Variation and Trends in Medigap Premiums. Background


While Medicare covers many services, it does not cover them in full. Individuals with Medicare coverage are responsible for some out‐of‐pocket expenses such as copayments, coinsurance, and deductibles (see Appendix A for more information). Fee‐for‐service Medicare also does not include a cap on out‐of‐pocket payments. Medigap (also called “Medicare Supplemental Health Insurance”) is a form of private health insurance designed to “supplement” Medicare by filling in these “gaps” in Medicare payment.

These gaps in acute care coverage fall into two main categories:3

  1. Cost‐sharing provisions for Medicare‐covered services, including annual deductibles and copayments for expenses covered by Part A and Part B; and
  2. Limitations on Medicare‐covered services (e.g. skilled nursing facility care and home health care are only covered partially or with severe restrictions) or non‐covered services (e.g. outpatient prescription drugs before 2006).

Section 1882 of the Social Security Act pertains to Medigap plans and establishes standards for the various types of plans offered. The standard Medigap plans can be identified by the letters A through N.4, 5 Each standardized Medigap plan must offer the same basic benefits no matter which insurance company sells it (see Figure 1). Therefore, cost and administrative features such as customer service are the primary differences between standardized Medigap plans with the same letter.

Figure 1:

Medigap Plan Types

How to read the chart:

If a check mark appears in a column of this chart, the Medigap policy covers 100% of the described benefit. If a row lists a percentage, the policy covers that percentage of the described benefit. If a row is blank, the policy doesn't cover the benefit. Note: The Medigap policy covers coinsurance only after you have paid the deductible (unless the Medigap policy also covers the deductible.)

Medigap Benefits Medigap Plans
A B C D F* G K L M N
  Out-of-Pocket Limit**  
$4,640 $3,320
* Plan F also offers a high-deductible plan. If you choose this option, this means you must pay for Medicare-covered costs up to the deductible amount of $2,000 in 2011 before your Medigap pays anything.
** After you meet your out-of-pocket yearly limit and your yearly Part B deductible ($162 in 2011), the Medigap plan pays 100% of covered services for the rest of the calendar year.
*** Plan N pays 100% of the Part coinsurance, except for a copayment of up to $20 for some office visits and up to a $50 copayment for emergency room visits that don't result in an inpatient admission.
Source: CMS, “Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare.”  2011.
Medicare Part A Coinsurance and hospital costs up to an additional 365 days after Medicare benefits are used up X X X X X X X X X X
Medicare Part B Coinsurance or Copayment X X X X X X 50% 75% X X***
Blood (First 3 Pints) X X X X X X 50% 75% X X
Part A Hospice Care Coinsurance or Copayment X X X X X X 50% 75% X X
Skilled Nursing Facility Care Coinsurance     X X X X 50% 75% X X
Medicare Part A Deductible   X X X X X 50% 75% 50% X
Medicare Part B Deductible     X   X          
Medicare Part B Excess Charges         X X        
Foreign Travel Emergency (Up to Plan Limits)       X X X     X X


Federal statute establishes that there are two periods during which a Medigap insurer may not deny a beneficiary age 65 or over the right to purchase a Medigap policy:

  1. During the beneficiary’s open enrollment period (prior to or during the six month period beginning with the first month of the first day on which the beneficiary is 65 or older and is enrolled in Medicare Part B).
  2. A guaranteed issue (GI) period, which covers seven scenarios (generally when a beneficiary’s current source of coverage no longer participates in the Medicare program).6

Outside of these two periods, a Medigap insurer may choose whether to accept an application from a beneficiary who is seeking an initial policy or one who is looking to switch to another insurer (as in shopping for price).

Medicare beneficiaries purchase Medigap policies primarily for two reasons: 1) to protect themselves from potentially high out‐of‐pocket costs and 2) to eliminate the hassle and confusion of handling complex medical bills.7 Medicare Advantage plans and other forms of supplemental insurance such as Medicaid and retiree coverage also provide protection against Medicare cost sharing requirements. In 2009, about 8 percent of Medicare beneficiaries were enrolled in fee‐for‐service only (Table 1) meaning they did not have any supplemental coverage.

Table 1:
Supplemental Coverage of Medicare Beneficiaries, by Income Range, 2009

Coverage Type Annual Income Overall
$10,000 or less $10,001 to $20,000 $20,001 to $40,000 More than $40,000
Total Beneficiaries 6,193,586 12,859,747 13,217,472 10,760,737 43,031,542
Source:  ASPE Analysis of 2009 Medicare Current Beneficiary Survey, Access to Care file
Note: supplemental coverage is coded in the following mutually exclusive, hierarchical manner:
1) Medicare Advantage, 2) Medicaid, 3) Employer Sponsored (ESI), 4) Medigap/self purchase, and 5) no other coverage.

* The Medigap data in this table exclude group Medigap policies (which are included in the employer-sponsored category).  Overall, approximately 4.2 percent of Medicare beneficiaries are enrolled in group Medigap policies.  The estimated total Medigap enrollment based on the MCBS Access to Care file is slightly higher than than the estimated enrollment based on ASPE's analysis of NAIC Medicare Supplement Insurance Experience Exhibit data (9.68 million vs. 9.59 million, respectfully).  The MCBS data are based on the “always-enrolled” population (i.e., beneficiaries who were always enrolled in Medicare Part A and/or B for 12 months); conversely, the NAIC data are based on the “ever-enrolled” population (i.e., beneficiaries who were enrolled in a Medigap plan for at least one month during the year), and exclude data for companies that are regulated by the California Department of Managed Health Care (DMHC).

Medigap* 7% 16% 21% 23% 18%
Medicaid 48% 20% 2% 1% 14%
Employer-Based 8% 18% 36% 48% 30%
Medicare Advantage 25% 32% 32% 24% 29%
Other 0% 1% 0% 0% 1%
Fee for Service Only 10% 12% 8% 4% 8%
Supplemental Coverage of Medicare Beneficiaries, by Income Range, 2009

Supplemental Coverage of Medicare Beneficiaries, by Income Range, 2009

Coverage Type$10,000 or less$10,001 to $20,000$20,001 to $40,000More than $40,000Overall
Medicare Advantage25%32%32%24%29%
Fee for Service Only10%12%8%4%8%

State departments of insurance or other state agencies have the authority to approve insurance policy forms and oversee all other regulation with regard to Medigap policies.8 Medigap policies are priced by insurance companies in 3 ways (subject to state regulations):

  1. Community rated (also called “no‐age‐rated”);
  2. Issue‐age rated (also called “entry‐age‐rated”); and
  3. Attained‐age rated.

In community rating, the same monthly premium is charged to everyone who has the Medigap plan, regardless of age. Premiums may rise due to inflation, but not due to the beneficiary aging. Issue‐age rated premiums depend on the age of the beneficiary when purchased, but again, they do not rise due to aging. Attained‐age rated premiums, conversely, rise as the beneficiary ages.9 Rating rules differ from state to state (see Appendix B). In 2010, seven states (CT, ME, MA, MN, NY, VT, and WA) required community rating for all Medigap policies. In Idaho, all Medigap policies were issue‐age rated, and about 80 percent or more of the available policies in Florida, Georgia, Missouri, and New Hampshire were issue‐age rated. However, the most common form of rating is attained‐age rating, which allows insurers to increase premiums almost every year. Nationally, 69 percent of available Medigap plans in 2010 used attained age rating whilwhile 12 percent used community‐rating and 19 percent used issue‐age rating.10

Furthermore, Medigap premiums can also be affected by several insurance company practices, including:

  1. Geographical rating (charging different areas different prices);
  2. Medical underwriting (charging different prices based on medical history);
  3. Discounts (such as discounts for non‐smokers or for women).11

The remainder of this report describes the market in Medigap insurance, analyzes trends in Medigap premiums, and examines factors that are associated with Medigap policies that have significantly higher than average increases in premiums.

3 Finkelstein A. “Minimum standards, insurance regulation and adverse selection: evidence from the Medigap market.” Journal of Public Economics. 2004; 88: 2515‐2547.

4 Centers for Medicare and Medicaid Services (CMS). “Choosing a Medigap Policy: A Guide to Health Insurance for People with Medicare.” 2011.

5 Note that in Massachusetts, Minnesota, and Wisconsin, Medigap policies are standardized in a different way. See CMS, “Choosing a Medigap Policy”, for more details. The Medigap market also includes some “pre‐standardized” policies that were in force prior to the effective date of the Omnibus Budget Reconciliation Act (OBRA) of 1990.

6 These seven scenarios include instances when a beneficiary: 1) is enrolled in Medicare Advantage (MA) and the plan is leaving Medicare, or the beneficiary is no longer in the plan’s service area; 2) has supplemental coverage through an employer or union group that is ending; 3) has a Medicare SELECT policy and moves out of the policy’s service area; 4) enrolls in MA or PACE when first eligible at age 65 and decides within 1 year to switch to Original Medicare; 5)switches from Medigap to Medicare Advantage or a Medicare SELECT policy for the first time and decides to switch back within one year; 6) is enrolled in Medigap and the insurance company goes bankrupt, or Medigap coverage otherwise ends through no fault of the beneficiary; or 7) leaves a MA plan or drops a Medigap policy because the company did not follow rules or misled the beneficiary. (CMS, “Choosing a Medigap Policy.”)

7 Lemieux J, Chovan T, and Heath K. (2008) “Medigap Coverage and Medicare Spending: A Second Look.” Health Affairs 27(2):469‐77.

8 The Secretary is required to periodically review the States’ regulatory programs to determine if they continue to meet applicable statutory requirements, such as providing for the application and enforcement of standards that are equal to or more stringent than the National Association of Insurance Commissioners (NAIC) Model Standards.

9 CMS, “Choosing a Medigap Policy.”

10 ASPE analysis of the 2010 CMS Medigap planfinder database.

11 CMS, “Choosing a Medigap Policy.” Community‐rated policies (also called no‐age rated) do not vary by age, but premiums may increase because of inflation or the other factors listed above, depending on state requirements.


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