Underwriting Medicare Supplement Plans
Before jumping into the Medicare Supplement market, companies must figure out the different risks and rewards to being in the business. There are a lot of factors to consider when looking at underwriting Medicare supplement plans. There are actuarial tables for rates, underwriting health questions to determine eligibility, state laws to comply with, federal regulated benefits to adhere to, and many other factors that go into underwriting Medicare supplement plans. This article should help people realize some of the risk factors that have to be considered.
Underwriting Medicare Supplement Plans - Actuarial Tables
This is probably the easiest of things for an insurance company to complete since they typically will pay an outside actuarial company to handle rate tables. However, prior to the actuarial figures there are many things that are needed:
- What states will the company be issuing policies?
- What are the underwriting requirements in those states?
Premium Rates & Rate Increase Strategy
What is commonly seen in the Medigap world is a company that comes out with a super low rate and everyone flocks to that plan (healthy and unhealthy). Once this plan becomes loaded up and the premium is on the books, claims start to hit the books. Then as claims begin to come in the low rate increases take place - sometimes these rate increases occur even when loss ratios are low to help prevent large increases the following year.
However, all you need is a few cancer patients or individuals with ESRD to have some high claims come in and raise the premiums for everyone on the group.
INSURANCE COMPANIES CAN NOT RAISE THE RATES FOR AN INDIVIDUAL!! THEY MUST RAISE RATES FOR THE WHOLE GROUP.
Introduce Different Medigap Plans
One strategy that was common several years ago which has not been seen recently was introducing plans A-G and then introducing alternative plans several years later after the Plan F & G had received high rate increases. This hit a high right before the 2010 Medicare Modernization Act, when the Plan J was popular; however, no company to my recollection has done this with the Plan N.
The purpose of this was for an insurance company to be able to stay in the state while being able to raise their rates on plans that needed rate increases. Certain plans are not Guaranteed Issue plans which helps prevent high risk individuals from coming onto these plans.
State Laws to Consider
Each state has different laws that must be followed when underwriting Medicare Supplement plans. You can view an article on our Medicare Insurance Finders website to see different MEDIGAP LAWS and how they vary state to state. These laws make it complicated for an insurance company to have a universal application that works in each state as well as having underwriters trained on general questions. Instead, they have to know and understand state specific laws.
An Example would be Tennessee asking their tobacco question in their health questions section of the application. This means that individuals in Open Enrollment who use tobacco get non-tobacco rates. An insurance company has to account for how many tobacco users are on non-tobacco rates because of when they signed up for their health plan.
To learn more about Medicare Supplement Insurance contact us at 1-877-759-5760.