigap policy to all applicants year-round or during the annual enrollment period, regardless of medical history.

For those grappling with high Medigap costs, another avenue is to move to a private Medicare Advantage plan, which has out-of-pocket maximums. However, this typically limits beneficiaries to a specific network of doctors and hospitals. Returning to traditional Medicare after a year on a Medicare Advantage plan could complicate matters, as there’s just a 12-month window to buy a Medigap plan without health-related questions.

Brian Kaiser, a fellow at the Center for American Progress, cautioned that many don’t realize switching back to a Medigap plan after a year in Medicare Advantage could lead to being denied coverage or facing exorbitant premiums due to pre-existing conditions.

While there are exceptions, such as when a Medicare Advantage plan is discontinued, allowing enrollees to obtain a supplemental plan without answering health questions, more than 2.6 million individuals lost their Medicare Advantage coverage this year, largely because insurers exited the market. Some switched to other Advantage plans, but “around 440,000 enrolled in Medicare supplement insurance,” said George Dippel of Deft Research.

Every time an insurer signs up someone whose health status is unknown—whether due to state regulations or the withdrawal of a Medicare Advantage plan—the insurer often faces increased medical claims and costs, prompting them to raise premiums across the board.

Some brokers also suggest considering Medigap plans with higher deductibles, which carry lower monthly premium costs. Yet, as Mack mentions, “many people are hesitant about the $3,000 deductible.”