Here is what you’ll find in this week’s newsletter!

1. Important links 🔗 - the best articles we found this week about the Medicare Market.

2. Deep Dive 📚 - This week we look at “The Birthday Rule”. A growing trend in the Medicare Supplement market. What is it, and what are the impacts?

3. Data Visual of the week 📊 - Data Visual highlighting the impact of OE/GI rules on competition in the Medicare Supplement market.

It’s only a 5 minute read, but it will make you 10x smarter.

Deep Dive 📚

Happy Birthday! Time to switch Medigap Carriers 🎂

The Birthday Rule and Medicare Supplement - a growing trend.

Over the past three years there have been six states (ID, IL, KY, LA, MD and NV) that updated their Medicare Supplement regulations to make it easier for customers to obtain new coverage. These states have all introduced some form of the “Birthday Rule” that was first implemented by California back in 2009. If history is our guide, then we can expect that there will be material changes in how these markets operate.

Reading this deep dive will help you understand why these regulatory changes are important. Before we jump into the details on what could happen in these states we are going to provide background information that will put these changes into context.

Background Eligibility Rules

When people become eligible to participate in the Medicare program they have two primary options for obtaining health insurance coverage.

1. They can sign up for Original Medicare and purchase a Medicare Supplement (“MS”) plan to fill in the gaps.

2. They can enroll in a Medicare Advantage (“MA”) plan (private version of Original Medicare)

Today over 50% of the current Medicare beneficiaries have elected to enroll in a MA plan. These plans are appealing due to low premiums, the ease of enrollment and the availability of ancillary benefits (gym memberships, meal delivery services and dental/vision).

Every year MA members can switch to any plan that is available in their county during the Annual Election Period that runs from mid-October to early December. During this window you will see a surge in advertising and solicitations as carriers are trying to attract new members into their plans. The key here is that the members can move between MA plans without underwriting.

After MA, the next most popular senior health insurance option is Original Medicare combined with a MS. Many Medicare beneficiaries will elect to enroll in a MS plan when they first become eligible at age 65. If they enroll at this time, then they have an Open Enrollment right that gives them access to any plan offered by any carrier and they are supposed to receive the best available premium rate.

With MS plans there is not a federal rule that allows policyholders to move in between plans every year. In most cases, if a policyholder is unhappy with their coverage, they would have to go through an underwriting process to switch to a new plan. For members with pre-existing health conditions, they may be stuck in a plan that they would prefer to replace.

This is where some states have diverged from the federal standards and implemented options to give policyholders more access to other coverage options. These expanded rights can range from the year-round Open Enrollment rules in New York and Connecticut to the “Birthday Rule” option that is available in many states. Click here for a free “Medigap Open Enrollment Guide” that details the rules for each state (brought to you by Telos Actuarial).

While we don’t know exactly what is going to happen in the states that are implementing new MS enrollment regulations, we can look at history to see what has happened when other states have implemented similar rules. There are two primary impacts.

Impact #1 - Reduced Competition

The last state to update their regulations was Oregon in 2012. This is when they added an annual Open Enrollment period for existing Medicare Supplement policyholders to exchange their policy for one offered by a competing carrier. This Open Enrollment window is based on the policyholders’ birthdate, so it is generally referred to as a “Birthday Rule”. 

One major impact that has followed the Birthday Rule implementation in Oregon is that there are fewer carriers writing new business. When the Birthday Rule was first introduced there were 31 carriers that were writing new business, now there are only 20 carriers. Meanwhile there are between 36 and 42 carriers that are actively selling MS in other similar states[1].

This aligns with feedback that we have received from operators in the MS market. Many don’t believe that they can successfully offer product in Oregon, specifically because of the impact that the Birthday Rule will have on the business. We have seen some carriers enter the market using a highly structured distribution system but this approach will severely limit the amount of business that is issued in the state. And after they experience three or four years of steady growth, their loss ratios deteriorated, and they had to implement higher-than-trend rate increases to bring the experience back in line with pricing.

See this week’s Data Visual (below) which highlights the impact of OE/GI rules on competition.

Impact #2 - Higher Premiums

Another interesting set of consequences of Oregon introducing the Birthday Rule is that the average premium is higher than in other markets. As carriers have adjusted to higher MS claim costs, they have had to increase their premiums faster.

This table compares some key statistics on the Medicare and MS market that help to illustrate the points above. It shows that average Medicare Expenditure per Beneficiary (Original Medicare spending) in Oregon is 75% of the national average while the average MS Plan G claim cost and premiums are 107% and 113% of the national average[2].

Closing Thoughts

While we agree with the idea of making health insurance widely available, we have seen that some regulations can have unintended consequences. In states that implement rules that increase access to health insurance we can expect to see higher claim costs, higher average premiums and fewer companies competing to earn business. 

What ideas do you have for expanding access to health insurance?

Are there new opportunities that regulators should be considering to help the consumers in their states?

[1] Alabama, Colorado, Kentucky and Louisiana were the comparison states. They states have Medicare enrollee counts of 920,000 – 1,090,000 and Medicare Advantage penetration rats of 49-55%.

[2] Source: CMS Program Statistics (2021) and NAIC Medicare Supplement Insurance Expérience Exhibit for Plan G (2022)

Data Visual of the Week 📊

This week’s Data Visual of the week shows the number of Medicare Supplement carriers writing new business by state. It highlights the decreased competition in states with year-round open enrollment and existing birthday/anniversary rules. States with new birthday rules will likely see a similar decrease in competition.

That’s it for this week. Let us know what you think.

• Too much detail?

• Not enough detail?

• Just the right amount of detail?