Medicare Supplement Insurance

Although Traditional Medicare (also called Original Medicare) provides comprehensive health coverage, its benefit design requires substantial cost-sharing requirements, with no cap on out-of-pocket costs. As a result, people with Traditional Medicare can face extremely high out-of-pocket costs if they have a serious health problem. To avoid this risk, many people supplement their Medicare benefits with private insurance that provides coverage for some of these out-of-pocket costs; the extent of the coverage depends on the specific supplement plan. Employers may offer these supplemental policies through their retiree health benefit plan, or individuals may purchase a Medicare Supplement Insurance policy, known as a Medigap plan, on their own.

Medigap History: In 1990, Congress standardized the Medigap policies that insurance companies may offer. Congress also created a variety of major consumer protections, including a uniform outline of coverage, guaranteed issue of coverage at age 65 or older (regardless of health status) for the first six months of Medicare Part B enrollment, a six-month limit on coverage restrictions for preexisting conditions, guaranteed renewal, and a prohibition on the sale of duplicative policies. In 1997, Congress expanded guaranteed access to Medigap plans, allowing special enrollment periods under certain circumstances. It improved portability protections by requiring prior, continuous insurance coverage be credited against the allowed six-month restriction on benefits related to preexisting conditions. While some earlier plans included coverage for prescription drugs, with the advent of the Medicare drug benefit in 2003 (Medicare Part D), Congress prohibited Medigap plans from covering drug coverage. Congress also created two new standard Medigap plans with additional cost-sharing. In 2010, changes to the Medigap plan lineup were enacted. They added plans with new cost-sharing arrangements, eliminated plans no longer needed once Part D was enacted, and updated other benefits.

First-dollar coverage debate: Some analysts believe that, by covering most Medicare cost-sharing, Medigap plans cause people to be less cost-conscious when seeking care. For this reason, some Medicare reform proposals have proposed restricting Medigap’s coverage of all or most Medicare cost-sharing or included proposals such as a surcharge on Medigap plans that provide comprehensive protection against most cost-sharing.

This approach to cost containment raises several issues. First, increasing cost-sharing can discourage people from seeking necessary care. Second, health care decisions involve much more than costs. For instance, they can also include quality and safety. Finally, consumers are most often following a provider’s treatment recommendation. As secondary coverage, Medigap does not make decisions about which services to cover. Rather, it only follows Medicare’s coverage rules and decisions. The reasons for observed differences in Medicare costs and service use among Medigap participants are a topic of ongoing debate.

In 2015, the Medicare Access and Children’s Health Insurance Program Reauthorization Act, commonly known as MACRA, prohibited certain Medigap policies from covering beneficiaries’ payment of Medicare Part B deductibles. This change was intended to limit first-dollar coverage. It only applies to individuals who became eligible for Medicare beginning January 1, 2020.

Access and cost concerns: Concerns remain about Medigap access and cost, in particular, that not all Medicare beneficiaries are able to purchase Medigap policies. Federal law does not require insurers to issue Medigap policies to Medicare beneficiaries with disabilities under age 65, including those eligible for Medicare because of end-stage renal disease. Whether Medicare beneficiaries younger than age 65 have access to Medigap policies depends on whether their state requires protection.

Medicare Supplement rules ordinarily do not ensure access to Medigap coverage outside the initial open enrollment period or designated guaranteed issue periods. During an individual’s initial Medigap open enrollment period, Medigap is guaranteed to issue a policy. Under current law, if beneficiaries disenroll from a Medicare Advantage plan to change to Traditional Medicare, they may not be able to buy Medigap coverage. Or that coverage may cost more unless they are within a guaranteed issue situation or time period or live in a state that has adopted additional protections. Policies purchased outside the initial Medigap open enrollment or guaranteed issue periods may require medical underwriting. This complicates the decision to switch from MA to Traditional Medicare.

High premiums or rate increases based on age (for attained age-rated policies) can make Medigap plans too expensive for many people on fixed incomes. Medigap policies have standards for the share of premiums that must be spent on claims. This is called the medical-loss ratio. The share that must be paid on medical costs is lower than those required for other health insurance products under the Affordable Care Act.