Medicare does not pay 100 percent of the costs associated with all medical services. Many beneficiaries choose a Medicare Supplemental Plan, known as Medigap, to help cover the balance of the expenses that primary Medicare does not pay. Medigap plans do have monthly premiums.
These supplemental programs are handled by private insurance companies who contract with Medicare. Federal and state laws govern the policy administration. However, the premiums for Medigap are not standardized by law. Each individual insurance provider determines its own premiums. The premiums can be based on community rates, issue age rates, or attained age rates.
Medigap premiums that are based on community rates have one set rate for every beneficiary in a given area. The rates may differ regionally and can be affected by economic conditions. However, the premiums will never increase due to the beneficiary’s age. A beneficiary who acquires coverage at age 75 will pay the same price as a beneficiary who attains the same coverage at 65.
Premiums that are rated by issue age are based on the beneficiary’s age when the policy was purchased. Persons who buy plans while they are younger will pay lower premiums, and beneficiaries who purchase plans when they are more advanced in age will be required to pay higher prices for their coverage. However, regardless of issue age, premium costs will not increase as the beneficiary grows older.
Medigap attained-age-rated premiums are determined by the beneficiary’s age when the policy is purchased and will continue to increase as the beneficiary ages. Buyers who purchase at a younger age will initially pay lower premiums, but the costs will rise with age. Older beneficiaries will pay more initially and continue to see premium increases as their age advances. Premiums associated with attained age may also rise due to other non-age-related factors such as inflation.