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Why are Med Supp Policies Zip Code Rated?

Frank Stastny

5000 Post Club
Can anyone explain to me why Med Supp companies charge different premiums for the same policies in the same state based on the zip codes in that state?

In Missouri the premiums for the same policy are a lot more expensive in the St. Louis and Kansas City areas than they are in the rural parts of the state.

Frank Stastny said:
Can anyone explain to me why Med Supp companies charge different premiums for the same policies in the same state based on the zip codes in that state?

In Missouri the premiums for the same policy are a lot more expensive in the St. Louis and Kansas City areas than they are in the rural parts of the state.


My guess, and it's only a guess, is that the cost of care in the metropolitan areas is greater than in rural areas. The rates are the same here in Georgia. Metro areas are more expensive than the rural areas.

By the way, what carrier do you use for Med Supps?
I always tell people it is like car insurance, depends on the risk of the area. Kind of like Green Acres TV show, country living is clean living while city living is more hussle and bussle / stress.

That is initially what I thought also. It does sound logical.

However, after talking to a medical billing company I found out that what I though was logical doesn't hold water, not even syrup.

Medicare has one fee schedule, period! Only one for the entire United States!

It doesn't matter where, geographically, a patient goes to see a doctor, Medicare uses just one fee schedule do determine how much the doctor will receive.

Assuming my information is correct, it comes from a very reliable source, the companies who do the billing for doctors, then doctors in St. Louis get paid the same amount as doctors in Atlanta, GA, Durango, CO, Fulton, MO and the list goes on.

If Medicare is paying the same to the doctor regardless of where the doctor is located then the supplement company is also paying the same amount regardless of where the patient lives. In fact, a patient who lives in Fulton, MO, population 12,000, can go to a doctor in St. Louis yet the person living in Fulton will pay a lower premium for their supplement policy than the person living in St Louis who sees the same doctor.

In the process of obtaining this information I discovered something else that I didn't know. The Medicare Fee Schedule is the bench mark for what doctors charge their patients who are not on Medicare. The industry standard is for doctors to charge their non-medicare patients 200% of the amount on the Medicare Fee Schedule. However that is just the average, doctors can charge what ever they want.

I also learned what "Usual and Customary" (U&C) charges are. They are regional charges. A group of doctors in a rural area may be changing 150% of the Medicare Fee Schedule. This is considered the Usual and Customary charges for that area. However, in a wealthy urban area the U&C charges may be 300% of the Medicare Fee Schedule.

Doctors start with the Medicare Fee Schedule and then are at liberty to decide, based on that schedule, what they are going to charge the patients they see.


That is a good answer. However, one of the companies I sold for use to notify me every time a policy holder had a claim. (I have clients all over the state.) Granted, it is a very small sampling but I use to keep track of the claims each client had and if anything, there seemed to be more claims in rural areas than in urban areas.

I figured that was because doctors offices in rural areas are much closer and easier to get to for the patient. Doctors in rural areas also usually have a more intimate relationship with their patients making it much easier for the patient to get in to see the doctor.

My wife use to work in a doctors office in Fulton and if a patient wanted to see the doctor "today" the doctor made time to see that patient. Doesn't happen very often in an urban area.

If in fact your explanation is the one the companies would give, and it probably is, why didn’t the “bean counters” realize this from the beginning? Why was this all of a sudden was this such a revelation to them? Or did the risk of living in an urban area just "over night" become that much higher?

I guess it just aggravates me a little that all of a sudden, in the last few years, med supp companies decided to charge based on zip codes when not that many years ago the rates use to be the same state wide.

There, I feel better now. :D
One thing that sparked in my head after reading your post is the number of people they have in the plan.

If Company X has 100 members with plan F in St. Louis, and Company Y has 300 members, company Y has 2 things going on: more money coming in, but they are at greater risk of claims.

The more people use their insurance, the more it will cost. I think that the rural areas might have more claims, but they may be healthier, overall reducing the amount of claims. They may have more, but overall cost less.

I have held seminars in both rural and urban areas, and overall, the rural areas have healthier people, while the urban people are larger, and unhealthier. This is just what I have seen.

Picture this: A farmer. A slender male in overalls who is fit from physical labor. A businessman. An overweight man in a suit. He is that way from sitting behind a desk and pushing papers and sitting in meetings.

Not that it is accurate, but that does hold a little bit of water from what I have seen.
My guess would have to be something that has to do with claim experience. Probably the law of numbers has something to do with it. They can probably average out a certain amount of profit/claim expenses in the metro areas. Things could be shaky in the rural areas.
Claims experience. The actuarial sciences (yes there is actuarial science... one can even get a degree in it) have proved that urban/city policy holders will be more expensive. Follow premium diversions and you have rock solid proof of increased risk. As the years passed and technology grew data came more readily available.

This is one of the reasons I have an appreciation for community rated plans such as are offered in Arkansas.
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It's simply supply and demand. While the cost of the service may be the same, the frequency differs.

Proximity to hospitals, ER, etc. may allow an urban dweller to survive a heart attack and cost the company a bundle, but if they live in Toiletflush, MO (near your house Frank), then they probably die on the way to the hospital.

This really does not fully address the question because people living 2 miles from me pay more on their IFP plan than if then lives next door to me.

It doesn't really matter. Obama will correct his flaw in the system and level everyone at a rate nobody can afford.

State laws may also come into play....I have MoO and AARP plans memorized in my head its not hard in Maine where there is 1 rate per plan for the entire state regardless of age..ie Community Rating unfortunatly it has a side effect of very few carriers at this point.
In Kentucky, people just dip whatever is wrong with them in kerosene to see if that will cure it before they bother the doctor.

You think I'm joking...but I am not joking.