Trends in Medigap Insurance and the Impact of Recent Market and Regulatory Changes

Grant Description: How has the Medigap market evolved over time and what impact have recent market and regulatory changes, such as the 1997 Balanced Budget Act had on it?  Researchers at PDF Incorporated and UCLA answered two questions: 1) What are the effects of the BBA and other regulations on premiums, benefits, enrollment, consumer satisfaction, and adverse selection in Medigap products? and 2) What are the spill-over effects of regulations targeting the Medicare HMO market on the Medigap market?  Looking at the period between 1991 and 2000, they  conducted a longitudinal analyses in six states: Florida, Missouri, New York, South Carolina, Texas, and Washington.  The study used data from several sources: site visits to six state insurance departments; data on Medigap sales and premiums collected from these states; data from most or all of the 50 states on Medigap premiums and sales over time, from the largest Medigap carriers in the United States; telephone interviews with Medigap insurance carriers; and telephone and in-person interviews with federal officials and representatives of interest groups.  Their goal was to inform policymakers on trends in the Medigap market to give them the tools they need to decide on the future of Medicare-stabilizing regulations.

Policy Summary:

• Consumers like the standardized benefits as do state regulatory agencies.
• The federal legislation reduced the incidence of complaints and fraud sufficiently that states are able to assign minimal staff to regulating the Medigap market.
• Contrary to the expectations of the research team, no evidence was found that the Medigap market became more competitive as a result of standardizing the benefit packages.
• Federal law has not standardized the manner in which the age of the enrollee is reflected in setting premiums, although some states have done so. The project team recommends that the federal government do so on a national basis.
• The three plans that cover prescription drugs are problematic. The benefits are both meager and expensive. The high costs reflect, in part, adverse selection, i.e., sick people disproportionately enrolling in the plans that cover prescription drugs. Another problem is that the carriers are precluded from adopting many of the cost management techniques that have become the norm in employment-based drug coverage.
• Some of the benefits, notably coverage of the Part B deductible, preventive care, and at-home recovery are of questionable merit and should be rethought.
• The open enrollment provision enacted in Missouri, which mandates that carriers accept enrollees without regard to health status, annually on their anniversary date, who want to switch Medigap carriers, had only a small (although measureable) effect on carrier pricing practices, although it did expand consumer choice and merits being emulated.