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How are Medicare Supplement Plan Premiums Calculated?

Updated: December 27, 2023
By: Jonathan Trout
Jonathan Trout
Content Manager
Jonathan is a former product and content manager for Retirement Living. His background spans sales/marketing, finance, and telecommunications. Jonathan’s expertise in consumer wellness and research-backed data stories helped educate seniors on financial planning, retirement, and community resources. Jonathan graduated from Oklahoma State University with a B.S. in Environmental Sociology.
Content Manager
Edited by: Jeff Smith
Jeff Smith
Sr. Content Manager
As Retirement Living’s senior content manager, Jeff oversees the product and publishing of all retirement, investing, and consumer wellness content on the site. His extensive expertise in brand messaging and creating data-driven stories helps position Retirement Living as a top authority for senior content and community resources.
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We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact or 1 (877) 486-2048) 24 hours a day/7 days a week to get information on all of your options.

Medicare plans themselves, specifically Medicare Part A and Medicare Part B, have premiums set by the government. However, Medigap, or Medicare Supplement plans, have rates that are different as they are offered by authorized private insurance companies and have different coverages available.

What is a Medicare Supplement Plan?

Medicare supplement plans are partially standardized plans offered by private companies under Medicare rules that pay for some of the costs Medicare normally doesn’t cover – things like copays, coinsurance, and deductibles. These plans work with Medicare Part A and Part B and are not stand-alone plans. Through federal law and Centers for Medicare and Medicaid Services (CMS) regulations, these Medicare supplement plans, sometimes called Medigap policies, are partially standardized but issuing companies can add some extra services and set their own rates. The plans are designated by letters of the alphabet, A through N, but companies do not have to issue all plans.

How are Medicare Supplement Plan Premiums Set?

Medigap pricing methods

Source: Getty

There are three main methods that Medicare supplement plan companies use to set their rates. These are community-rated (no age-rated), issue-age-rated (initial age-rated), and attained-age-rated. Even when companies use the same rating method, the actual premiums will likely vary widely between the companies.

  • Community-rated: Community-rated premiums are the simplest method of calculation. This method does not use age as a factor in determining premium costs. Instead, one calculation is applied to everyone the company sells a plan. The price calculation often includes things like total benefits paid in previous years, expected increases in health care costs, and inflation but does not include factors related to an individual policyholder. Whether you are 65 or 72, the price for the policy will be the same. However, community-rated premiums will be different from company to company.

  • Issue-age-rated: Issue-age-rated works like community-rated except that it does take age into account when determining premiums, but only your age at the time you bought the policy initially. This means that premiums will be cheaper if you purchase a Medicare Supplement policy at 65 than at age 72. Under this type of calculation, premiums will not rise due to increases in age as long as the policy is renewed without a gap in coverage. However, premiums might rise due to other factors such as increased healthcare costs overall and inflation.

  • Attained-age-rated Attained-age-rated policies calculate premiums like community-rated policies plus consider your current age. This means that your initial premium will vary based upon the age when you first bought the plan and the premium will then rise yearly as you increase in age. These policies can have further increases due to inflation and other considerations as well, so increases from year to year will likely not be consistent.

Other Factors That Affect Your Medicare Supplement Plan Premiums

In addition to which rating policy Medicare Supplement plan companies follow, there are other factors that can drastically influence Medicare Supplement plan premiums. Some of these are discounts, medical underwriting, high deductible plan options, what state you live in, and extra coverages offered by the company.

  • Discounts: Many companies that sell Medicare Supplement plans offer discounts to people in groups they feel are likely to use the insurance less and/or are most likely to pay premiums in a timely manner and are therefore particularly desirable as customers. Some common groups offered discounts on Medicare Supplement plan premiums are nonsmokers, women, married people, those who pay premiums in a lump sum annual payment, or those who set up automatic bank drafts for paying monthly premiums.

  • doctor and patient

    Source: Getty
  • Medical Underwriting: There are some instances when the Medicare guaranteed issue does not apply to Medicare Supplement plans, such as if you are outside the Medigap open enrollment period. When this happens, companies may choose to use your personal medical history to determine how much you will utilize the benefits of the plan and charge you more or less based on your medical history. The best way to avoid this possibly drastic cost increase is to ensure you purchase your plan when covered by guaranteed issue.

  • Extra Benefits: Some companies offer extra benefits above and beyond the required benefits set by CMS. Any added benefits above and beyond those required by CMS are likely to increase the plan premiums.

  • Plan Letter: The standardized Medicare Supplement plan offerings vary in benefits and coverages, so your premiums will vary based on the plan letter you select, reflecting the differences in benefits.

  • Plan Modifiers: Companies are allowed to offer Medicare Select policies that require you use a specific network of doctors and high deductible options (Plan F only) that require you pay $2,240 (amount set by CMS) in deductibles before the plan makes any payments. Both of these plan modifier situations will likely reduce your monthly premium rate, but consumers should be aware of how these modifiers affect the plan coverage.

  • Your State: Certain states have extra rules and regulations on Medicare Supplement plans that can drastically change your premiums (up or down). Three states with the most changes are Massachusetts, Minnesota, and Wisconsin.

Ask These Questions When Comparing Medicare Supplement Plan Policy Costs

There are a lot of Medicare Supplement Plans available, so it’s important to compare the same plan across multiple companies. For example, if you’re looking at Plan C, compare Plan C plans across multiple insurance companies. Here are a few questions to ask when shopping around:

  • How are your policies priced (issue-age rating, community-rating, attained-age rating)?

  • How often will the premium increase as I age if the policy is attained-age rating?

  • What’s the premium amount for my age?

  • Has the premium increased over the last few years due to inflation or other factors?

  • Do you offer discounts?