The Lowest Price Doesn't Tell the Whole Story
By John Francis Patrick O'Sullivan II
In 1985, the Yugo arrived in America with a headline-grabbing price of $3,990. It was cheap, it was different, and people noticed. In fact, 141,651 Yugos were sold in the United States from 1985 through 1992, with sales peaking at 48,812 in 1987.
Now let's talk about Toyota.
Toyota was playing in a very different league. In 1985 alone, Toyota produced more than 3.6 million vehicles in Japan and exported nearly 2 million vehicles. Its U.S. manufacturing presence was also taking shape through NUMMI in California, where production was fully underway during 1985.
So imagine you are standing in a dealership in the mid-1980s. On one side is the $3,990 Yugo. On the other is a Toyota backed by decades of operating history, millions of vehicles produced, and a growing manufacturing and support infrastructure.
Which one would you want to depend on for the road ahead?
Now, before someone says I'm telling you that the cheapest option is always the wrong option - I'm not. And I'm certainly not saying that paying more automatically gets you something better. The lesson is simpler than that: price is only one piece of the puzzle.
That is exactly how I look at Medicare Supplement insurance.
Medicare Supplement benefits are standardized by plan letter, but the insurance companies offering those plans are not all identical. Companies can differ in their history in the market, financial strength, rate experience, administrative resources and the way they service their policyholders. Those are the things I want to understand before I tell someone to look at price alone.
Today, consumers see Medicare advertising everywhere: television, mail, YouTube, Facebook, Instagram and other platforms. With so many messages competing for attention, it can be tempting to choose a familiar company name or simply select the lowest premium.
When I'm helping someone evaluate Medicare Supplement coverage, I believe there is more to consider.
Insurance companies and the markets they operate in can change over time. Companies may introduce new subsidiaries, change their product offerings, enter or leave markets, or experience changes in claims costs and financial performance. Premiums can also change for many reasons, including claims experience, healthcare costs, inflation, pricing assumptions and other market conditions.
No agent can predict with certainty what a particular insurance company or premium will look like 10, 20 or 30 years from now. What we can do is examine the information available today and use it to make a more informed decision.
What I Look At
When I'm looking at a Medicare Supplement company, I don't stop at the premium. I start asking questions.
How long have they been in the Medicare Supplement business? What does their financial strength look like? What has their rate history been? How do they handle claims? What do their loss ratios look like? And is the name on the policy actually the parent company people recognize, or an affiliated or subsidiary company?
None of those questions gives me a crystal ball. Put them together, though, and I have a lot more information than I would get by simply circling the cheapest premium on a rate sheet.
Understanding Loss Ratios
What does a loss ratio tell me?
A loss ratio generally tells me how much premium an insurance company is taking in compared with how much it is paying out in claims. It is one of the numbers I want to see when I'm trying to understand how a block of business is performing.
If I see a loss ratio around 90% or higher, it gets my attention and I start asking questions. Was the product priced too aggressively? Were claims higher than expected? Did healthcare inflation, COVID, changes in the insured population, or some other factor affect the results?
What I won't do is pretend that one number gives me a crystal ball. A 90% loss ratio does not, by itself, tell me why the ratio is high, prove that a company deliberately underpriced its product, or tell me what the company's next rate action will be.
The same goes in the other direction. A lower loss ratio does not guarantee future rate stability or automatically make one company better than another.
I want to see the loss ratio alongside the company's rate history, financial strength, experience in the Medicare Supplement market and other available information. One number can make me ask questions. The answers are what matter.
Can Premiums Increase?
Can premiums increase? Absolutely.
Past rate increases are part of the story, and I want to know that history. But history is not a promise about tomorrow. Future premiums can be affected by claims experience, healthcare costs, inflation, pricing assumptions, regulatory considerations and other market conditions.
I'm outspoken, but I'm not going to tell somebody I know exactly what an insurance company will do next year when I don't. What I can do is show you what has actually happened, explain the information we have today, and tell you what makes me raise an eyebrow.
What If I Want to Change Companies Later?
This is where the decision can get serious.
Under federal rules, after your one-time Medigap Open Enrollment Period, you may not be able to switch to another Medigap policy unless you have a guaranteed-issue right or an insurer is willing to sell you one. Depending on the situation and your state, medical underwriting may apply, and some states provide additional opportunities to change coverage.
That is why I don't like treating the initial decision like we're shopping for a gallon of milk. The company you choose can matter later, and I want clients to understand that before they sign an application.
The rules are not identical everywhere, so before somebody makes a move, I verify the rights and requirements that apply in that state and to that individual situation.
My Approach
Before recommending a Medicare Supplement carrier, I want to understand more than its current premium.
I review available information concerning financial-strength ratings, historical rate activity, Medicare Supplement experience, loss ratios and other factors that may help provide a broader picture of the company.
That doesn't allow me - or anyone else - to predict the future.
It does allow us to make today's decision using more information than price alone.
My goal is simple: educate you about the options available, explain the information we can verify, and help you make a decision you're comfortable with.
If you're concerned about your current Medicare Supplement coverage or would like to review your options, please call me at 863-214-3962.
John Francis Patrick O'Sullivan II
Sources
- UPI Archives, Nov. 21, 1985 - contemporary reporting of the Yugo's $3,990 U.S. price.
- Historical U.S. Yugo sales data - 141,651 vehicles sold from 1985 through 1992; sales peaked at 48,812 in 1987.
- Toyota Motor Corporation, 1985 production results - 3,665,622 vehicles produced in Japan and 1,979,955 vehicles exported in calendar 1985; Toyota reported that production at NUMMI was fully underway during the year.
- NAIC, Medical Loss Ratio - defines medical loss ratio as the share of premium revenue spent on medical claims and quality improvement; the article's 90% figure is presented as John's personal review threshold, not as a regulatory cutoff or predictor of future rate action.
Medicare.gov, Medigap guidance - standardized Medigap policies with the same letter provide the same basic benefits; federal switching rights are limited outside the one-time Medigap Open
