The House Ways and Means Committee is holding a hearing tomorrow on Medicare reform that will focus on proposals to modify beneficiary cost-sharing, including potential changes to Medigap coverage. A new report released today by America’s Health Insurance Plans (AHIP) shows that Medigap coverage is a vital lifeline to more than 10 million Medicare beneficiaries.  The study is an update to prior research showing trends in Medigap enrollment and coverage.

The new report, “Trends in Medigap Coverage and Enrollment, 2012,” is based on data from the National Association of Insurance Commissioners, which includes data from 262 carriers representing virtually the entire Medigap marketplace.  The report finds that enrollment in Medigap plans increased by 300,000, from 9.9 million in December 2011 to 10.2 million in December 2012.  Consistent with recent years, beneficiaries are increasingly choosing to enroll in Medigap plans that include at least some cost-sharing provisions, such as co-pays and coinsurance.

Key findings from the report include:

• Enrollment in Plan N, with cost-sharing amounts (i.e., $20 co-pay for physician office visits), grew by 35 percent in 2012 to approximately 360,000 enrollees.  Plan L, which covers 75 percent of Part A and Part B cost-sharing and includes a $2,400 out-of-pocket limit, grew by 47 percent in 2012 to 103,000 enrollees.

• Plan F grew by 10 percent in 2012, or 450,000 enrollees, and covered the largest share of Medigap policyholders.  Plan C had the second highest share.  Plans C and F cover 100 percent of the deductibles and coinsurance not covered by Medicare.

Medigap Provides Financial Protection and Peace of Mind to Medicare Beneficiaries

Medigap helps cover significant out-of-pocket costs that are not covered by Medicare and allows seniors and beneficiaries with disabilities to budget for medical costs and avoid the confusion and difficulty of handling complex medical bills.  A recent survey found that 9 out of 10 seniors are satisfied with their Medigap coverage, and more than 9 in 10 would recommend Medigap to a friend or relative.

Moreover, Medigap provides stability for vulnerable populations. A recent report shows that low- and moderate-income Medicare beneficiaries, particularly those living in rural areas, rely on the financial protection Medigap provides.  The report found that 46 percent of all Medigap policyholders (and 57 percent of policyholders in rural areas) had incomes of $30,000 or less.  In addition, Medigap beneficiaries, on average, are more likely to have one or more chronic health care conditions than the Medicare population as a whole, according to research published in Health Affairs.

Proposals to Change Medigap Could Threaten Affordability and Benefits Seniors Rely On

As part of the current debt and deficit discussions, AHIP is urging policymakers to avoid cutting benefits or enacting changes that would harm the millions of seniors and people with disabilities who rely on Medigap coverage.  The President’s budget proposal for 2014 includes a new $2.9 billion tax on beneficiaries who choose Medigap policies with low cost-sharing requirements.  The Medicare Payment Advisory Commission (MedPAC) has recommended a 20 percent tax on these policies.  Adding a new tax on Medigap would increase costs for vulnerable beneficiaries who rely on the predictability and financial protection Medigap provides.

Research has shown that limiting first-dollar coverage in Medigap policies would cause beneficiaries to avoid care that is medically necessary – resulting in higher costs for enrollees and the country.  A white paper commissioned by AHIP concluded that “an across-the-board ban on first-dollar coverage Medigap plans is an overly blunt tool for lowering healthcare expenditures and invites adverse, unintended consequences.”  These concerns have been echoed by other organizations:

• In a letter to HHS, the National Association of Insurance Commissioners (NAIC) said that “Medigap’s protections are now inappropriately being held responsible for encouraging the overuse of covered services and increasing costs in the Medicare program,” and that “the assertion that Medigap coverage causes overuse of Medicare services fails to recognize that Medigap coverage is secondary and that only Medicare determines the necessity and appropriateness of medical care utilization and services.”

• The Center for Medicare Advocacy said that, “Introducing further cost-sharing in Medigap plans would create a significant financial burden, but that’s not all.  When required to pay beyond their means, people skip needed medical care and treatment, leading to poor health outcomes, increased emergency room visits and hospitalizations.”

• A joint letter to the NAIC from a variety of consumer groups said that these proposals “are based on the false assumptions that beneficiaries with supplemental coverage use more Medicare services than necessary and that additional cost sharing will result in federal health care savings.”  Moreover, the groups said, “We remain deeply concerned that any attempt to add cost sharing in Medigap plans will cause disproportionate harm to beneficiaries with low and modest incomes, those who are chronically ill and those living in rural communities.”

Importantly, the cost savings often cited by proponents of restricting first-dollar coverage in Medigap are based on proposals that would apply this change to current Medicare beneficiaries.  Imposing cost sharing on current Medigap policyholders would add a significant burden on vulnerable Medicare beneficiaries, many of whom have been paying for these benefits for many years, often have very tight budgets, and rely on Medigap for predictability in their health care costs and protection against high medical bills.

Senate

S. 983, John Cornyn, to prohibit the Secretary of the Treasury from enforcing the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

S. 972, Tom Coburn, to prohibit the Secretary of Health and Human Services replacing ICD-9 with ICD-10 in implementing the HIPAA code set standards.

S. 966, Ben Cardin, to amend the Internal Revenue Code of 1986 to increase participation in medical flexible spending arrangements.

S. 963, Tom Coburn, to prevent an unrealistic future Medicaid augmentation plan.

S. 962, Dean Heller, to prohibit amounts made available by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010 from being transferred to the Internal Revenue Service for implementation of such Acts.

S. 961, Roy Blunt, to improve access to emergency medical services, and for other purposes.

S. 959, Tom Harkin, to amend the Federal Food, Drug, and Cosmetic Act with respect to compounding drugs.

S. 957, Michael Bennet, to amend the Federal Food, Drug, and Cosmetic Act with respect to the pharmaceutical distribution supply chain

S. 955, John Thune, to amend the Public Health Service Act to provide liability protections for volunteer practitioners at health centers under section 330 of such Act.

S. 948, Charles Schumer, to amend title XVIII of the Social Security Act to provide for coverage and payment for complex rehabilitation technology items under the Medicare program.

S. 945, Jeanne Shaheen , to amend title XVIII of the Social Security Act to improve access to diabetes self-management training by authorizing certified diabetes educators to provide diabetes self-management training services, including as part of telehealth services, under part B of the Medicare program.

S. 931, Roy Blunt, to amend the Public Health Service Act to raise awareness of, and to educate breast cancer patients anticipating surgery, especially patients who are members of racial and ethnic minority groups, regarding the availability and coverage of breast reconstruction, prostheses, and other options.

House

H.R. 2037, Kurt Schrader, to establish a demonstration grant program to recruit, train, deploy, and professionally support psychiatric physicians in Indian health programs.

H.R. 2033, Jim McDermott, to provide for medical neutrality and to establish accountability for violations of the principle of medical neutrality, and for other purposes.

H.R. 2031, Edward Markey, to amend title IV of the Public Health Service Act to expand the clinical trial registry data bank, and for other purposes.

H.R. 2027, Sam Johnson, to amend section 1877 of the Social Security Act to modify the requirements for hospitals to qualify for the rural provider and hospital exception to physician ownership or investment prohibition in order to take into account hospitals that were under construction or development at the time of imposing such requirements, hospital expansions, and hospitals in financial distress, and for other purposes.

H.R. 2023, Lois Capps, to direct the Secretary of Health and Human Services to develop a national strategic action plan to assist health professionals in preparing for and responding to the public health effects of climate change, and for other purposes.

H.R. 2022, Diane Black, to prohibit the implementation or enforcement of any requirement of the Patient Protection and Affordable Care Act until certifications are made that taxpayer information is not and will not be used for targeting any individual or group that provides information to the Internal Revenue Service for political reasons or on the basis of political views, and for other purposes.

H.R. 2019, Gregg Harper, to eliminate taxpayer financing of presidential campaigns and party conventions and reprogram savings to provide for a 10-year pediatric research initiative through the Common Fund administered by the National Institutes of Health, and for other purposes.

H.R. 2010, Andy Barr, to amend the Patient Protection and Affordable Care Act to apply to Delegates and Resident Commissioners to the Congress, and to employees of committees and leadership offices of Congress, the requirement of such Act that the only health plans that the Federal Government may make available to Members of Congress and congressional staff are plans created or offered through an Exchange established under such Act.

H.R. 2009, Tom Price, to prohibit the Secretary of the Treasury from enforcing the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

H.R. 2003, Tim Ryan, to amend the Federal Food, Drug, and Cosmetic Act to require the label of drugs intended for human use to contain a parenthetical statement identifying the source of any ingredient constituting or derived from a grain or starch-containing ingredient.

H.R. 2001, Charles Rangel, to amend title 38, United States Code, to improve the ability of health care professionals to treat veterans via telemedicine.

H.R. 1993, Randy Forbes, to prohibit the Internal Revenue Service from hiring new employees to enforce the Federal Government’s invasion into the health care lives of American citizens.

H.R. 1990, Tom Price, to prohibit the Secretary of the Treasury from enforcing the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

H.R. 1984, Leonard Lance, to amend the Public Health Service Act to raise awareness of, and to educate breast cancer patients anticipating surgery, especially patients who are members of racial and ethnic minority groups, regarding the availability and coverage of breast reconstruction, prostheses, and other options.

H.R. 1982, David Reichert, to amend section 1862 of the Social Security Act with respect to the application of Medicare secondary payer rules to workers’ compensation settlement agreements and Medicare set-asides under such agreements.

H.R. 1976, Chellie Pingree, to amend title XIX of the Social Security Act to provide access to certified professional midwives for women enrolled in the Medicaid program.

H.R. 1971, John Kline, to direct the Secretary of Defense to provide certain TRICARE beneficiaries with the opportunity to retain access to TRICARE Prime.

H.R. 1958, Elijah Cummings, to prohibit wholesalers from purchasing prescription drugs from pharmacies, and to enhance information and transparency regarding drug wholesalers engaged in interstate commerce.

The blog post also points out that, “Over the last 40 years, the Dartmouth group has documented extensive geographic variation in Medicare spending that is unexplained by demographics, income, or disease severity. Areas with 30 percent higher spending seem to have no better outcomes.”

“Ironically, Medicare’s low administrative costs — about 3 percent compared with 17 percent in the private sector — may be to blame for the high spending.  The private sector uses these funds to do a better job controlling excessive use. Tomas Philipson and colleagues have shown that the variation in Medicare hospital use is four times larger than the private sector when it comes to heart disease. Because it can rely on its monopsony power to control overall spending, Medicare has a weaker incentive to limit overuse.  Meanwhile private insurers have become more efficient, employing tools such as utilization review and case management (which count as administrative costs) to assess patient needs and then either restrict services or steer patients towards more cost-effective care. In a world without private insurance, we would likely see more money wasted on care that produces no benefit for patients.”

“In addition, administrative spending protects against fraud.  By some estimates, the Medicare program loses a staggering $60 billion to fraud each year. This amounts to 11 percent of the Medicare budget and would be enough to double Federal spending on primary and secondary education.  No private company would ever tolerate this abuse.  Imagine the fraud if Medicare covered 300 million Americans.”

These findings have been echoed elsewhere. A Heritage Foundation report found that from 2000-2005, Medicare’s administrative costs per beneficiary were consistently higher than those for private insurance, ranging from 5 to 48 percent higher, depending on the year.

And according to a BNA study, “Popular comparisons of Medicare and private group health plan ‘overhead’ costs wrongly compare only a part of administrative expenses related to the Medicare program to the whole of private sector administrative expenses for comparable large group health plans.” The report also says that Medicare’s costs for claims administration “are really about the same as claims administration costs in the private large group health plan market.” Moreover, some of Medicare’s general administration costs are expensed elsewhere in the federal budget, and others, like premium taxes, do not apply to the Medicare program.

As Ezra Klein noted on the Wonk Blog, “It’s also important to note that you don’t necessarily want administrative costs as low as they could possibly be. Some activities that are considered ‘administrative’ are useful. Disease management, for instance, which accounts for some of the difference between Medicare and Medicare Advantage. Mental health counselors who are available by phone. Good-faith investigations into waste, fraud and abuse. Care coordination. Nurses who use e-mail or telephones to remind patients to take their drugs. Administration is not always wasteful.”

The article notes, “…observers ranging from state insurance officials to employee benefit consultants say some consumers could see premium increases big enough to price them out of insurance markets.”

A large number of these effects will be felt in the individual insurance market. Glenn Shippey, an actuary in the Division of Insurance, is quoted in the article as saying, “’[individual buyers] will see something that looks very different from what they have, and it may be priced very differently as a result.’” He goes on to say, ‘“We’re not sure what that difference is going to be on an individual basis, but it’s important to understand there will be a lot of changes in existing policies.’”

One changing component is due to the essential health benefits requirement. Under this requirement, all individual plans must cover ten categories of benefits. The article notes, “So, whether they need it or not, Nevadans buying individual policies will be covered for maternity care, mental health services, infertility treatments, home health, bariatric surgery, chiropractic care and hearing aids.”

As for the effect on prices: “’There’s no way these plans can remain at the (premium) costs they were, because carriers have to provide more benefits in their plan structure,’ said Todd Rich, chief deputy commissioner of the Division of Insurance. ‘They have to price the plans higher.’”

“Added Shippey: ‘Individuals in all states are going to see some significant increases, depending on what type of individual we’re talking about. The new laws and rules coming into effect could cause substantial premium increases for some individuals.’”

The law’s new age rating restrictions will also affect premiums. “New restrictions will limit the difference in premium costs between young, healthy people and older, sicker patients. Nevada law allows insurers to charge older, unhealthy people premiums as much as six times more than younger consumers pay. After January, that gap can only be three times more.”

AHIP spokesperson Robert Zirkelbach is quoted in the article, saying “‘But any time you add new benefits to a policy, you add to the cost of coverage. There’s a pretty broad agreement that, for these reforms to work, we need broad participation in the system, particularly among the younger and healthier, to offset the costs of those with high health-care needs. To the extent new mandates increase costs for younger people, they may price them out of the market altogether. That will drive up costs for everyone.’”

The article cites a number of studies estimating the effect on premiums for different groups:

• “In March 2012, a study prepared for the state by Massachusetts-based Gorman Actuarial found that individual-market premiums in Nevada could rise 11 percent to 30 percent on average, though federal subsidies could blunt that blow for lower-income consumers.”

• “A January report in Contingencies, the American Academy of Actuaries’ publication, also predicted that people 21 to 29 will pay 42 percent higher premiums nationwide, while those 30 to 39 can expect to shell out 31 percent more. What’s more, adults 21 to 29 making $25,000 or more a year can expect to pay more.”

• “An April study by consulting firm Milliman for America’s Health Insurance Plans found that a healthy 27-year-old U.S. male could see an average 149.8 percent annual premium jump, from $1,414 to $3,532.”

• “Federal subsidies could change that calculation: A young man earning less than $25,000 or so a year would see premiums drop by 25 to 60 percent, thanks to tax breaks, while one who earns about $42,000 a year or more would see premiums spike 169 percent.”

• “For an unhealthy, 57-year-old woman, yearly premiums could tick up 4.1 percent, from $7,892 to $8,214, though federal aid would bring down premiums 51 percent or more for women making less than roughly $42,000 a year.”

For more information on factors driving premiums, visit Time for Affordability.

Below are highlights of the Post article:

• “Many small-business owners worry that a new tax on insurance providers in the health-care law will mean higher premiums for them, undermining the law’s capacity to lower their health-care costs.”

• “Starting next year, the federal government will charge a new fee on health insurance firms based on the plans they sell to individuals and companies, known as the fully insured market.”

• “’Insurers have confirmed back to me that the tax will be passed down to consumers, and the direct impact will be staggering,’ Ryan Thorn, owner of a small insurance planning firm near Salt Lake City, told lawmakers during a congressional hearing Thursday. ‘It disproportionately hits individuals and small-business owners, the people who have been hurt most by these challenging times.’”

• “During his testimony, Thorn read letters from his small-business clients about the likely impact of the new health insurance tax. One wrote that the tax ‘scares the daylights out of us,’ while another warned that it would likely ‘hasten the decision to move away from providing group coverage for our employees.’”

• “Robert Zirkelbach, a spokesman for America’s Health Insurance Plans, a trade group for insurance providers, acknowledged that small firms will likely ‘shoulder most of the burden’ of the tax. Meanwhile, a new minimum-coverage requirement for employers with 50 or more workers will be broader than what some of them already offer, he said, which could further increase their costs as they are forced to supplement their current plans.”

• “A new study by the National Federation of Independent Business, which has long pushed back against the health-care law, suggests that the health-care tax could reduce private-sector employment by several hundred thousand jobs over the next decade, more than half of which would come from small businesses. Based on its forecasts, the toll on gross domestic product could reach as high as $185 billion.”

• “…the concerns from small-business owners and insurance companies have prompted lawmakers to introduce bills that would repeal the health insurance tax — one from Sens. Orrin G. Hatch (R-Utah) and John Barrasso (R-Wyo.) and another from Reps. Charles W. Boustany Jr. (R-La.) and Jim Matheson (D-Utah).”

• “Business lobbying groups from the manufacturing, construction and farming sectors have supported those efforts, citing similar concerns about the likely impact on their health insurance premiums.”

AHIP recently submitted comments to the House Ways and Means Committee Work Groups urging repeal of the ACA’s health insurance tax as part of a comprehensive tax reform package.  Click here for more information about the impact of the health insurance tax on consumers and employers.

Senate

S. 914, Thad Cochran, to amend title XVIII of the Social Security Act to permit direct payment to pharmacies for certain compounded drugs that are prepared by the pharmacies for a specific beneficiary for use through an implanted infusion pump.

S. 908, Tim Johnson, to amend the Public Health Service Act to improve the diagnosis and treatment of hereditary hemorrhagic telangiectasia, and for other purposes.

S. 907, Jeanne Shaheen, to provide grants to better understand and reduce gestational diabetes, and for other purposes.

S. 902, David Vitter, to amend the Patient Protection and Affordable Care Act to apply the provisions of the Act to certain Congressional staff and members of the executive branch.

S. 867, Mark Pryor, to amend title XVIII of the Social Security Act to provide for pharmacy benefits manager standards under the Medicare prescription drug program, to establish basic audit standards of pharmacies, to further transparency of payment methodology to pharmacies, and to provide for recoupment returns to Medicare.

S. 865, Sheldon Whitehouse, to provide for the establishment of a Commission to Accelerate the End of Breast Cancer.

S. 862, Kelly Ayotte, to amend section 5000A of the Internal Revenue Code of 1986 to provide an additional religious exemption from the individual health coverage mandate.

S. 858, Bernie Sanders, to provide for an earlier start for State health care coverage innovation waivers under the Patient Protection and Affordable Care Act, and for other purposes.

S. 857, Richard Durbin, to amend the Family and Medical Leave Act of 1993 to permit leave to care for a same-sex spouse, domestic partner, parent-in-law, adult child, sibling, grandchild, or grandparent who has a serious health condition.

House

H.R. 1920, John Lewis, to amend titles XVIII and XIX of the Social Security Act to provide for a delay in the implementation schedule of the reductions in disproportionate share hospital payments, and for other purposes.

H.R. 1919, Robert Latta, to amend the Federal Food, Drug, and Cosmetic Act with respect to the pharmaceutical distribution supply chain, and for other purposes.

H.R. 1915, Eliot Engel, to provide grants to better understand and reduce gestational diabetes, and for other purposes.

H.R. 1912, Mike Coffman, to amend the Patient Protection and Affordable Care Act to provide for participation in the Exchange of the President, Vice President, Members of Congress, political appointees, and Congressional staff.

H.R. 1908, Matt Salmon, to repeal certain provisions of the Patient Protection and Affordable Care Act relating to the premium tax credits and cost-sharing subsidies.

H.R. 1907, Janice Schakowsky, to amend the Public Health Service Act to establish direct care registered nurse-to-patient staffing ratio requirements in hospitals, and for other purposes.

H.R. 1902, Michael Fitzgerald, to amend title XVIII of the Social Security Act to provide for timely access to post-mastectomy items under Medicare.

H.R. 1853, Bill Cassidy, to amend title XIX of the Social Security Act to reform payment to States under the Medicaid program.

H.R. 1841, Peter Welch, to provide for an earlier start for State health care coverage innovation waivers under the Patient Protection and Affordable Care Act, and for other purposes.

H.R. 1838, Steve Stivers, to amend title XIX of the Social Security Act to apply the Medicaid primary care payment rate to additional physician providers of primary care services.

H.R. 1830, Shelley Moore Capito, to provide for the establishment of a Commission to Accelerate the End of Breast Cancer.

H.R. 1827, Joe Courtney, to amend the Public Health Service Act to extend through fiscal year 2018 the authorization for certain health care workforce loan repayment programs.

H.R. 1821, Lois Capps, to amend title XVIII of the Social Security Act to provide for patient protection by establishing safe nurse staffing levels at certain Medicare providers, and for other purposes.

Beginning in 2014, the health reform law imposes a new sales tax on health insurance that will increase the cost of health care coverage. The amount of the tax will be $8 billion in 2014, increasing to $14.3 billion in 2018, and increased based on premium trend thereafter. The Joint Committee on Taxation estimates that the health insurance tax will exceed $100 billion over the next ten years.

Ryan Thorn, the owner of a small insurance agency from South Jordan, Utah, testified before the Subcommittee about the burden the health insurance tax will have on his business in the future. He noted that the tax is larger than the medical device tax and the prescription drug tax combined. “It will make health insurance coverage for people like me and my clients cost much more, which raises a larger concern—that businesses will possibly drop their coverage altogether,” he said in written testimony submitted to the Committee.  He went on to say the following:

“Since I’ve made my living helping people buy private health insurance coverage for nearly 30 years, I can tell you with absolute certainty that when prices go up people buy less health insurance coverage or simply forgo it altogether. Since the financial impact of the new health insurance tax alone will be much greater than the minimum penalty for those who choose not to buy health insurance, I am very worried that it will tip people over the edge and they will decide to go bare.”

Dean Norton, the president of the New York Farm Bureau, noted that an analysis by the Congressional Budget Office showed that the health insurance tax “would be largely passed through to consumers in the form of high premiums for private coverage.” He continued by explaining the rapid growth of insurance costs for small business owners:

“[H]ealth insurance costs for small businesses are already rapidly trending higher, increasing 103 percent since 2000. According to the Joint Committee on Taxation, the HIT tax will further increase family premiums by $400 or 2.5 percent in the year 2016, making it even harder for farmers to purchase coverage for themselves, their families and their employees.”

According to an analysis conducted by Oliver Wyman, the health insurance tax will increase the cost of health care coverage for consumers and employers in every state.

AHIP recently submitted comments to the House Ways and Means Committee Work Groups urging repeal of the ACA’s health insurance tax as part of a comprehensive tax reform package. You can view an excerpt of these comments below and AHIP’s full comments here. Click here for more information about the impact of the health insurance tax on premiums and affordability.

According to the post, which is based on an issue brief from the American Academy of Actuaries, a number of factors will go into determining how premiums will be affected. “These factors include the effectiveness of the individual mandate and premium subsidies at attracting low-cost enrollees into the insurance market; the new benefit requirements that may lead to higher premiums but lower out-of-pocket costs; employer decisions regarding whether to continue offering insurance and the health status of those whose coverage is dropped; how each state’s current issue and rating rules compare to those beginning in 2014; and each individual’s demographic characteristics and health status (and income when determining premiums net of subsidies).”

Composition of the risk pool. If the risk pool composition shifts significantly, for example if young, healthy individuals opt not to purchase coverage, premiums will be affected. “This in turn will reflect the effectiveness of the individual mandate and premium subsidies at increasing coverage among young and healthy individuals, compared with the increased ability of high-cost individuals to purchase coverage due to the guaranteed issue requirement.”

New age rating restrictions. The health reform law limits age rating bands to 3:1. Currently, 42 states have 5:1 age rating bands or higher. “In most states, the compression of premiums due to the ACA’s age rating restrictions will increase the relative rates for younger adults and reduce them for older adults.”

For more information on how the health reform law will impact premiums, visit Time for Affordability.