Medigap – Fact & Fiction
Nearly one in five Medicare beneficiaries rely on Medicare Supplemental insurance policies (Medigap) to fill in the gaps of some of their Medicare coverage. As noted by the Kaiser Family Foundation, “Medigap policies help shield beneficiaries from sudden, relatively high out-of-pocket costs due to an unpredictable medical event, and also allow beneficiaries to more accurately budget their health care expenses, which is important to a population living on a fixed income” (Kaiser Family Foundation, “Medigap Reform: Setting the Context” Sept. 2011; http://www.kff.org/medicare/8235.cfm).
Unfortunately, among the proposals raised to achieve savings for Medicare as part of ongoing debt and deficit reduction talks, some policy-makers have suggested changing the way Medigap policies are structured. Under the assumption that charging beneficiaries more upfront will deter them from using unnecessary medical care, these proposals seek to increase Medigap deductibles and other cost-sharing. Such proposals are found in the Simpson-Bowles Debt Reduction Commission proposal, the President’s Plan for Economic Growth and Deficit Reduction, and have been echoed in the media. (See, e.g., a recent Washington Post editorial “Mind the Medigap” October 1, 2011.)
MYTH: Eliminating First-Dollar Medigap Coverage Will Lead To Beneficiaries Choosing Only Necessary, “Higher Value” Health Care Services
Many of the proposals to reform Medigap coverage aim to achieve Medicare savings by creating “financial incentives for newly eligible beneficiaries to seek high-value health care services.” (See, for example, the President’s Plan for Economic Growth.) However, as discussed in our recent CMA Alert, many so-called cost-saving measures are based on the misguided assumption that greater out-of-pocket expenses will lead to more reasonable decisions about obtaining various types of unnecessary or “low-value” medical care. (See CMA Alert at: http://www.medicareadvocacy.org/2011/09/the-presidents-plan-for-economic-growth-and-deficit-reduction-a-first-look-at-the-impact-on-medicare/.)
On the contrary, these proposals would at best fail to steer people toward high-value services and, at worst, would charge people more for obtaining needed health care, or deter them from seeking care altogether.
FACT: As Cost-Sharing Goes Up, Utilization of Services – Both Necessary and Unnecessary – Goes Down.
Raising cost-sharing for beneficiaries will discourage utilization of health care, including necessary services. The National Association of Insurance Commissioners (NAIC), the organization of state insurance regulators who oversee Medigap plans, recently warned of just such dire consequences:
It is important to note that the proposed changes will impact cost-sharing coverage for “medically necessary” services. By contract, Medigap policies only pay cost-sharing for items and services that Medicare itself has already determined to be medically necessary. The NAIC is concerned that the effects of this proposal will result in many seniors foregoing needed medical care because they cannot afford the care resulting in more costs to the Medicare program later on. Additionally, the proposal will simply shift more costs onto seniors (who by and large are not wealthy) and not address the underlying cause of increased medical costs. (Emphasis added.)
National Association of Insurance Commissioners, Letter to the Joint Committee on Deficit Reduction (September 21, 2011), http://www.naic.org/documents/committees_ex_grlc_