Understanding the Difference Between Anniversary Rating and Next Renewal Rating in Medicare Supplement Policies
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.
This guide explains each method, shows how timing changes outcomes, and highlights when one approach may make more sense than the other.
What Are Anniversary Rating and Next Renewal Rating?
Anniversary Rating
New premium starts on the anniversary of a policy’s start date.
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.
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.
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.
Result: Since most Medigap members pay / renew monthly, the block moves to the new rate much faster.
The rollout speed isn’t just about revenue timing—it shapes member behavior. Delayed increases can pile up into sudden shocks, causing healthier members to drop coverage, worsening selection.
Why Timing Matters!
Imagine a 10% increase effective March 1 for a Medigap Plan G block:
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.
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.
Why Insurers Care: The Loss Ratio Lag
Loss ratio = claims incurred ÷ premiums earned. When losses run hot, insurers need premiums to catch up. Here’s where timing bites:
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.
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.
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.
So Why Use Anniversary Rating?
There are good reasons some markets and regulators favor it:
Consumer clarity: “Your rate changes on your policy anniversary.” Easy to understand, easy to expect, no mid-year surprises.
Regulatory preference: Some states encourage or require the anniversary approach, especially for older or legacy blocks.
Trade-off: It’s smoother for consumers but slower for course-correction when a block is underperforming.
Strategic Implications for Carriers and Consultants
If a block’s loss ratio is running high or claims are becoming more volatile, speed matters. Moving to Next Renewal Rating (where allowed) can:
Accelerate premium catch-up, improving margins sooner.
Reduce the need for big “catch-up” hikes later.
Stabilize results faster, which can help avoid adverse selection and high lapse rates that often follow large, delayed increases.
Ask three questions:
How urgent is the financial correction?
Urgent: Consider Next Renewal for faster impact.
Not urgent: Anniversary may be fine and more member-friendly.
What do regulators and your market expect?
If state rules or market norms point to Anniversary, plan around the lag (e.g., file earlier, monitor closely).
What’s the member communication strategy?
Anniversary = predictable, once-a-year rhythm.
Next Renewal = faster changes; requires clear messaging about timing.
Key Takeaways
Anniversary Rating spreads a rate change over 12+ months, aligning with each policyholder’s anniversary. It’s predictable for members but slow to improve loss ratios when performance is weak.
Next Renewal Rating applies the increase at the next renewal after the effective date, so the block transitions faster and financial results can improve sooner.
If rapid correction is needed, Next Renewal is usually more effective—subject to state rules and thoughtful member communication.
The choice isn’t just technical; it’s strategic. Done right, both methods can support stable pricing, healthier loss ratios, and better long-term outcomes.
Need a second set of eyes on your Medigap block? We help carriers and teams pick the right rating method, craft filings, and plan implementation to balance customer experience with financial performance. Let’s talk.
