Page 3 - Cover Letter and Evaluation for Bob O'Connell

Medigap premiums from the North Carolina Department of Insurance and CSG Actuarial are
shown in the appendices. The premium comparisons from the North Carolina DOI have
separate categories for companies that use an issue-age rating approach and those that use an
attained-age approach.

In theory, a company that uses the issue-age rating approach sets its premiums higher initially
to account for future age-related increases. The attained-age rating, which most insurers use,
means that companies raise premiums about 3% for each year of age. In addition to that age-
related increase, they add some amount for health inflation. When a company uses the
attained-age approach then, its initial premiums should be lower than issue-age policies, but
they are likely to increase more quickly because of the annual age adjustments.

That’s the theory. But it often doesn’t hold up because so many factors other than age can
affect premium increases – companies’ overhead, loss ratios, etc. So, even though issue-age
premiums should be higher to start with, as you can see in the appendices, they are sometimes
lower than attained-age premiums.

Also, one insurance company – United Healthcare/AARP – uses a community rating approach
which does not take age into account. But to make their rates competitive with those of other
insurers, the UnitedHealthcare policies offer early enrollment discounts for younger retirees, as
explained below.

Besides the premiums from the North Carolina DOI, premiums are listed from CSG Actuarial, a
service used primarily by insurance agents. Some premiums in the CSG lists may be lower than
you can get because the commissions may not be included (unfortunately, there’s no way to
filter these out or for me to know which ones they are). Most of these premiums, though,
should be close to current quotes.

CSG Actuarial’s premiums can be helpful in a couple of ways. First, they can serve as a starting
point to identify the companies that have lower premiums; second, these quotes also show the
insurance companies’ financial ratings by A.M Best and (for the larger companies) Standard &
Poor.

Discounts

Insurance companies that sell Medigap policies offer discounts of various kinds, shown in the
attachment from the North Carolina Dept. of Insurance that lists each company’s phone
numbers and discount policies.

Some companies, for instance, have discounts for automatic debit payments of monthly
premiums or for paying for a year’s premiums in advance. The largest discounts are typically
available when both spouses buy their policies from the same company. While not all

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