The 3 Most Important Factors in Choosing a Medicare Supplement
When deciding a Medicare supplement, there are 3 important factors to consider. These are rating of the company, how long they’ve been selling Medicare supplements, and average rate increase history. Premium of the plan is actually one of the least important factors as premiums can change rapidly over time. Below, we outline the details of each important facet.
Rating of the Company
Medicare supplement companies are rated by 2 rating agencies which are A.M. Best and Standard & Poor’s (S&P) and are given letter grades A through F. These letters describe the company as a whole including, claims loss ratio, customer service, and overall stability. We always recommend going with A+ rated companies when at all possible and would never go below an A- rating.
How Long A Company Has Been Selling Medicare Supplements
Many people confuse the year in which a company was established with how long they’ve been selling Medicare supplements in a particular area. These are 2 completely different things. Many companies have been established in the early-mid 1900s, yet may have only been selling supplements in a particular area for 2 years (Or selling a particular plan for even less!). We never recommend going with a company that’s been in an area for under 5 years. We feel this is a comfortable amount of time for the company to get a good sample size and see how their claims loss ratio affects future premiums and allow those premiums to stabilize.
Many companies will come in with low premiums to undercut the competition. Going with these new companies puts you in a guinea pig situation. It might work out, it might not. Why take the risk? We also find that newer companies have a policy fee associated with new enrollees. This should be an immediate red flag as the company is “buffering” their claims loss ratio and should be avoided.
Average Rate Increase History
Average rate increase history is perhaps the most important factor in your decision of which plan and company to go with and should hold a heavy weight. Again, we find newer companies in an area to have heavier rate increases than those that have been in the area 20+ years. Companies could have rate increases as high as 20% per year! We often find that the higher the rating of the company, the more stable over all. Especially in issue age states where you’re locked in at the age in which you get your policy. This could have a drastic impact on the amount of premium you pay over the course of your life time. Seeing as Medicare supplements require you to be underwritten to switch plans or companies, and we can’t predict what our health situation will be, stability of the company is key.
From this article, we hope it’s clear that premium alone is not enough information to make an informed decision of which plan and company to choose. Often, you will stay with the company and plan you choose for life. So make it a good choice!
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