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New AHIP Study in Health Affairs Challenges Previous Assumptions about Medigap’s Impact on Medicare Costs
AHIP releases new study of Medigap market
Washington, DC – Groundbreaking research on Medicare supplemental insurance (Medigap) challenges previous assumptions about Medigap’s impact on Medicare costs. The new study by America’s Health Insurance Plans (AHIP) was published this week in the journal Health Affairs. AHIP also released a new analysis of the Medigap market which found that Medigap enrollment has remained constant in recent years, showing the value this option provides for Medicare beneficiaries.
“The new data provide a fresh perspective on Medigap coverage and its effect on health care costs in Medicare,” said Karen Ignagni, President and CEO of AHIP.
Previous studies have asserted that Medigap policyholders incur as much as 25 percent more Medicare expenditures than beneficiaries with fee-for-service (FFS) Medicare only because Medigap generally provides coverage on a first-dollar basis, meaning it does not require any cost-sharing for beneficiaries.
The AHIP study shows that nearly half of this apparent increase in Medicare expenditures can be explained by controlling for the use of services received through the Veterans Administration (VA) or at military facilities. Thirteen percent of FFS-only beneficiaries relied on the VA or military facilities as their primary source of care, compared to just one percent of Medigap purchasers. These services are not billed to Medicare, causing Medicare costs for FFS-only beneficiaries to appear artificially low compared to beneficiaries with Medigap coverage.
Further, beneficiaries’ health status may explain much of the remaining difference in health costs between these two groups. Previous studies argued that Medigap policyholders were healthier than FFS-only beneficiaries. These studies, however, relied on beneficiaries’ self-reported health status rather than looking at more detailed claims-based health status information.
AHIP conducted a detailed analysis of Medicare beneficiaries’ expenditures for the most costly health conditions and found that, for each condition and across age groups, the incidence of illness was actually higher among Medigap policyholders than among all Medicare beneficiaries.
“AHIP’s study goes further than our original research to help explain the apparent difference in Medicare costs between these two groups,” said Judith Shinogle, Assistant Professor of Health Economics at the University of Maryland and a co-author of the original study that analyzed the impact of Medigap on Medicare costs.
AHIP also released a new study of the Medigap market, which found that enrollment in Medigap has remained constant in recent years. The overall number of Medigap policyholders has remained steady and the number of standard Medigap policies in force has increased by three percent between 2004 and 2006, demonstrating the importance of this product for Medicare beneficiaries to protect themselves from high out-of-pocket costs.
Most Medicare beneficiaries with standard Medigap plans purchased Plan F (40 percent), followed by Plan C with 19 percent enrollment. Both of these policies cover 100 percent of the deductibles and coinsurance charged by Medicare.
“Medigap provides beneficiaries with additional benefits not available through Medicare and allows seniors to more accurately budget for medical expenses,” said Ignagni, who also noted that more than 90% of Medigap policyholders say they are satisfied with their coverage.
In 2008, the Medicare program has a $1,024 deductible for inpatient hospital care and 20 percent coinsurance for outpatient care after an annual deductible of $135. These are adjusted upward each year and Medicare does not have a limit on beneficiaries’ potential out-of-pocket costs. Medigap policies generally cover Medicare deductibles and coinsurance, as well as certain benefits not covered by Medicare. Two of the standard Medigap plans provide a limit on beneficiaries’ out-of-pocket costs.
For more information about the new Medigap study in Health Affairs or the Medigap analysis, please visit AHIP’s Center for Policy and Research at www.AHIPResearch.org.
