AHIP on Medigap's Impact On Medicare Costs
Taking A Fresh Look At Medigap’s Impact On Medicare Costs
New Health Affairs Study Shows That Medigap Coverage May Have A Much Smaller Impact on Medicare Spending Than Previously Estimated.
America’s Health Insurance Plans (AHIP)
Policy Brief
Previous studies, including those conducted by the Congressional Budget Office (CBO), have reported that Medigap policyholders incur as much as 25 percent more Medicare expenditures than beneficiaries with FFS-only coverage. Thus CBO periodically estimates that restrictions on Medigap’s first-dollar coverage would significantly reduce Medicare outlays.
A recent report from America’s Health Insurance Plans (AHIP) presents new information that explains why past conclusions on this topic should be reconsidered.
Besides controlling for age, gender, and geography as done in prior analyses, the AHIP study broke new ground by analyzing two new factors that turned out to be critical: 1) use of services provided through the Veterans Administration (VA) or at military facilities, and 2) Medicare beneficiaries’ diagnoses (in lieu of self-reported health status or health conditions).
Key Findings
- Nearly half of the increase in Medicare spending that prior studies have reported among beneficiaries with Medigap disappeared when AHIP controlled for use of services received through the VA or at military facilities.
- Detailed analyses of beneficiaries’ health status based on actual diagnosis rather than on the self-reported data used in previous studies found that beneficiaries with Medigap are more likely than those with FFS-only coverage to have high-cost chronic conditions. Therefore, much of the difference in health costs between the two groups may stem from differences in health status rather than differences in insurance coverage.
In short, these results call into question past assumptions about the impact of Medigap coverage on Medicare claims costs. Before taking any action that would affect the Medigap program, policymakers should demand a thorough reexamination of previous research on the health status, service use, and health spending among Medigap policyholders.
http://www.ahipresearch.org/pdfs/MedigapFreshLook2008.pdf">http://www.ahipresearch.org/pdfs/MedigapFreshLook2008.pdf#http://www.ahipresearch.org/pdfs/MedigapFreshLook2008.pdf
Health Affairs: “Medigap Coverage And Medicare Spending: A Second Look”
by Jeff Lemieux, Teresa Chovan and Karen Heath (AHIP staff)
http://content.healthaffairs.org/cgi/content/abstract/27/2/469
Comment:
By Don McCanne, MD
Medigap plans are standardized supplemental private insurance plans that fill in some of the gaps in Medicare coverage. Medigap plans, as a group, have amongst the lowest medical loss ratios of all private insurance plans; that is, they pay out the least for health care benefits. Thus the plans are very lucrative for the private insurers, but they are amongst the worst values in private health care coverage.
Previous studies have indicated that individuals with Medigap coverage use more health care services than those covered by Medicare alone. The theory is that patients insulated from out-of-pocket costs will use less discretion in accessing health care, resulting in greater use of health care resources. In fact this does occur to a limited extent, but the recent work by John Nyman and others on the moral hazard theory demonstrates that much of that health care is beneficial (welfare gain rather than a welfare loss). It is particularly important to understand whether those with Medigap coverage actually do have greater health care needs that would result in greater use of services.
This study done by AHIP staff members demonstrates that when the numbers are corrected for those using the VA and military systems and corrected for health status, then much of increased spending for Medigap patients is very appropriate.
This result is quite convenient for the insurance industry. Those supporting an increase in cost-sensitivity for patients (consumer-directed health care) have been advocating for paring back the financial insulation that Medigap policies provide. Obviously the insurance industry does not want to reduce their market for these highly profitable products, and so they are able to use this study to counter this argument.
The result of this study also is quite convenient for those of us who support reasonably comprehensive health care for everyone. The Medigap plans do improve access to health care.
However, our conclusion is the opposite of AHIP’s. AHIP members would continue to market these lucrative plans even though they represent a terrible value for the patient/consumer. In sharp contrast, we would fold the very modest benefits of the Medigap plans into the traditional Medicare program. Based on the results of this study and on newer theories of moral hazard, the increase in Medicare spending would likely be mostly (if not completely) offset by the savings gained by the elimination of the profound administrative waste of the Medigap plans.