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2010 Medicare Supplement Winners & Losers

By Ron Iverson President and Executive Director
National Association of Medicare Supplement Advisors, Inc. (NAMSA)

Taken from the January 28, 2010 NAMSA Newsletter

It appears that the NAIC has confused Medicare Supplement company personnel with a few recently added lines in its Medicare Supplement Compliance Manual:

“The experience of all 1990 standard plans shall be pooled with the experience of all 2010 standard plans of the same letter designation for all rating purposes.”

Why would that confuse anyone? Well, as you know, sales of all current Medicare Supplement policies will cease on June 1, 2010, and a new series of Medicare Supplement policies will be introduced.

But, the original regulations led companies to believe that the “pools” of the old policy series products (by letter) would stand alone for future renewal rates, based on ongoing loss experiences. And, at the same time, the “pools” for the new policy series would stand by themselves for the future.

In other words, companies were to push the “reset” button regarding the old and new pools of rating and loss experience. Separate new premiums for the new series would be based on starting the new pool with supposedly profitable rates and no loss experience.

At least, that’s the way it seemed prior to a January 10, NAIC conference call. Now, the companies who did not file the new rates yet (and have them approved) must file rates with a “blend” of the 1990 standard plans (old loss experience) by state. This may not be a big deal, depending on the state, but there would seem to be winners and losers here.

(Bear in mind, the projections of “winners and losers” is based on my own interpretation of what will come down to us as producers.)

Winners…

1. Companies new to the Medicare Supplement ballgame will be able to file rates with no loss experience which would be needed to “blend in” with an old book of business. They get a three year “free ride,” so to speak.

2. New companies who can offer the “bells and whistles” of now-allowable riders, such as a small life insurance benefit, ambulance enhancements, dental, hearing or vision services. The new law allows for these riders, but whether or not companies will develop these “fascinating enhancements” during the next three or four years in order to gain market share--“Our product is better than yours”—remains to be seen. Hold your breath and stay tuned on this one.

3. Old Med Supp companies who can blend in the 1990 standardized experiences with the 2010 rates demonstrating that, by plan letter, the new rates are “blended” and in compliance. This seems fair enough, but may not be employed by a lot of companies.

4. Old Med Supp Companies who had new 2010 rates filed and approved per state before the new interpretation.

5. Companies who will now concentrate on promoting fairly new plans K and L, and new plans M and N, or high-deductible F, which probably have not developed more than a negligible loss experience.

Losers...

1. “Old” companies in the Med Supp business, who now must use 1990 standardized series loss experience in blending their 2010 rates to comply. Obviously, this will drive up the street rate for the new series and create an unlevel playing field for the old companies. This will have an impact on the old company’s rate structure, since they now must use the old loss experience (which may be expensive) in developing the new rate.

2. Old companies who planned on introducing new rider benefits, but now cannot because the rate blend creates a higher rate to begin with, in comparison with the “new” companies. In other words, “Hey, look, we can throw in some dental for you, and still have a lower rate than our competition asking for the same plan letter.”

3. Agents who are going to be asked to accept a cut in commission to help shoulder the burden. Haven’t heard much about this, but you can bet it will be coming.

4. Companies with “old” and existing books of business, which now cannot take advantage of “Fresh start pricing.”

5. Blending of 1990 and 2010 rates will create an ongoing imbalance for the existing companies. They, too, may have to develop new “shell” companies to find a way to deal with the imbalance.

I am not an alarmist, but this is real, and keeping up with developments of this nature is a function of NAMSA and the NAMSA Newsletter, and you need to be aware of these things. Your “post-June, 2010” marketing efforts will be a part of this. You may have to work a bit harder to promote your Long Term Care, Short Term Care, Annuity, Life and Final Expense and Single Premium Life efforts. I’m just sayin’...