Analysis Estimates Impact of Medigap Reforms on Medicare Spending and Out-of-Pocket Costs

Kaiser Family Foundation reports:

“Wednesday, July 20, 2011

As part of several debt-reduction and Medicare-reform proposals, some policymakers propose to prohibit Medicare supplemental insurance policies (known as Medigap) from covering all of enrollee’s out-of-pocket Medicare costs, which some believe leads to higher use of services and higher Medicare spending. Such changes would expose Medigap enrollees ­ currently about one in six Medicare beneficiaries ­ to a larger share of Medicare’s cost-sharing requirements.

A new analysis,, commissioned by the Kaiser Family Foundation examines three potential Medigap reforms, including one that is similar to a recommendation of the National Commission on Fiscal Responsibility and Reform (known as the Bowles-Simpson Commission). The analysis estimates that the three options could save between $1.5 billion and $4.6 billion in Medicare spending in a single year.

The analysis finds that under each of the Medigap reform options, enrollees would see an increase in average out-of-pocket spending for Medicare-covered services, as their Medigap policies become less generous. As a result of higher cost-sharing requirements, beneficiaries with Medigap could be expected to use fewer Medicare-covered services. The reduction in use would result in fewer claims paid by Medigap plans for Medicare services, and therefore, a decrease in average Medigap premiums.

Largely as a result of lower expected premiums for the less comprehensive Medigap policies, the analysis finds that most Medicare beneficiaries with Medigap policies would be expected to pay less for their health care overall. However, Medigap reforms that prohibit first dollar coverage and charge additional coinsurance for hospital, home health and other services would have a disproportionately negative impact on Medigap enrollees who are in relatively poor health, those who require inpatient hospital care, and those with modest incomes ­ as these groups are more likely to face higher overall health care costs as a result of the changes.

The reduction in Medicare spending due to higher cost-sharing requirements would result from enrollees’ using fewer Medicare-covered services. The analysis does not attempt to estimate how much of this reduction would be attributable to enrollees foregoing needed care or how reductions in Medicare-covered services would affect enrollees’ health and future medical needs ­ which potentially could have both health and spending implications over the long term.

The study, Medigap Reforms: Potential Effects of Benefit Restrictions on Medicare Spending and Beneficiary Costs, is part of a series of Kaiser Family Foundation studies examining the effects of proposed Medicare changes on the program¹s beneficiaries, the federal budget and other stakeholders, as part of the Kaiser Project on Medicare’s Future.

The Foundation also today issued an updated version of its March analysis estimating the impact of raising Medicare’s eligibility age from 65 to 67. The update reflects additional provisions of the 2010 health reform law. These adjustments produce lower estimates of net federal savings and net aggregate out-of-pocket spending, and a modest reduction in the share of seniors expected to pay more under the proposal, with two-thirds of 65 and 66 year olds estimated to pay more out-of-pocket due to this policy change.

The updated report is available online at”