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Changes To Medigap Plans Meet Resistance

A provision of the 2010 federal health law seeking to increase Medicare beneficiaries’ share of health care costs is meeting resistance from an unlikely group of 33 state insurance regulators, health insurers and consumer advocates charged with revising Medigap insurance policies that cover most out-of-pocket expenses.

The National Association of Insurance Commissioners assembled the group to come up with ways to raise the beneficiaries’ cost for the most popular and generous Medigap policies, a task Congress assigned to the association in the health law. Since then, the idea of shifting some costs to beneficiaries in Medigap policies has emerged as one of several proposals to reduce the federal deficit.

The proposals suggest that if Medigap policies cover less of beneficiaries’ costs, some seniors will be less likely to overuse Medicare-covered health care services. The Congressional Budget Office estimated in March that such changes could save the government $53 billion in Medicare spending over a decade by strengthening incentives “for more prudent use of medical services.”

In a conference call this morning, the group discussed their congressional assignment as well as the broader proposals limiting Medigap policies, which help more than 7 million Medicare beneficiaries – about one sixth of those in traditional Medicare – pay for their out-of-pocket costs. Those costs include monthly premiums, 20 percent of allowed charges for out-patient services such as doctor’s visits and other costs Medicare doesn’t cover. The most comprehensive — and expensive — plans pick up nearly all the costs.

Many of the Medigap group’s members have raised questions about their task, which are reflected in a draft report they discussed today. Their final recommendations are expected by November. Among their concerns are the effects such Medigap changes could have on seniors’ health and whether altering the plans is legal. Such consensus is something the group’s chairman, Guenther Ruch, an administrator at Wisconsin’s insurance department, doesn’t see very often.

“This is a unique situation where such diverse interests have the same concerns about the potential changes to the Medigap insurance market,” he said.

“Some of those proposals are fairly dramatic in the cost shifting effect onto seniors,” said Mary Beth Senkewicz, Florida’s deputy insurance commissioner, who chairs the NAIC’s senior issues committee, which includes the Medigap group. “This has been a product that has worked very well for a number of years, helping to maintain seniors’ peace of mind, knowing that they have coverage for the gaps in Medicare.”

Bonnie Burns, a policy specialist at California Health Advocates and another member of the Medigap group, questioned whether patients need incentives to reduce their use of medical services.

“Beneficiaries don’t order services, providers do,” she said. “To suggest that Medicare beneficiaries overutilize services on a whim because they don’t have ‘skin in the game,’ is pretty disturbing.”

Although some studies have found that seniors with Medigap policies use more Medicare services, Burns said they may be sicker than the average Medicare beneficiary, which is why they bought Medigap coverage.

Senkewicz said members of the group have also questioned the legality of making changes that apply to policies seniors have already purchased. The policies are contracts between the insurer and the beneficiary which contain certain promises of coverage. When state regulators require changes in insurance, those typically apply only to future policies, she said.

Several members have suggested that Medigap policies aren’t responsible for Medicare’s growing costs.

“These carriers only pay for what Medicare has already determined to be medically necessary,” said Senkewicz. “Those determinations are not made by the insurance company.”

William Schiffbauer, a member of the group and an independent health care attorney who has represented insurers, said the health law requires the group to suggest raising beneficiary cost-sharing in Medigap plans in order to encourage more appropriate use of physicians services, based on evidence published in medical journals. Schiffbauer said that the medical literature reviewed so far does not identify which services are inappropriate and should be discouraged by making them more expensive for patients.

The group is being asked to decide what’s medically necessary — an impossible task, he said.

review of proposed Medigap changes by the Kaiser Family Foundation in July found that one in five Medigap beneficiaries would face higher out-of-pocket expenses, primarily those with health problems and low incomes. The study also noted that the savings to the Medicare program and Medigap members depend on patients seeking less medical care, including treatment they may really need. (KHN is an editorially independent project of the Kaiser Family Foundation.)

Reducing Medicare spending for the wrong reason – by making it inaccessible — also worries members of the Medigap group, including Ruch.

“There may be seniors who would forego medically necessary care because they can’t afford it — even though they have a Medigap policy,” he said.

Contact Susan Jaffe at