Medigap: A Primer

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CarolRapaport
Analyst in Health Care Financing

Medicareis a nationwide health insurance program for individuals aged 65 and over andcertain disabled individuals. The basic Medicare benefit package (termed “OriginalMedicare” in this report) provides broad protection against the costs ofmany, primarily acute, health care services. However, Medicarebeneficiaries may still have significant additional costs, including copayments,coinsurance, deductibles, and the full cost of services that are not covered by Medicare.In 2008, about 17% of Medicare beneficiaries purchased the private supplemental insuranceknown as Medigap to fill some of the cost gaps left by Original Medicare.

All Medigap plans cover some percentage of Medicare’s cost-sharing. Some plansoffer additions to these basics, including various combinations of greatercoverage of Medicare cost-sharing, and care associated with foreign travelemergencies. The most popular plans are the most comprehensive, and coverall deductibles, copayments, and coinsurance not covered by Medicare. Medigapgenerally does not cover medical treatments not covered by Medicare, althoughit does extend coverage for certain covered services, such as coverage foradditional hospital days beyond the Medicare benefit limit. Medigap isfinanced through beneficiary payments to the private insurance firms.

Federal law requires that Medigap insurers observe many consumer protections.Consumer protections are especially strong during open enrollment, whichis a six-month period that begins for most individuals during the monththey turn 65. During this period, individuals are protected against 

• insurers refusing to sell them anyMedigap policy that the insurer offers,
• insurers setting premiums based on the individual’s health, and
• insurers imposing waiting times on the start of the policy, other than amaximum of a six-month waiting period for preexisting conditions. 

Following the open-enrollment period, beneficiaries have other rights inlimited situations, such as when they move to a different state.Guaranteed issue (or the right to buy a plan, to have the plan’s premiumnot depend on health status, and in some cases to have the plan start coverageof preexisting conditions immediately) is one such right. The right ofguaranteed renewability is available in a wide variety of situations, andgenetic discrimination is forbidden. Moreover, Medigap insurers must payout at least 65% (and sometimes 75%) of total premiums as claims to thebeneficiaries.

Recent data show that Medigap premiums vary by states and other factors. Arelatively small number of insurance firms sell Medigap plans. Inaddition, Medigap beneficiaries are concentrated in certain areas of thecountry and are more likely to have lower incomes than those holdingemployer-sponsored retiree health insurance.

The Patient Protection and Affordable Care Act (P.L. 111-148 as amended by P.L.111-152, ACA) requests that the Secretary of Health and Human Services askthe National Association of Insurance Commissioners to review and reviseexisting standards to examine greater cost-sharing for Medigapbeneficiaries. In addition, the President’s 2013 budget proposal would provide incentivesto increase cost-sharing. One rationale for these proposals is thatbeneficiaries on average reduce their use of medical care following anincrease in cost-sharing. This decrease in medical care by Medicarebeneficiaries could reduce Medicare expenditures and the federal deficit.On the other hand, if these reductions in medical care ultimately lower healthstatus, the individuals might require more treatments or more expensivecare.

This report provides a broad overview of Medigap insurance. The report coversthe history of Medigap legislation, the various types of Medigap plans,consumer protections awarded to Medigap beneficiaries, and therequirements facing the insurance providers and the NAIC. Following anempirical description of Medigap markets, the report discusses proposalsrelated to the percentages of a Medigap insurer’s revenue that is returnedas benefits to the policy holders and Medigap cost-sharing requirements. 


Date of Report: September 19, 2012
Number of Pages: 32
Order Number: R42745
Price: $29.95

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