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 along with links to Jared’s recent LinkedIn posts.

2. Deep Dive 📚 - The Math behind a $1 Billion Medicare Supplement Block

3. Compliance Chatter 📢 - KY Birthday Rule Guidance

4. Sponsor Snapshot 🚀 - brought to you by Telos Actuarial

5. Data Visual of the week 📊 - Data Visual showing share of physicians opting out of Medicare

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

DEEP DIVE 📚

The Math behind a $1 Billion Medicare Supplement Block 🔢

Last week we walked through the most important qualitative components of building a $1 billion dollar Medicare Supplement block of business.  

We looked at: (1) the impact that distribution partners can have on building your Medicare Supplement block; (2) how companies use multiple legal entities to keep the product fresh; (3) the level of commitment that is needed; and (4) the amount of time that can be needed.

Having these qualitative characteristics in place can put you on the path to building your very own $1 billion block!

This week we are going to demonstrate the math behind building that block of business. Specifically, we’ll answer two huge questions:

1. How big is the Medicare Supplement market?

2. What level of sales are needed to build a $1 billion block?

This week’s Deep Dive will be short on words but will get deep into the numbers!

1 - How big is the Medicare Supplement market?

The first step in quantifying how to build your $1 billion block is to look at the historical market size and use that as a guide for how the market could grow in the future. Estimating the future market size will let us know if it is reasonable to set a goal of building a $1 billion block.

The table below is taken from the 2023 edition of Telos Actuarial’s “The Future of Medicare Supplement” and it contains the necessary historical market data. If you’d like to get a copy of the full report, it is available here (for FREE!).

Key takeaways from this historical data:

• Total Premiums first exceeded $30 billion in 2017

•  Total Premiums grew by 3.2% per year over the next five years

• New Annualized Premiums were steady in the $4 billion range from 2020-2022

 This next table shows a 10-year projection of the same set of key statistics.

As you can see, the Medicare Supplement market is expected to grow from around $36.8 billion in premium in 2023 to $52.6 billion in 2032. This 43% growth in premium is driven by the increasing size of the Medicare beneficiary base (since the assumed penetration rate is relatively flat over the 10-year period).

Given the current size of the market and the expected future growth, it is reasonable that a company could successfully enter the Medicare Supplement market with a goal of growing to $1 billion of premium.

2 - What level of sales are needed to build a $1 billion block?

Now that we know the size of the Medicare Supplement market, we can build a model to establish sales targets that will generate $1 billion in annual premium.

The model should contain assumptions for persistency and growth in the average premium size. The model should also be able to stack multiple issue year cohorts so that you can see how the various layers of business contribute to the ultimate volume of premium.

The following chart shows a 10-year premium projection for a cohort of policies that are equivalent to $10 million of annualized new business premium (about 6,250 policies). Policies are assumed to be issued steadily throughout the year so that in the first 12-month period they generate about $5.3 million of premium. The projected premium then grows to $9.5 million in year two and declines from there.

Now that we have a baseline projection in place, we can scale this up to show how stacking multiple issue years can lead to larger premium volumes. This next chart shows what 3 years of issued policies looks like if a company generates $25 million of sales in year 1, $75 million in year 2 and $125 million in year 3. This block of policies is expected to produce $13 million in premium in year 1 that would grow to $210 million in premium in year 4.

So, if you can get to $210 million in total premium with just three years of sales, how long will it take you to get to $1 billion?

It turns out that if a company can grow their block so that it consistently produces $200 million of annual sales, then you would build a $1 billion block of business in 9 or 10 years!  This assumes the same first three years of sales as the chart above, then it increases to $175 million of sales in year 4 and $200 million of sales in years 5-10.

And there you have it - this is how you can build your very own $1 billion block of Medicare Supplement business. 

Consistent effort over time will help you grow the business from just $13 million of premium in the first year to $200 million by year 3 and $1 billion by year 9 or 10.

DATA VISUAL of the Week 📊

This week’s data visual comes from kff.org and shows how many physicians have opted out of Medicare.

If you’re ready, here are some ways we can help you:

• Newsletter Sponsorship opportunities: Promote your product or services to leaders in the Medicare space. Let’s discuss. (link)

• Market Research: Reports that help you wrap your arms around the Senior focused insurance markets. (link)

• Consulting: We can help you develop new insurance products for the Medicare market, appraise your books of business, and keep you compliant. Let’s discuss. (link)