A Case for Medicare Supplement Plans K and L
As the Medicare Supplement market continues to grow, we are expecting carriers to look for opportunities to differentiate their products from other carriers.
One easy way that this can be achieved is by offering plans that other carriers are not marketing today.
Two plans that we expect to get more attention are:
Plan K
Plan L
Plans K & L contain more cost-sharing than the other available Medicare Supplement plans.
As shown in the table below, these plans cover many of the same key benefits as Plan G and Plan N, but they cover them at a reduced rate.
In fact, the only benefit that Plans K & L fully cover is the Part A Coinsurance benefit.
Because of the increased cost-sharing on these plans, carriers expect to be able to offer coverage at lower premiums.
In addition to lower claims that are directly attributable to the increased cost-sharing, there is also an expectation that individuals that select these plans will be healthier than people that opt for plans that include a richer benefit structure.
Below is a comparison of sample premiums[i] for a Female Age 70 in three states where carriers have been successful marketing these plans. You can see that:
Plan K is priced roughly 60% lower than Plan G and Plan L
Plan K is available at premiums that are about 25-35% lower than Plan G
For individuals that are in good health status and appreciate the guaranteed renewable nature of Medicare Supplement, the premium savings should be a worthwhile trade-off.
Another compelling aspect of Plans K & L is the favorable loss ratio experience that they have generated.
After producing unusually low loss ratios in 2020 due to COVID restrictions, the Medicare Supplement market has seen steady increases in new business loss ratios.
The following chart shows the new business loss ratios as reported to the NAIC for calendar years 2019 – 2023[i].
You’ll see that even with the significantly lower premiums, the loss ratio experience for Plans K and L maintained a spread of 13-16% below Plan G.
Before adding Plan K and Plan L to a product portfolio, carriers will want to get comfortable with the two main drawbacks of these plans:
The plans are new to agents so they will need additional marketing support as they work with potential buyers. The cost-sharing structure will create more uncertainty for consumers, and it removes one of the biggest selling points about Medicare Supplement: you rarely see a bill from a healthcare provider! Overcoming this marketing obstacle will be key to successfully growing these plans.
Most companies offer a commission schedule that is based on a percentage of the premium. Since these plans have lower premiums, these schedules would have to be adjusted so that agents receive similar level of compensation on these Plans K & L as they receive on other plans today. Providing the right incentives on these plans will be crucial to getting agent buy-in.
Once carriers find a way to address these issues, adding these plans should be a clear win for their Medicare Supplement programs.
By offering these plans, companies will create a way to differentiate themselves from the competition and will be doing so in a way that helps improve the aggregate loss ratios on their block of business.
[i] Sample premiums obtained from CSG Actuarial on May 24, 2024
[ii] Experience sourced from the NAIC’s Medicare Supplement Insurance Experience Exhibit (2019-2023)
Interested in adding plans? TELOS Actuarial provides actuarial & compliance services to help you create and manage insurance products that sell.
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