Medicare Supplement Birthday Rule: a Disappointing Surprise?

Introduction to Medicare Supplement

Medicare Supplement, commonly known as Medigap, is a type of private insurance designed to bridge the gaps in original Medicare coverage. These gaps often include out-of-pocket costs such as deductibles, copays, and coinsurance, which can add up quickly and become a financial burden. Medigap plans come in various types, each offering a unique set of benefits and coverage levels to suit different healthcare needs and budgets.

Understanding the different Medigap plans is crucial for Medicare beneficiaries. For instance, some plans might cover additional services like foreign travel emergencies, while others might offer lower premiums but higher out-of-pocket costs. By familiarizing themselves with these options, beneficiaries can make informed decisions that best align with their healthcare needs and financial situation. In essence, Medigap plans provide a safety net, ensuring that unexpected medical expenses don’t derail one’s financial stability. Medigap Seminars is dedicated to educating clients about their Medicare options, ensuring informed decision-making.

Understanding Medicare Part B and Part A

Medicare is a comprehensive program divided into several parts, each covering different aspects of healthcare. Medicare Part A, often referred to as hospital insurance, covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home health care. On the other hand, Medicare Part B, known as medical insurance, covers doctor visits, outpatient care, medical supplies, and preventive services.

Medicare Part C, or Medicare Advantage, offers an alternative to original Medicare. These plans are provided by private insurance companies and often include additional benefits such as dental, vision, and hearing coverage. Medicare Part D focuses on prescription drug coverage, helping beneficiaries manage the costs of their medications.

Understanding how these parts work together is essential for navigating the complex healthcare system. For example, while original Medicare (Parts A and B) provides broad coverage, it doesn’t cover everything. This is where Medigap plans come into play, filling in the gaps and providing more comprehensive coverage. By grasping the nuances of each part, beneficiaries can better manage their healthcare and ensure they have the coverage they need.

What is a Birthday Rule?

A Birthday Rule is a general term for a state law that overrides Medicare and creates a window of time annually where a person can switch Medigap plans or insurance companies without medical underwriting. The Birthday Rule allows beneficiaries to switch their supplemental insurance without going through the underwriting process. The insurance company must accept your application.

Some states call this an Anniversary Rule with the window of time to apply for a supplement around your current Medigap policy anniversary. Beneficiaries must stay with the same insurance carrier to take advantage of the Birthday Rule.

The Birthday Rule allows beneficiaries to switch to plans with fewer benefits without going through medical underwriting. This means that beneficiaries can change their Medigap plans without facing the typical restrictions associated with pre-existing conditions.

The state’s birthday rule allows beneficiaries to switch to a plan of equal coverage. This flexibility ensures that beneficiaries can adjust their coverage to better suit their needs.

The benefit of the Birthday Rule is that it allows beneficiaries to change their Medigap plan annually. This provides an opportunity to reassess and adjust coverage based on changing health or financial situations.

The Birthday Rule eliminates the waiting period for switching Medigap insurance. This means beneficiaries can change their plans without delay.

Beneficiaries with health conditions should consult their department of insurance for more information. This ensures they understand the specific regulations and options available to them.

The Birthday Rule is subject to specific rules and allows switching to plans with equal or lesser coverage. This ensures beneficiaries have the flexibility to adjust their plans without facing unnecessary barriers.

Beneficiaries can switch to a new insurance plan with equal or lesser coverage. This provides an opportunity to find a plan that better meets their needs.

Beneficiaries enrolled in a Medicare Advantage plan cannot switch back to Original Medicare. This restriction is important to understand when considering coverage options.

Switching to plans with the same or lesser benefits does not require health underwriting. This makes it easier for beneficiaries to adjust their coverage without facing medical assessments.

Medigap enrollees can switch to a new plan during the Birthday Rule window. This provides an annual opportunity to reassess and adjust their coverage.

Beneficiaries must stay with the same insurance carrier to switch from their current plan. This requirement is crucial for taking advantage of the Birthday Rule.

Each state has its own rules for switching from traditional Medicare to Medigap. Understanding these state-specific regulations and how HSAs interact with Medicare is essential for making informed decisions.

Medigap policyholders have a 30-day window during their birthday month to switch plans. This designated period provides flexibility for adjusting coverage.

Beneficiaries can switch to a supplemental insurance plan of equal or lesser value. This ensures they can find a plan that meets their needs without facing additional underwriting.

Why are there Birthday Rules?

On an annual basis, 15% to 20% of Medicare supplement policy applications are rejected due to pre-existing medical conditions.  In most states, those people with serious critical or chronic illness cannot change their Medicare supplement because of their health. 

The birthday rule gives them that opportunity.

Now, while a birthday rule sounds warm and fuzzy and would make such a nice feel good law to force evil insurance companies to help the disadvantaged, the truth is that Birthday Rules are double Edged sword that do more harm than good.

I will explain why and share some great examples in a moment.  We are going to have some fun with this one.

An important problem is that state legislatures often think there are no unintended consequences for their feel-good laws.  They usually think that because Medicare Advantage plans have no medical underwriting, Medicare supplement plans should too, so in the words of the great Jean Luke Picard, captain of the Enterprise, they “make it so” with a new law.

 Medicare Advantage Plans are subsidized by you and I, the U.S. taxpayer.  They are financially compensated monthly by The U.S. Government to accept everyone who applies. 

Medicare supplement plans do not enjoy such taxpayer funded compensation. 

The result, while the 15% or 20% of people who have health issues can make changes, everyone, all 100% of the people who have or want a Medicare supplement in that state will pay higher rates.  Everyone is harmed.

Studies show that on an annual basis, Medicare supplement rate increases in states with Birthday rules are 15% to 20% higher than states without those rules.   That is annually, and compounds out to be a significant difference over time.

In some cases, the prices in Birthday rule states are so high that the people the legislation was trying to help can no longer afford a supplement.   They are priced out of the market and pushed into zero premium Medicare Advantage plans.

Why do Medigap Premiums Increase?

I showed in my last video on Massive Medicare supplement price increases <insert thumbnail in upper right> that the insurance companies will often solicit underwritten business in order to improve the average health of their Medicare supplement pool.  People that can pass medical underwriting are healthier than those that cannot, so targeting that group helps to stabilize the policy premiums.

Well, when the state has a Birthday Rule, the insurance company is knee capped.  They can’t solicit healthy people because everyone waits for their birthday rule window and the insurance company has no idea if they are healthy or a massive healthcare expense.   As a result, the insurance company is  forced to increase their rates and charge everyone as if they were unhealthy.

It typically takes two to three years or so after the implementation of a birthday rule to start to see the impact on prices.  But let’s take a look at a few real life examples.

Let’s start with Idaho, who recently made two changes to their rules on Medicare supplement plans.   Pay attention to this…it’s classic

That means that all Medicare supplement plans offered in Idaho were priced using the Issue Age model.  In my opinion the most consumer-friendly pricing models. 

Issue Age means that you will always pay the price for the age you were when you were first issued the policy.   If you bought your policy at age 65, you always pay the age 65 rate.  That rate can increase over time, but your premium will be whatever other people that age are paying.

There was No birthday rule.

At the start of the year 2022, a 65 year old man in Boise Idaho could purchase a Plan N at $117 / month, then pay the age 65 year old rate the rest of their life.

If you waited until age 85 to purchase a Plan N supplement, it would cost you $162 / month.

In February 0f 2022 state legislature introduced a Birthday rule and made all new Medigap Plans Community Rated so that when you switched plans your age was not factor in the price.

Today, just three years later, at age 65 a man can buy a Plan N and will need to pay between $162 and $180 / month…at age 65.  $162 a month instead of $117.

In addition, one in four Medicare supplement insurance companies in Idaho stopped offering plans in that state.  Now consumers have fewer choices.

Because their state government stepped in to “save them”, Idaho residents turning age 65 will pay more than some of their peers would ever have to pay, ever, before the government saved them from the evils of capitalism.

Way to-go Idaho legislature.  You get the trophy for stupid mistakes.  Don’t worry, seven other states are trying hard, as I speak, to take that trophy from you.  I am sure one will win that trophy from you soon enough. 

How the Birthday Rule Works

The Medigap Birthday Rule is a provision that allows Medicare beneficiaries to switch their Medigap plan to another plan with equal or lesser benefits without undergoing medical underwriting. This rule is available in certain states and provides an annual opportunity for beneficiaries to reassess and change their Medigap coverage based on their current healthcare needs and financial situation.

Typically, the birthday rule offers a 30-day window following the beneficiary’s birthday to make a switch. During this period, beneficiaries can enroll in a new Medigap plan without being turned away due to pre-existing conditions or medical history. This flexibility is particularly beneficial for those whose healthcare needs have changed over the year or who have found a more affordable plan that better suits their situation. By allowing these changes without the hurdle of medical underwriting, the birthday rule ensures that beneficiaries can maintain appropriate and cost-effective coverage.

Guaranteed Issue Right

A Guaranteed Issue Right, also known as Medigap protection, ensures that an insurance company cannot deny a beneficiary a Medigap policy or charge them higher premiums due to pre-existing conditions or medical history. Similarly, the Medicare Hold Harmless Provision ensures protection for Social Security Income (SSI) recipients from increased Medicare premiums. This right is typically available during the initial open enrollment period or in specific situations where the beneficiary’s health coverage changes, such as losing other health coverage or moving out of a Medicare Advantage plan’s service area.

With a Guaranteed Issue Right, beneficiaries can enroll in a Medigap plan without answering health questions or undergoing medical underwriting. This protection is crucial for those with pre-existing conditions, as it prevents insurance companies from denying coverage or imposing higher premiums based on health status. By guaranteeing access to Medigap policies, this right helps ensure that all beneficiaries can obtain the supplemental coverage they need to manage their healthcare costs effectively.

Birthday rules help the few at a cost to everyone.

Just a few years ago there were only nine states that had birthday rules.  Today there are seventeen states and seven other states who have proposed laws in legislature.

I will scroll on one side of the video screen those states with current birthday or anniversary like rules, followed by those states with proposed legislation.

Prior to I will scroll on one side of the video screen those states with current birthday or anniversary like rules, followed by those states with proposed legislation.

Benefits of the Medicare Birthday Rule

The Medicare Birthday Rule offers several significant benefits to Medicare beneficiaries. Firstly, it provides an annual opportunity to reassess and change Medigap coverage based on current healthcare needs and financial situation. This flexibility allows beneficiaries to switch to a plan with equal or lesser benefits without undergoing medical underwriting, which can be a significant advantage for those with pre-existing conditions.

Additionally, the birthday rule can help beneficiaries save money by allowing them to switch to a more affordable Medigap plan. For instance, if a beneficiary finds a plan that offers the same or better coverage at a lower premium, they can make the switch during the birthday rule window without the fear of being denied due to their medical history. Overall, the Medicare Birthday Rule is an important protection for Medicare beneficiaries, providing them with more flexibility and control over their healthcare coverage, ensuring they can adapt their plans to meet their evolving healthcare needs and financial circumstances.