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. In addition, the President’s 2013 budget proposal would provide incentives to increase cost-sharing. One rationale for these proposals 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: September 19, 2012
Number of Pages: 32
Order Number: R42745
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Laws Affecting the Federal Employees Health Benefits Program (FEHBP)

Annie L. Mach
Analyst in Health Care Financing

Ada S. Cornell
Information Research Specialist

The Federal Employees Health Benefits Program (FEHBP) has been in existence for over 50 years. Since its creation, it has provided private health insurance coverage to federal employees, annuitants, and their dependents. It is the largest employer-sponsored health insurance program in the country; in 2010, nearly 8 million individuals were covered under FEHBP.

The program was created by the Federal Employees Health Benefits Act of 1959 (FEHBA, P.L. 86-382). FEHBA and its subsequent amendments established the parameters for eligibility and the election of coverage; the types of health plans and benefits that may be offered; the level of the government’s share of premiums; the Employees Health Benefits Fund to pay for program expenses; and provisions for studies, reports, and audits. FEHBA also outlined the role of the Office of Personnel Management (OPM). By law, OPM is given the authority to contract with insurers and to prescribe regulations to manage FEHBP, among other duties.

The general model of FEHBP has not changed since its inception in 1959. FEHBP was and is a program that allows competing private insurers to offer numerous types of coverage to enrollees within broad federal guidelines. The federal government and the employee/annuitant have always shared the cost of the premium, and generally, employees and annuitants have always had access to the same plans at the same cost. However, specific features of FEHBP have been modified, in some cases multiple times, by Congress and OPM. For example, eligibility has been expanded to include additional types of federal employees and dependents, the formula for determining the government’s share of premiums has changed, and the types of health benefits offered through FEHBP plans have been broadened.

Congressional policymakers share responsibility with OPM for the program’s viability and sustainability. Congress has financial and administrative interest in the program, as the government pays for a share of FEHBP premiums and Congress has legislative authority to modify FEHBP. Congressional interest in FEHBP also extends to FEHBP’s potential applicability as a model for other health care programs or as an avenue to provide coverage, such as extending aspects of FEHBP to Medicare, or using it as one of the models for the state exchanges under the Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended).

The purpose of the report is to provide historical and background information that helps explain how FEHBP has evolved into the program it is today. Policymakers may use this report to understand how Congress has interacted with FEHBP in the past, and to inform its future interactions with FEHBP. Specifically, the report includes short discussions of how Congress has effected and maintained policy changes to FEHBP by restricting the use of federal funds; changed the formula for determining the government’s share of FEHBP premiums; expanded eligibility for the program; and implemented policies that affect the relationship between Medicare and FEHBP. The Appendix includes detailed summaries of selected laws or provisions of laws that have directly amended or otherwise changed FEHBP.


Date of Report: September 19, 2012
Number of Pages: 42
Order Number: R42741
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Medical Loss Ratio Requirements Under the Patient Protection and Affordable Care Act (ACA): Issues for Congress

Suzanne M. Kirchhoff
Analyst in Industrial Organization and Management

Janemarie Mulvey
Specialist in Health Care Financing

The 2010 Patient Protection and Affordable Care Act (ACA, P.L. 111-148, as amended) requires certain health insurers to provide rebates to their customers for each year that the insurers do not meet a set financial target called a medical loss ratio (MLR). At its most basic, a MLR measures the share of a health care premium dollar spent on medical benefits, as opposed to company expenses such as overhead or profits. For example, if total premiums collected are $100,000, and $85,000 is spent on medical care, the MLR would be 85%. The ACA sets the minimum required MLR at 80% for the individual and small group markets and at 85% for the large group market. In general, the higher the MLR, the more value a policyholder receives for his or her premium payment. Congress imposed the MLR in an effort to provide “greater transparency and accountability around the expenditures made by health insurers and to help bring down the cost of health care.” Insurers that fail to meet these minimum standards must provide rebates to policyholders.

The Department of Health and Human Services (HHS), with input from state insurance commissioners who are the main regulators of health insurance, issued rules for implementing the provisions. These rules provided greater details for calculating the MLR and issuing rebate payments. ACA allows companies to include quality improvements along with medical benefits when calculating the MLR. In addition, state and local taxes and some licensing fees are subtracted (i.e., disregarded) from expenses in the MLR formula. ACA’s requirements are different from those imposed by state laws, which generally compare only medical claims to premiums. Though a number of states have their own MLRs, the ACA is now the minimum standard that must be met nationwide by certain health insurers. About 12.8 million U.S. consumers were due more than $1.1 billion in ACA MLR rebate payments in August 2012, for an average award of $151 per qualifying household. Employers or insurers can provide the rebates, which are based on activity in 2011, via a check, an electronic deposit in a bank account, a reduction in future insurance premiums in the amount of the rebate, or by spending the funds for the benefit of employees. About 66.7 million people were insured by covered companies that met or exceeded MLR standards for 2011, and will not receive rebates.

The MLR is based on the aggregate performance of a health plan, not individual policy history. Even if a beneficiary had no medical claims during a given year, he or she would not receive a rebate if the broader plan met the MLR requirements. In addition, many Americans were enrolled in health plans that were not covered by the ACA MLR provisions in 2011. The ACA MLR provisions cover only fully funded health plans, which are plans where insurance companies assume the full risk for medical expenses incurred. The requirements do not extend to self-funded plans, which are health care plans offered by businesses in which the employer assumes the risk for, and pays for, medical care. Non-profit insurers and some Medicare Advantage plans were not covered by the ACA MLR standards in 2012, though the MLR provisions will be phased in during 2013 and 2014, respectively. In addition, some states won special exceptions for individual insurance policies, based on a HHS determination that meeting the MLR requirement would harm a state’s insurance market.

Several issues have been raised about the MLR provisions since the ACA was enacted. These include considerations regarding the treatment of insurance agent and broker bonuses and commissions, the impact of the MLR on insurers that provide high deductible plans, and special rules for non-profit health insurers.


Date of Report: September 18, 2012
Number of Pages: 30
Order Number: R42735
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Disability Benefits Available Under the Social Security Disability Insurance (SSDI) and Veterans Disability Compensation (VDC) Programs

Umar Moulta-Ali
Analyst in Disability Policy

Social Security Disability Insurance (SSDI) and Veterans Disability Compensation (VDC)— administered by the Social Security Administration (SSA) and the Department of Veterans Affairs (VA) respectively—are two of the largest federal disability programs, but strongly differ along several dimensions, including the populations served, how each program defines a “disability,” as well as varying eligibility requirements.

First, SSDI is an insurance program that replaces a portion of earnings for an eligible worker whose illness or injury—while not necessarily caused by a work-related incident—results in an inability to work. SSDI is one of several federal programs funded through the Federal Insurance Contributions Act (FICA) payroll tax and the Self-Employment Contributions Act (SECA) tax to which all workers and employers in covered occupations (including military personnel) and selfemployed individuals make contributions. On the other hand, VDC is not insurance, but is a compensation program in that payments are made to veterans who develop medical conditions that are related to their service in the military. VDC is non-contributory and neither veterans nor active military personnel pay into the program, which is funded through a mandatory appropriation as part of the VA annual budget.

Second, while the purpose of both SSDI and VDC is to provide income security, SSDI provides a financial “safety-net” to eligible civilian and military workers due to their inability to work as a result of long-term or terminal injury or illness. Conversely, VDC provides veterans with tax-free, cash benefits specifically for service-connected illnesses or injuries. The ability to work is not factored into VDC disability determinations, although additional compensation is available for veterans who are unemployable as the result of a service-connected condition(s).

Third, SSDI only compensates workers that are fully disabled, whereas VDC compensates veterans for both partial and fully disabling injuries and illnesses. The VA is further guided by a principle that views disability compensation as an obligation, owed to veterans, for injuries impacting employment that were incurred or aggravated by their service to the country. SSDI benefits are granted solely on medical and economic grounds and other noneconomic factors are not considered. Eligibility requirements generally tend to be more stringent for SSDI than VDC, and most veterans will not likely meet the criteria for both programs.

Both SSA and the VA have faced challenges in the administration of benefits and have been criticized for a lack of interagency coordination, processes that are “out-of-sync” with modern conceptions of disability, and extensive processing delays for claims and appeals. These are a few issues which led, in part, to a Government Accountability Office (GAO) investigation and determination of federal disability programs as “high risk.” Both agencies have made efforts to address issues surrounding pending claims and appeals, but differ in their responses to other recommendations.

This report provides a description and comparative analysis of the SSDI and VDC programs. These issues will be of particular interest to Congress because of the expected increase in the numbers of SSDI and VDC claims. The recent economic decline and aging baby-boomers have continued to place a strain on SSA’s resources. The aging of the veteran population and expansion of presumptive conditions policies have contributed to the increase in VDC claims.


Date of Report: September 12, 2012
Number of Pages: 23
Order Number: R41289
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Same-Sex Adoptions

Alison M. Smith
Legislative Attorney

While the federal government plays a role in supporting adoption through grants and tax benefits, states have the primary responsibility in setting policy to govern child adoption. As such, states may restrict adoption based on a myriad of factors including sexual orientation and/or marital status. For example, while most states are silent on the issue of adoption by gay and/or lesbian individuals or same-sex couples, states such as Florida, Arkansas, and Mississippi have statutory provisions which prevent such individuals or couples from adopting. However, lower courts in Florida and Arkansas have found such bans unconstitutional on state equal protection grounds. While state courts have struck down such statutory provisions, the only federal court to address the issue reached a contrary result. In a matter of first impression, the United States Court of Appeals for the 11th Circuit found that Florida’s ban does not violate equal protection or due process under the 14th Amendment of the U.S. Constitution.

This report summarizes state laws concerning non-relative adoption by homosexual individuals and couples.


Date of Report: September 13, 2012
Number of Pages: 6
Order Number: RS21191
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