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Democrats Want New MLR Standards to Apply to Medigap Policies

By Dena Bunis, CQ HealthBeat Managing Editor

July 26, 2011 -- Two Democratic lawmakers on Tuesday introduced bills in the House and Senate that would require Medigap plans to meet the same medical loss ratio standards (MLR) as private insurers.

The measures would require Medigap plans to use more of each premium dollar on medical care and less on administrative costs than they are required to do now.

Under the health care overhaul law (PL 111-148, PL 111-152), the Department of Health and Human Services issued regulations that require insurance plans in the group market to spend at least 85 percent of every premium dollar on medical care and that require insurers in the individual market to spend 80 percent for such services. The new requirements do not apply to Medigap policies, which have medical loss ratio standards of 75 percent in the group market and 65 percent for individual policies. Those percentages have been in effect since Medigap insurance standards were set in 1990.

The bill (HR 2645), introduced by Rep. Pete Stark, D-Calif., and a companion one (S 1416) in the Senate by John Kerry, D-Mass., would require Medigap insurance plans to meet the same MLR standards as other health insurers. The measure would make the new standards effective in 2014.

House Democrats Henry A. Waxman of California and Frank Pallone Jr. of New Jersey are original cosponsors of Stark’s measure. Staff members for both authors said that so far, no Republican lawmakers have signed on to the bills.

“Americans have long paid to line the pockets of insurance executives with their premium dollars. Health reform pushes back by ensuring that consumers get improved value for their premium dollars through strong medical loss ratio standards for private health insurers and Medicare Advantage plans,’’ Stark said in a written statement announcing the bill. “Our legislation builds on those reforms by extending the same standards to Medigap plans.”

Kerry said that “this common sense bill provides another layer of protection for our seniors.”

Robert Zirkelbach, spokesman for America’s Health Insurance Plans, said not only are Medigap plans “one of the most highly regulated coverage options in the marketplace today,’’ but that “policymakers and regulators have always recognized that supplemental coverage options are different than comprehensive and major medical.”

Medigap policies have a much lower premium base on which to spread the administrative costs, he said. “That’s why the levels are set where they are.”

Increasing the MLR requirement on Medigap policies, he said, “could disrupt the coverage that beneficiaries like and rely on today and could reduce their access to some of the services that are available in the current policies.’’ Zirkelbach said the administrative cost side of premiums pays for such consumer benefits as better health information technology, call centers and other customer supports.

AARP officials support Stark and Kerry’s measures.

“Seniors—especially those with fixed incomes—want to get the best value from their health insurance,’’ said AARP Executive Vice President Nancy LeaMond. “Insurance companies should be spending their customers’ hard-earned dollars on health care, not administrative costs. This bill will help seniors get better value for the care they need.”

Several plans to reduce federal spending have included other proposed changes to the Medigap plans—most recently, a package of $250 billion in cuts tentatively agreed to by President Obama and House Speaker John A. Boehner, R-Ohio, before their debt ceiling negotiations fell apart.

Under that plan, Medigap plans would no longer cover as many out-of-pocket Medicare costs, something that could save Medicare between $1.5 billion and $4.6 billion in one year, according to a recent Kaiser Family Foundation study.

Obama’s bipartisan debt commission made a similar recommendation last year. In addition, a recent debt plan from Sens. Joseph I. Lieberman, I-Conn., and Tom Coburn, R-Okla., would overhaul Medigap plans to establish minimal cost sharing on Medicare services to try to reduce unnecessary treatments.

Emily Ethridge contributed to this report.

Dena Bunis can be reached at [email protected].

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