As professionals in our industry are uniquely aware, predicting and preparing for the future can be arduous tasks, even with technological assistance. Three years ago, many would have been hard pressed to predict the effects of the peak COVID pandemic years on the Medicare Supplement market. The pandemic impact continues to resonate: It remains a chief cause of unprecedented fluctuations in the market, telehealth has become more common, and demand for outpatient care has increased while hospital admissions have decreased.

With the phasing out of Plan F in 2020, Plan G has taken center stage and become a popular choice for new Med Supp enrollees. Along with a continued consolidation of the sales force and regulation adding more Guaranteed Insurability and Under Age 65 access rules, the market has been on a wild ride. Amidst these new changes, several familiar trends in the market have remained, with subtle changes and to different degrees than before.

This article presents premium rate and claims cost trends over the previous three years – and considers how these patterns impact industry loss ratios.

Data Overview

For the analyses, data sampled is from the 32 largest states by over-age‑65 population (excluding several states with unique regulations). (The complete list of included and excluded states is shown in the Appendix below.) Premium rates for carriers by state throughout this article are weighted across each state by over-age‑65 population by zip code, and all available discounts for carriers are included. Note that plan-specific figures shown in the text of this article only depict analyses for Plan G. (The same analyses for Plans F and N are included in the Appendix as well.)

Premium Rates and Plan G for Ohio – Tendencies for the Nation

We  will show that many of the patterns yet to be seen are driven by newer, more competitive entrants to the market. With that being said, Figure 1 uses data from the CSG Rate Database to show the change in rates for several of the most competitive carriers for Plan G in Ohio over the observation period June 2020 to June 2023. Note that the ranked carriers may not be the same carriers that bore the same position in 2020. Four of the observed six ranks for Plan G saw rates decrease over the observation period, with rates falling by no more than 2%. Further analysis shows that three ranks for Plan F rates decreased by 5% to 8%, and all six observed ranks for Plan N rates decreased by 3% to 8%.

It is worth noting that even the increases among ranks are still well below trend. In addition to these decreases in rates over time, the range occupied between rank 1 and rank 20 compressed by about $0.50 for Plan G, $10 for Plan F, and $5 for Plan N. From this rate comparison for Ohio, two trends emerge that apply to most of the other 31 states studied for this article, namely the tendencies for the lowest rates of in‑demand Med Supp Plans to decrease over time in each state, and for the range occupied between the 20 lowest rates to compress over time, making it more difficult as time goes on for carriers to differentiate themselves from competitors in their markets.

These tendencies are observable across the nation, as shown in Figure 2, which provides the number and percentage of states that see a decrease for each combination of plan and rank. The average change in rates of each combination is also given. Note that the rates for the first, third, and fifth ranks for Plan G decreased in most states by between 0.5% to 2% on average. For the remaining ranks of Plan G, many states saw those ranks increase over the period by between 0.5% and 3% on average.

Notice that most states lowered their rates for every rank of Plans F and N, and that the average changes were all negative and more extreme than for Plan G. As we can see, the few cases of competitive rankings for Plan G that have increased rates over the last three years are far from keeping up with medical trend over the same time period.

State-by-State Comparisons

Let us gain a better idea of the circumstances on a state-by-state basis by examining Figure 3, which shows how the fifth rank carrier of Plan G in each of the states studied has changed over the observation period. On a population-weighted basis, states saw the rates of their fifth-rank carrier for Plan G decrease by an average of 0.4%, with significantly larger average decreases of 2.7% for Plan F and 4.1% for Plan N. (See Appendix for Plans F and N.)

Additionally, note that the median change over this period is less than the weighted (and unweighted) average changes for each plan, with a median decrease of 1% for Plan G, 3.8% for Plan F, and 4.9% for Plan N. This implies a right skew of the distribution of states over this period, such that there are many states with small negative changes in average rate, while numerically fewer states saw average increases that were much larger and positive. Finally, among the states that exhibited extreme decreases over the period are Nevada across all plans, Maryland for Plan F, and Oklahoma for Plan N. States showing extreme increases over the period include Washington across all plans and Oregon for Plans G and F. Notably, these two states implemented birthday rules shortly before the prior study.

As the data shows, carriers in most states have been offering high-demand Med Supp Plans at rates lower than three years ago, or at least they have not kept up with trend. It may not come as a surprise, but these rates are being driven down by new entrants to a state looking to quickly command a competitive position. Indeed, further examination of Plans G, F and N (See Figure 4 and Appendix for Plans F and N.) show that, as of June 2023, three of the five carriers that offered the lowest rates for each of the states studied, on average entered that state on or after December 2021, as did six of the top 10 carriers.

Our discussion thus far has characterized the strategies of many entrants to the Medicare Supplement Insurance market over the past three years, so let us bring in a few more details to finish painting the whole picture.

Industry Loss Ratios

One would be correct in interpreting the rate patterns shown thus far as bad news for industry loss ratios. A more complete understanding of rate patterns comes from examining trends in industry loss ratios over the period 2017‑2022, derived from NAIC data. These loss ratios are for business written within the previous three-year period of each examined year (i.e., the 2022 loss ratio is obtained from business written between 2020‑2022; the 2019 loss ratio from business written between 2017‑2019, etc.).

Figure 5 shows these new business loss ratios with and without an adjustment during the years 2020 and 2021, which increases the 2020 loss ratio by 10%, and the 2021 loss ratio by 5%, with all other points on the adjusted curve remaining equal to the corresponding points on the unadjusted curve. These adjustments, obtained by considering information available from various sources, including the Gen Re Medicare Supplement Market Survey and experience data from the NAIC, aim to treat experience recorded during the years of the pandemic in such a way as to limit the effects these years may have on estimates of the future. According to Figure 5, the steady rise of loss ratios from 2017 to 2019 gave way to a fall in 2020 as a result of the pandemic, and by 2022 loss ratios have returned to pre-pandemic levels.

Figure 5 – New Business Industry Loss Ratios (2017‑2022)

Whichever way one may choose to estimate the effects of the past three years, we have shown that industry loss ratios have been on the rise on average. Taking the increases in new business loss ratios together with the mostly decreasing competitive premium rates, it is possible to deduce that the rates have not been able to keep up with costs over the years. So, competitive carriers of Med Supp enter new markets at lower rates to gain business, then operate at unfavorably high loss ratios as claims increase year after year.

Distribution of Loss Ratios by State

A final angle to consider is the distribution of loss ratios by state over the period. Figure 6 shows the number of states exceeding select loss ratios on newer business. By 2022, all but two of the observed states experienced a new business loss ratio exceeding 80%. Indeed, results here are as bad as or worse than they were before the pandemic: Half the states experienced loss ratios above and below 85% in 2019, while 21 of the 32 observed states experienced loss ratios above 85% in 2022.

Finally, only four states in 2019 had loss ratios above 90%, which has more than doubled to nine in 2022. We now hear a familiar story that has been told before in far fewer words: Claim cost increases, plus premium rate decreases, equal rising industry loss ratios over the past three years.

Conclusion

As these analyses reveal, familiar tendencies in market behavior persist through routine and unusual situations, including the recent pandemic. One may interpret the signs shown by these analyses in many ways, but some things remain certain: Close attention to market behavior and regulatory updates will be as crucial for running a successful Medicare Supplement Insurance program going forward as it has been in the past.

At Gen Re, we continue to monitor market behavior and the regulatory environment and will continue to share insights so we can prepare for the future together.