Cutting health care costs is high on the Congressional radar as a way to reduce the federal deficit. One of the many proposals being considered is restricting the benefits a Medigap plan can pay, as many plans pay Medicare’s deductibles and unlimited copayments. Another proposal is taxing people who have this coverage. Yet, shifting costs to beneficiaries is shortsighted. Fifty percent of Medicare beneficiaries with Medigap plans have annual incomes of less than $30,000. Increasing their out-of-pocket costs would both be harmful and lead to increased costs elsewhere in the system.
Some policymakers believe if beneficiaries have “more skin in the game,” meaning they have to pay for their own care, they will use fewer health care services. Yet research shows that rather than saving money, this strategy shifts costs from early care to delayed, higher-cost acute care later on. Beneficiaries already have plenty of “skin in the game” with significant Medigap monthly premiums to protect them from unlimited out-of-pocket Medicare costs, Medicare Part B and D premiums, and Part D copayments that cannot, under federal law, be covered by other insurance. Medicare beneficiaries pay substantially more out-of-pocket costs as a percentage of their income than younger people. Proposals to increase their costs are shortsighted and dangerous for all but the wealthiest of beneficiaries.
Below is a list that CHA is distributing to educate others on the facts around Medigap, including: who uses these policies, the Medigap insurance market, the regulation of Medigap, the proposed cost-shift to beneficiaries, and the flawed assumption that having insurance benefits causes Medicare beneficiaries to use large amounts of unnecessary medical care. We encourage our readers to use this information to help others understand how Medicare beneficiaries could be impacted by changes being proposed by federal policymakers.
Also, see our recent press release and Congressional testimony (PDF) before the U.S. House Committee on Ways & Means on this topic.
PRIVATE MEDIGAP INSURANCE: FACTS YOU SHOULD KNOW
Facts About The Policyholders
- Ten million Medicare beneficiaries (18%) purchase a Medigap policy to provide financial predictability and security for future Medicare cost-sharing requirements. Many are on fixed incomes and chronically ill.
- Thirty-two percent (32%) of all Medicare beneficiaries with Medigap live in rural areas and choose Original Medicare and Medigap to meet their health care needs.
- Thirty-three percent (33%) of all Medigap policyholders and 36% of rural Medigap policyholders have incomes under $20,000.
- Fifty-four percent (54%) of all Medigap policyholders and 62% of rural Medigap policyholders have incomes under $30,000.
- Medigap policyholders pay significant out-of-pockets amounts per year for: Medigap premiums, Medicare Part B premiums, and Medicare Part D Prescription Drug Plan premiums. This is “skin in the game.”
- Other Medicare beneficiaries have cost-sharing covered by Medicare Advantage plans (29%), employer-provided retiree plans (30%), Medicaid (14%), and other (1%). About eight 8% have only Original Medicare.
Facts About The Medigap Insurance Market
- Medigap insurance is offered and sold by over 200 private insurance companies. Medigap is primarily offered and sold as an individual insurance product (about 80% of the Medigap market).
- AARP is the “sponsor” of a group association Medigap product and contracts with an exclusive health insurance provider for Medigap coverage that is offered only to its members.
- Any Medicare-eligible person age 65 or older can purchase a Medigap policy because there is “open enrollment” for the first 6 months, and “guarantee issue” for certain events when other coverage is lost.
- Medigap plans are standardized and all plan types provide “catastrophic” hospital coverage for one-year of Medicare Part A benefits when a policyholder “exhausts” Medicare hospital benefits.
- Medigap policyholders are not “locked in” to their coverage. A Medigap policyholder can continue coverage by timely paying premiums, or can change to Original Medicare only, or change to Medicare Advantage.
- Over $17 billion is paid directly to health care providers from Medigap benefits for Medicare cost-sharing. Without Medigap coverage providers would need to bill and collect cost-sharing amounts directly from beneficiaries.
Facts About The Regulation of Medigap
- Medigap insurance is “guaranteed renewable” under federal and state law and is renewed with each premium payment. By law the renewed benefits and contract terms must continue and cannot be changed.
- Federal law establishes minimum requirements for standardized benefits and loss ratio requirements (individual and group). Insurance agents sell Medigap one-on-one in a long-established market and are paid on commission.
- The NAIC establishes a Model Regulation for Medigap that is part of the federal minimum standard. The Model provides specific benefit plans, marketing and disclosure standards applicable in all states.
- States can and do add additional requirements to these federal minimum standards. States license and monitor the financial stability and activities of Medigap insurers, and the licensure and activities of agents.
- The AARP product must meet all federal and state standards for benefits and loss ratio requirements the same as all other Medigap plans. AARP as the “sponsor” imposes additional requirements by contract with the exclusive insurer.
Facts About The Cost-Shift to Beneficiariess
- Many senior advocacy groups oppose Medigap “first dollar” coverage reforms and surcharges because they only cost-shift greater out-of-pocket costs to Medicare beneficiaries for “medically necessary” care.
- This cost-shift is especially harmful to beneficiaries with chronic illness in rural areas because they have limited choices for supplemental coverage.
- The Leadership Council of Aging Organizations (68 groups) published white papers that explain how these Medigap “first dollar” coverage reforms cost-shift and do not make Medicare a better value or more efficient.
- Medicare beneficiaries with Medigap already have “skin in the game” by paying out-of-pocket premiums for Part B, Part D, and out-of-pocket premiums for Medigap coverage to meet Medicare cost-sharing.
- As cost-sharing goes up, the use of both necessary and unnecessary medical care goes down. Peer-reviewed studies show that for a Medicare beneficiary more cost-sharing results in delayed care and later more expensive care.
Facts About The Flawed First Dollar Assumption
- The NAIC, together with senior advocates, and insurers jointly published a white paper exposing the fallacy of the assumption that Medigap “first dollar coverage” causes overuse of Medicare services.
- Medigap does not cause overuse of Medicare services because Medigap is restricted by law to only paying benefits after Medicare determines “medical necessity” and has made payment.
- Medigap cannot, by law, change Medicare’s determination of “medical necessity” and review appropriate use of services. Any overuse of services must be addressed directly by Medicare and health care providers.
- Restricting the cost-sharing benefits under Medigap policies only shifts the cost of “medically necessary” care directly to Medicare beneficiaries.
- CBO in its own analysis concluded that its proposal would lead Medicare beneficiaries to forgo needed health services. Analysis by MedPAC and others could not distinguish “necessary” and “unnecessary” care.
- Providers affect the utilization of health care services. A RAND study found that cost-sharing only modestly affects the intensity or cost of an episode of care and has little effect on costs once care is sought.
Bonnie Burns, California Health Advocates