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Monday, February 11, 2013

Medigap: A Primer

Carol Rapaport
Analyst in Health Care Financing

Medicare is a nationwide health insurance program for individuals aged 65 and over and certain disabled individuals. The basic Medicare benefit package (termed “Original Medicare” in this report) provides broad protection against the costs of many, primarily acute, health care services. However, Medicare beneficiaries may still have significant additional costs, including copayments, coinsurance, deductibles, and the full cost of services that are not covered by Medicare. In 2008, about 17% of Medicare beneficiaries purchased the private supplemental insurance known as Medigap to fill some of the cost gaps left by Original Medicare.

All Medigap plans cover some percentage of Medicare’s cost-sharing. Some plans offer additions to these basics, including various combinations of greater coverage of Medicare cost sharing, and care associated with foreign travel emergencies. The most popular plans are the most comprehensive, and cover all deductibles, copayments, and coinsurance not covered by Medicare. Medigap generally does not cover medical treatments not covered by Medicare, although it does extend coverage for certain covered services, such as coverage for additional hospital days beyond the Medicare benefit limit. Medigap is financed through beneficiary payments to the private insurance firms.

Federal law requires that Medigap insurers observe many consumer protections. Consumer protections are especially strong during open enrollment, which is a six month period that begins for most individuals during the month they turn 65. During this period, individuals are protected against

• insurers refusing to sell them any Medigap policy that the insurer offers,

• insurers setting premiums based on the individual’s health, and

• insurers imposing waiting times on the start of the policy, other than a maximum of a six-month waiting period for preexisting conditions.

Following the open-enrollment period, beneficiaries have other rights in limited situations, such as when they move to a different state. Guaranteed issue (or the right to buy a plan, to have the plan’s premium not depend on health status, and in some cases to have the plan start coverage of preexisting conditions immediately) is one such right. The right of guaranteed renewability is available in a wide variety of situations, and genetic discrimination is forbidden. Moreover, Medigap insurers must pay out at least 65% (and sometimes 75%) of total premiums as claims to the beneficiaries.

Recent data show that Medigap premiums vary by states and other factors. A relatively small number of insurance firms sell Medigap plans. In addition, Medigap beneficiaries are concentrated in certain areas of the country and are more likely to have lower incomes than those holding employer-sponsored retiree health insurance.

The Patient Protection and Affordable Care Act (P.L. 111-148 as amended by P.L. 111-152, ACA) requests that the Secretary of Health and Human Services ask the National Association of Insurance Commissioners to review and revise existing standards to examine greater cost-sharing for Medigap beneficiaries. One rationale for this proposal is that beneficiaries on average reduce their use of medical care following an increase in cost-sharing. This decrease in medical care by Medicare beneficiaries could reduce Medicare expenditures and the federal deficit. On the other

hand, if these reductions in medical care ultimately lower health status, the individuals might require more treatments or more expensive care.

This report provides a broad overview of Medigap insurance. The report covers the history of Medigap legislation, the various types of Medigap plans, consumer protections awarded to Medigap beneficiaries, and the requirements facing the insurance providers and the NAIC. Following an empirical description of Medigap markets, the report discusses proposals related to the percentages of a Medigap insurer’s revenue that is returned as benefits to the policy holders and Medigap cost-sharing requirements.

Date of Report: January 22, 2013
Number of Pages: 32
Order Number: R42745
Price: $29.95

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