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Study Challenges Medigap Assumptions

By CQ Staff

March 12, 2008 -- A study released Wednesday by America's Health Insurance Plans (AHIP) finds that Medigap coverage may have a much smaller impact on Medicare spending than previously thought.

Medigap plans are supplemental insurance for Medicare beneficiaries that help cover co-pays, deductibles, and other services not covered by Medicare. In an article published in the March/April issue of Health Affairs, AHIP researchers conclude that previous studies might have overestimated how Medigap coverage impacts Medicare costs, and that past projections of potential Medicare cost savings from restrictions on Medigap coverage are likely overstated.

Previous studies have asserted that Medigap policy holders incur as much as 25 percent more Medicare expenditures than beneficiaries with fee-for-service Medicare alone because Medigap generally provides coverage on a first-dollar basis, which means that beneficiaries do not have to spend any of their own money before coverage begins.

The AHIP analysis found that nearly half of that increase could be explained by controlling for the use of services received through the Veterans Administration or at military facilities. Thirteen percent of fee-for-service only beneficiaries relied on the VA or military facilities as their primary source of care, compared to just one percent of Medigap purchasers, the study found. Since those services are not billed to Medicare, Medicare costs for fee-for-service-only beneficiaries appear artificially low compared to beneficiaries with Medigap coverage.

Beneficiaries' health status also may explain much of the difference in health costs between the two groups. While previous studies have claimed that Medigap holders were healthier than beneficiaries in traditional Medicare with no supplemental coverage, the studies relied on beneficiaries' self-reported health status rather than claims data. AHIP's analysis found that for each condition and across age groups, the incident of illness was actually higher among Medigap policy holders than among all Medicare beneficiaries.

Separately on Wednesday, AHIP released a study of the Medigap market that found enrollment in the program has remained constant in recent years, with the number of standard Medigap policies that are active increasing by three percent between 2004 and 2006.

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