Bonnie Burns, our Training and Policy Specialist as well as many advocates across the country have been strongly advocating throughout the year against proposals to reform Medigap policies by shifting costs to beneficiaries. Below is a short brief written by the Leadership Council of Aging Organizations (LCAO) that clearly outlines the reasons why they and many advocates oppose such reforms.

REFORMING MEDIGAP PLANS BY SHIFTING COSTS ONTO BENEFICIARIES: A FLAWED APPROACH TO ACHIEVE MEDICARE SAVINGS

Background:

In order to help pay for Medicare’s significant out-of-pocket costs, most Medicare beneficiaries have some form of supplemental coverage, such as retiree plans, private Medicare Advantage plans, Medicaid or Medigap policies. Medigap policies are individual, standardized insurance policies designed to fill in some of the gaps in Traditional Medicare’s coverage. Nearly one in five Medicare beneficiaries – 9.6 million – rely on Medigap policies to provide financial security and protection from high, unexpected out-of-pocket costs due to unforeseen medical care. Most beneficiaries who select Medigap policies do not have access to another form of supplemental coverage, like retiree benefits or Medicaid.(i)

Despite serving Medicare beneficiaries well for years, Medigap plans are being targeted by some public policymakers as a means to cut Medicare spending by shifting costs onto people who have these policies. Under the assumption that charging beneficiaries more in upfront out-of-pocket costs will deter them from using unnecessary medical care – and therefore save the Medicare program money – some proposals seek to increase Medigap deductibles and other cost-sharing. Other proposals would add a surcharge or tax on plans offering “first- dollar” or “near first-dollar” coverage – costs which insurance companies offering Medigap policies will pass on to policyholders.

Our Position:

The Leadership Council of Aging Organizations (LCAO) is opposed to adding further cost-sharing to Medigap plans or otherwise penalizing individuals who have “first-dollar coverage” through increased premiums or surcharges.

We strongly disagree with the argument that Medigap plans are a driver of unnecessary medical care. Instead, adding costs to Medigap policies will deter beneficiaries from seeking medically necessary care. Increased Medigap cost-sharing is not an effective tool for reducing Medicare spending and may harm the health and well-being of beneficiaries who forgo needed health care because they can no longer afford it. LCAO recognizes the need to bring down the nation’s deficit and reduce health care spending over the long term. With respect to Medicare, we support savings mechanisms that address system wide health care inflation and build on the cost savings, innovations and efficiencies of the Affordable Care Act. Proposals that shift costs onto beneficiaries, like eliminating or discouraging “first dollar coverage,” fail to meet these standards.

Our Rationale:

• As cost-sharing goes up, utilization of services – both necessary and unnecessary – goes down. Increased cost-sharing in health insurance programs often result in either a barrier to or delay in accessing needed treatment, which could lead to adverse health outcomes and greater programmatic costs in the future. For example, multiple studies show that increased cost-sharing on specific services, such as ambulatory care or prescription medications, can lead to increased emergency room visits, hospitalizations, and outpatient care among older adults.(ii)
• The Medicare program – not Medigap policies – determines what care is medically necessary. If Medicare determines that a given service is not medically necessary, it won’t pay for it. Since Medigap policies follow the lead of Medicare, a Medigap policy will not make a payment when Medicare has indicated that a service is not medically necessary. In short, penalizing policyholders for choosing to buy certain Medigap policies will not affect whether care sought by beneficiaries is appropriate.(iii)
• Eliminating first dollar coverage will not lead to beneficiaries choosing better value services. Increased Medigap cost-sharing would inappropriately place the burden on beneficiaries to determine in advance whether a covered service is necessary or unnecessary. Instead of making such a determination, beneficiaries are more likely to avoid initiating a health care service or treatment as a result of cost-sharing, whereas once a person is engaged in the health care system, cost-sharing has little effect on whether or not a treatment is pursued. With added cost-sharing, people are more likely to forgo outpatient care and doctors visits outright, than to forgo treatments or services recommended by their provider.(iv) In other words, it is health care providers – not patients – who order medical services.