FAQ: Seniors May See Changes in Medigap
KHN Staff Writer
July 22, 2011--As debt limit talks drag on, lawmakers are
eying possible changes in Medicare
supplemental plans - moves that could
increase seniors’ out-of-pocket costs.
Traditional Medicare, the federal health
program for the elderly and disabled,
requires beneficiaries to pay hospital
deductibles and a portion of the cost of
tests and doctor visits. To protect
themselves from those out-of-pocket costs,
about 17 percent of beneficiaries buy Medigap
plans. Another 34 percent get
such coverage through a former employer.
But some health policy experts say such
“first-dollar protection” drives up demand
for Medicare services, costing the
government money for what may be unnecessary
care. One proposal would bar supplemental
insurance from completely eliminating
out-of-pocket costs – or charge enrollees a
$530 a year extra if they want to keep such
protection. That change could save up to $53
billion over 10 years, according to a chart
used during the bipartisan talks
led by Vice President Joe Biden.
What is Medigap and why do people buy it?
Unlike most job-based health insurance,
traditional Medicare does not include
“catastrophic” coverage, an annual maximum
upper limit on the amount beneficiaries
could pay. So enrollees can be liable for
thousands of dollars each year, including:
$1,132 per-episode deductible for hospital
admissions; hundreds of dollars in daily
charges for hospital stays of longer than 60
days; a $162-a-year deductible for doctor
care, plus 20 percent of charges for office
visits or equipment like wheelchairs.
Ten standardized types of supplemental plans
offered by private insurers – including
AARP’s UnitedHealthcare policies – cover
all or most of such deductibles and
copayments. Some employers also pay all or
part of such costs for their retirees.
What changes are under consideration?
It is not clear exactly what’s on the table
in the negotiations between congressional
leaders and the White House. But the
charts released show that one such proposal
under consideration would bar insurers from
offering supplemental policies unless the
policies came with an annual deductible.
People who didn’t want a deductible could
pay $530 a year in additional premium to
ensure that they won’t be hit with costs
before their coverage kicks in.
Is this a new idea?
No. It is a subset of a larger discussion
about spending on Medicare and other
entitlements. In recent years, the National
Commission on Fiscal Responsibility and
Reform (The Bowles-Simpson Commission), the
Debt Reduction Task Force, the Medicare
Payment Advisory Commission and lawmakers,
including Sen. Joe Lieberman, a Connecticut
independent, and Sen. Tom Coburn, an
Oklahoma Republican, have all suggested
changing traditional Medicare.
Most of the ideas would create a single
annual deductible – generally around $550 –
after which beneficiaries would pay about 20
percent of medical costs up to a maximum
annual cap, ranging from around $5,000 to
more than $7,500.
Would changing supplemental coverage save
Some economists and policy experts say that
supplemental coverage insulates
beneficiaries from medical costs, driving up
demand for unnecessary care. A study
done for MedPAC in 2009 found
that beneficiaries with supplemental
insurance used more care and cost the
program more money. The increased spending
wasn’t for emergency hospitalizations, but
for other services such as elective hospital
admissions, preventive care, doctor office
visits and some types of tests.
Supporters of the insurance say it shields
seniors from unpredictable costs and reduces
big-ticket expenses by encouraging them to
seek help for medical problems before they
What else do people say about the idea?
Advocacy groups like the Medicare Rights
Center oppose restricting Medigap plans,
saying it would simply shift more costs from
the government to elderly and low-income
people who can least afford it. “Some in
government feel people in Medicare don’t
have enough ‘skin in the game,’” says Ilene
Stein, federal policy director for the
center. In fact, she says, people on
Medicare already pay 15 percent of their
incomes for health care, well above the
level paid by non-Medicare households. While
the proposals would cap maximum annual
spending per enrollee to $5,500 or $7,500,
“that’s a lot of money for someone making
$22,000,” the median household income for
those on Medicare, she says.
Still, Joe Antos of the conservative
American Enterprise Institute says many of
those people already pay large premiums for
Medigap coverage – and would likely see
those premiums decline if “first-dollar”
protections are barred. Antos and Jonathan
Gruber, an economist at MIT and consultant
to Democrats, both think that if Congress
were to change supplemental coverage – or
the traditional program itself – that
lawmakers would create exemptions for
How would the proposal affect a Medigap
policy I already own?
Congress would have to decide whether to
impose restrictions only on new policies or
include existing coverage.
What about people who don’t have a Medigap
Only about 10 percent of seniors don’t have
some sort of supplemental coverage. Some
people have military/VA benefits, others are
in Medicaid, and some have coverage through Medicare
Advantage plans, which are
insurance policies offered by private
insurers as an alternative to traditional
What are the chances that these ideas will
be adopted by lawmakers?
Because making any change that could be seen
as a cut in Medicare benefits carries huge
political risk, previous calls for changing
the traditional Medicare program or limiting
first-dollar coverage through supplemental
insurance have not picked up support. But
now, when failure to lift the debt ceiling
could result in widespread economic
problems, a middle-of-the night compromise
between warring factions in Congress could
put it back on the table.
“Normally, this would be dead on arrival.
But this is such a dicey environment that
these guys are going to cut some kind of
deal at midnight either before or after Aug.
2 in such a hurry that they won’t be worried
about the kinds of things people normally
worry about when they cut senior benefits,”
says Robert Laszewski, an
Alexandria-Virginia-based consultant to the
health care industry.
Antos is less sure. He says the potential
savings of $53 billion over 10 years would
be just a tiny slice of any
deficit-reduction deal and might not be
worth the political hit Congress would take
“You can’t sugar coat it,” says Antos. “It
would be much easier to do what lawmakers
have always done in Medicare, which is lower
payment rates (to doctors and hospitals) or
restrict services in ways that are subtle
and complicated. But to do something that
looks like changing benefits, I don’t see it