Medigap Standards

VII. Key Issues: Regulation & Reform >> B. Health Care Regulation >> Health Insurance Regulation >> Medigap Standards (last updated July 15, 2014)

Overview

These laws were intended to facilitate price-shopping across plans so that consumers could better understand them. At the time, there was growing evidence of duplicative coverage among Medicare recipients who evidently did not completely understand the scope or limits of their coverage, hence were easy targets for agents seeking to sell them unneeded coverage. According to MedPAC, nearly all beneficiaries in Medicare have some supplemental coverage (about 93 percent in 2009).

California was the first state to adopt minimum standards for Medigap policies, in 1974. By 1980, 8 states had minimum standards for such policies (Finkelstein 2002). However, due to scandals regarding sales abuses in the Medicare supplement market, Congress originally enacted in 1980 the Baucus Amendments (P.L. 96-265, Sec. 507) establishing voluntary standards for policies to be certified as Medicare Supplements, including an outline of benefits, guide to consumers, minimum benefit requirements, and minimum loss ratios (60% for individual policies; 75% for group policies). By 1984, all states had adopted some sort of minimum standards for non-group Medigap policies. However, there continued to be confusion among Medicare eligibles who found it difficult to compare prices across large numbers of different supplemental policies available. The Omnibus Budget Reconciliation Act of 1990 (OBRA) required that all Medigap policies be standardized, modeled after one of 10 standardized benefits packages. This legislation became effective on July 30, 1992.

Currently, there are 10 standardized Medigap policies ranging from Plan A, covering a core set of supplemental benefits to Plan J, which covers core benefits, copayments and deductibles, prescription drugs and other benefits. The Duke Center for Health Policy has developed a draft working paper assessing the costs and benefits of Medigap minimum standards.

Resources

• Consumer’s Union. The Evidence Is Clear: Too Many Health Insurance Choices Can Impair, Not Help, Consumer Decision Making (November 2012). This is a literature synthesis of evidence on consumer choice in health insurance markets, much of which comes from Medicare Advantage and Medicare Part D.
• Frakt, Austin. Too Many Choices. AcademyHealth Blog, September 25, 2013. Reviews the literature on health plan choice, demonstrating that too many choices can lead to sub-optimal consumer decisions while also providing some market stability in that sub-optimal choices help counter risk segmentation that in the worse case could lead to death spirals for comprehensive health plans.
• Rice, Thomas and Janet Cummings. Reducing the Number of Drug Plans for Seniors: A Proposal and Analysis of Three Case Studies. Journal of Health Politics, Policy and Law (2010) 35(6): 961-997; doi:10.1215/03616878-2010-035.