About 34 percent of seniors in traditional Medicare are also enrolled in private supplemental coverage known as Medigap to help insulate themselves from high out-of-pocket costs. Absent Medigap coverage, beneficiaries must pay the full deductibles and coinsurance for Part A (hospital) and Part B (physician and outpatient) services. In addition, unlike most employer-sponsored health insurance, traditional Medicare has no cap on catastrophic out-of-pocket health care costs.
The average Medicare beneficiary paid $6,168 in 2018 in out-of-pocket costs which also included services that Medicare doesn’t pay for such as dental, vision and hearing and long-term care. Given that half of all people with Medicare lived on incomes of $29,650 or less in 2019, these out-of-pocket health care costs can consume a significant part of many senior’s incomes.
Medigap plans are attractive to many beneficiaries because their out of pockets costs are more predictable, which enables them to budget their money. Medigap plans are standardized nationally, so plan benefits—but not premiums—are the same no matter where a beneficiary purchases a plan. The supplemental plans pay for Medicare’s copayment, co-insurance, and deductibles, but not dental, vision or hearing benefits or long-term care.
There are enrollment rules which allow Medigap carriers to deny coverage to individuals based upon certain criteria. For example, when an individual 65 or older first enrolls in Medicare, they have six-months to purchase a Medigap plan. During that time, an insurance company cannot refuse to sell that individual any Medigap policy it offers, nor can the insurance company charge an individual with pre-existing conditions more than it charges someone without health problems. However, after that initial six-month period, the individual could be denied coverage or charged much more based on their health status unless they live in one of four states (CT, MA, ME, NY) that prohibit insurers from denying a Medigap policy based on pre-existing conditions.
Other situations where beneficiaries could be denied guaranteed issue protection or charged more for Medigap policies include:
- Individuals who are in a private Medicare Advantage (MA) plan but who want to switch to traditional Medicare. Only beneficiaries who switch to traditional Medicare within a year of first enrolling in an MA plan are guaranteed the eligibility to purchase a Medigap plan.
- Beneficiaries age 64 and younger who are eligible for Medicare because they receive Social Security Disability Insurance (SSDI) benefits. These individuals do not have guaranteed issue protection unless they live in a state that requires it.
- The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) (P.L. 114–10) phased out two popular Medigap plans, C and F, that cover the Part B deductible. While individuals with these plans will be able to keep them, since 2020 the plans are not able to take new enrollees. Over time, the inability to bring in younger enrollees will likely make the plans more expensive. There is no special enrollment period for individuals currently enrolled in C or F plans to change plans without consideration of their pre-existing conditions.
NATIONAL COMMITTEE POSITION
The best way to address Medigap-related problems is to fix the coverage gaps in Medicare by adding an out-of-pocket cap as Medicare Advantage and most employer plans have. This would relieve beneficiaries of exposure to unlimited costs and would help eliminate the need for private supplemental insurance. But until these coverage gaps are filled, the National Committee supports improving Medigap by extending guaranteed issue protection to SSDI beneficiaries, to anyone who wishes to leave a Medicare Advantage plan at any time, and to individuals whose C and F Medigap plans will be discontinued. We also support improvements in the Medicare plan finder and other beneficiary education tools to make consumers more aware of the gaps in Medicare coverage, and of the problems they could encounter in obtaining or changing a Medigap plan outside one of the specified enrollment periods.
Government Relations & Policy, September 2022