Medigap Coverage And Medicare Spending: A Second Look

Abstract

Medicare supplemental insurance (Medigap) provides important financial protections for many low- and moderate-income beneficiaries in Medicare's traditional fee-for-service program. However, conventional wisdom among policymakers holds that Medigap coverage substantially raises Medicare claims costs. This report uses detailed diagnosis data provided by three large Medigap insurers, information from the Medicare Current Beneficiary Survey, and the Medicare 5 percent sample file to reexamine the impact of Medigap coverage on Medicare spending. We conclude that previous studies might have overestimated the impact of Medigap coverage on Medicare costs and that past projections of potential Medicare cost savings from restrictions on Medigap coverage probably are overstated.

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“…The prevalence of UI across all Medicare beneficiaries is expected to increase with aging ''baby-boomers'' becoming Medicare-eligible and increased US obesity rates. Those with Medigap coverage, currently about 27% of all Medicare members [17], are also expected to grow with the recent legislative reimbursements cuts to Medicare Advantage plans.…”

“…Of those with original Fee-For-Service Medicare coverage (approximately 34 million Americans), it has been estimated that most (91%) have some form of supplement coverage to defray the outof-pocket expenses from copayments, coinsurance, and deductibles that Medicare does not cover. For example, a recent study showed that 39% had employer-sponsored Medigap coverage, 27% purchased Medigap coverage, 17% had Medicaid coverage, and 7% had other nonMedicare coverage that could be used to offset at least some of Medicare's out-of-pocket payment requirements [17]. The number of Medicare beneficiaries who purchase Medigap coverage is large, and demographics, socioeconomics, health status, and benefit levels likely differ for them versus those without such coverage; thus, the prevalence of UI and its impact on quality of life may differ for those with Medigap as well.…”

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“…In addition, after a deductible of $250 per person ($500 per family), the enrollee paid 10 percent of allowed charges for inpatient professional services from preferred providers (25 percent from nonpreferred). The BCBS standard option capped OOP spending at $4,000 in cost sharing from preferred providers ($6,000 for a combination of preferred and nonpreferred providers (Lemieux et al 2008). They were correct that VA users make up a larger fraction of the Medicareonly population than they do of the rest of the Medicare population.…”

“…17 One recent analysis contends that previous studies that find a relatively large "insurance effect" did not take into account care that beneficiaries who do not report having supplemental coverage receive through the Department of Veterans Affairs and the military health care system (Lemieux et al 2008).…”

“…It excluded disabled Medicare beneficiaries younger than 65 because in many states those individuals have more limited opportunities to purchase supplemental coverage. The analysis also excluded beneficiaries who reported any use of care through the Department of Veterans Affairs (VA) to address a concern that the substitution of VA care could artificially lower average levels of Medicare spending among beneficiaries labeled in the MCBS as having no supplemental coverage (Lemieux et al 2008). …”