How and when Medicare Supplement (Medigap) rate changes take effect can shape both the policyholder experience and the insurer’s financial health. Two common rollout methods—Anniversary Rating and Next Renewal Rating—sound alike but work very differently. The timing differences are a big deal: it affects how quickly premiums adjust and how fast a struggling block can get back on track.
Anniversary Rating
New premium starts on the anniversary of a policy’s start date.
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Example: If a policy has an anniversary on January 1, 2024, any approved increase effective later that year cannot hit until the next anniversary on January 1, 2025.
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Result: Each customer sees at most one change per year, tied to their own anniversary.
Next Renewal Rating
New premium starts at the next renewal after the insurer’s effective date for the increase.
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Example: If a 10% increase is effective January 1, everyone renewing on or after that date gets the new rate at their renewal, as long as the initial 12-month rate guarantee is met.
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Result: Since most Medigap members pay / renew monthly, the block moves to the new rate much faster.
Imagine a 10% increase effective March 1 for a Medigap Plan G block:
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Next Renewal Rating: On March 1, monthly premium payers see the increase immediately. By year-end, essentially 100% of policies have renewed and received the 10% increase. Premiums reflect the new level quickly.
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Anniversary Rating: Only customers whose policy anniversaries fall between March 1 and December 31 see the increase during the year. If a policy began in January or February, that member won’t see the new rate until the following year. It can take 12 months for a significant portion of the block to begin receiving the new rate, and 24 months for the increase to be fully realized.
Takeaway: Next Renewal speeds up the transition; Anniversary spreads it out.
Loss Ratio Lag
Loss ratio = claims incurred ÷ premiums earned. When losses run hot, insurers need premiums to catch up. Here’s where timing bites:
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Premiums rise slowly under Anniversary Rating. Only a slice of the block gets higher rates each month. Claims don’t wait, so results can look weak for months even after an increase is approved.
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Recovery takes longer. Because the premiums stay at the old rate level longer, another increase might be needed before the first one has fully impacted the block.
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Progress looks “invisible.” On paper, it can seem like the increase “didn’t work” yet—simply because most policies haven’t reached their anniversaries.
With Next Renewal Rating, more of the block reaches the new premium sooner, so loss ratios can improve faster.