Issue-Age Policy: What It is, How It Works

What Is an Issue-Age Policy?

An issue-age policy is a healthcare policy that has a premium rate that is dependent on the age of the individual who purchases it. Issue-age pricing frequently comes into play when pricing Medigap policies. These policies are more expensive for older individuals than for younger policyholders.

Once bought, the issue-age policy does not increase in price any further based on age. However, premium payments typically increase as the cost of healthcare services rises due to many factors. Many companies that offer Medicare Supplementary Medical Insurance (SMI)—also known as Medigap insurance—will use issue-age as one of the pricing models for the contracts they sell.

KEY TAKEAWAYS

• An issue-age policy is a healthcare policy with a premium rate that is dependent on the age of the policyholder.
• Typically, the older the policyholder, the more expensive the policy is.
• An issue-age policy does not increase in price after purchase, even as the policyholder ages, although premium payments may increase with the cost of healthcare services due to many factors.

How an Issue-Age Policy Works

Insurance providers who underwrite issue-age policies will tie the cost of the policy to an individual's age because, statistically, older policyholders are more likely to require medical treatment. 

All healthcare premiums will increase over time. Some of these cost increases are due to inflation and the ever-rising price of providing medical care. Others may point at regulatory changes and the end of insurance subsidies on both a state and national level as the culprit. 

Also, in some cases, a state may have only a limited number of providers wishing to underwrite insurance within their borders. This limitation will increase the risk to the providers because they cover a more substantial group of customers. Even the number of policies underwritten for lower-income individuals may increase the price of all policies a provider holds. Insurance providers continually update the profiles of the average claim risk they expect to experience by region and by age.

Because the United States, on the whole, is aging, the cost of caring for the total population will continue to increase. Medical underwriting will continue to play a role in setting premium prices. This system assesses the risk linked with providing health insurance coverage to an individual. The examination and analysis of medical information help the provider determine risk and set the premium.

Other Factors That Affect the Premium

Pricing Models for Yearly Premiums

However, another factor that may raise a policyholder's annual premium has a basis on the pricing method in use when the policy originated. Healthcare insurance providers use the following three primary pricing models when quoting yearly premiums for individual policies. Chosen deductibles and copay levels will also impact the premium regardless of the pricing method in use. Buyers must be aware of which system is in use as they compare insurance quotes from competing providers. 

Issue-Age Method

The issue-age method sets pricing dependent on a person's age at the time of the policy's underwriting and issuance. Premiums can increase for a variety of other reasons including the insurance provider raising all policies in a given state across the board. Issue-age pricing tends to be less expensive than other pricing methods. Younger policyholders will see the most benefit from issue-age policies if they expect to hold them for many years. ​​​​​​​

Attained-Age Premiums

Attained-age premiums begin like issue-age premiums—based on the individual's age at issuance. However, these premiums will increase as the policyholder ages. On average, this increase is about 1.5% per year, but some policies may see much higher premium increases due to health issues as well as the number of candles on their birthday cake.

Community-Rated Pricings

Community-rated pricing has a base premium, priced equally for everyone in the area with equal policy deductibles and copays, irrespective of age. The premium will not increase due to the age, gender, occupation, or medical underwriting history of the policyholder. However, it will increase with the across-the-board changes the provider experiences. Community-rating tends to be more expensive when policies begin but will balance out over time. In some situations, the beginning premium may be up to three times higher than an issue-age or attained-age premium. 

Employee or group insurance plans may also use experience-rating as a pricing method. The provider will review the group's claim history to predict if the group's future medical cost may increase. 

Medigap and Issue-Age Policies

Medicare and the American Association of Retired Persons (AARP) offer suggestions for those shopping for a Medigap policy. Both suggest taking a close look at your annual healthcare spending, each year and, as best you can, think about what our future health costs may be and list these also.

"Premiums can vary significantly by insurer," according to the AARP, "even though each plan with the same letter designation must have the same coverage." When shopping for a Medigap plan, AARP recommends first choosing the letter you want, and then comparing prices from different providers.

What Determines Premiums for an Issue-Age Policy?

With an issue-age policy, your premiums are determined by your age at the time you enroll. Once you are enrolled, the premiums do not change as you get older.

What Is the Difference Between Issue Age and Attained Age?

Unlike issue age policies, an attained age policy will have your premiums increase as you get older. This reflects the expected increase in medical costs and risks.

When Do You Have to Get Your Own Insurance?

In the United States, young people can remain on their parents' health insurance plan until they reach age 26. After that, they have to find insurance through an employer, a spouse, or on the marketplace. Alternatively, they can choose to remain uninsured.

The Bottom Line

An issue-age policy is a healthcare policy whose premiums are determined by the age of the insured when the policy starts. However, premiums may increase due to other factors, like inflation. Along with attained-age and community pricing, this is one of several pricing methods for health insurance.