Variation and Trends in Medigap Premiums. Executive Summary

12/16/2011

In response to a letter from Senators Reid, Baucus, and Kerry,1 the Office of the Assistant Secretary for Planning and Evaluation of the U.S. Department of Health and Human Services has prepared this report. The report describes the market in Medigap insurance (also known Medicare Supplemental Health Insurance policies), analyzes trends in Medigap premiums, and explores factors that may be associated with Medigap policies that have significantly higher than average increases in premiums.

We find that:

  1. Overall, Medigap premiums have risen moderately over the past decade, and significantly more slowly than the growth in Medicare spending per beneficiary. Between 2001 and 2010, the average annual increase in Medigap premiums was 3.8 percent, compared to a 5.4 percent average annual increase in total Medicare spending per beneficiary (excluding Part D spending).
  2. In 2010, 9.6 million Medicare beneficiaries – approximately 20% of all beneficiaries ‐ purchased Medigap coverage. The share of Medicare beneficiaries purchasing Medigap coverage has declined from approximately 26 percent in 2001.
  3. Medigap premiums vary by plan type. The most popular plan types (F and C) had average enrollment‐weighted monthly premiums of $171 and $178 respectively in 2010. Plans M and N, which cover a smaller share of Medicare out‐of‐pocket costs, had the lowest average premiums at $47 and $28 per month in 2010, but together these relatively‐new plans covered fewer than 2 percent of total Medigap enrollees.2
  4. There is significant variation across states in average enrollment‐weighted monthly Medigap premiums, from a low of $129 in Michigan to a high of $219 in New York in 2010. One explanation for this range could be the mix of different plan types within a state, but variation in premiums persists even when looking only at Plan F or Plan C. Average Medicare spending per capita at the state level is a strong predictor of Medigap premiums – a ten percent difference in Medicare spending per beneficiary at the state level is associated with a six percent difference in Medigap premiums.
  5. Variation at the state level in Medigap premium growth is significantly related to state trends in Medicare spending per beneficiary.
  6. The rapid increase in Medicare Advantage (MA) enrollment that began in 2006 is associated with reduced rates of growth in Medigap premiums.
  7. Although the increase in Medigap premiums was generally moderate over the past decade, premiums for some beneficiaries increased at rates that were substantially greater than average. About ten percent of Medigap policies, accounting for approximately 3 percent of enrollment, had average annual premium increases of more than 20 percent during the 2007‐2010 period. These “outlier” policies tended to be newer and were more likely to be experiencing large positive or negative changes in enrollment.

1 Reid H, Baucus M, Kerry J. “Reid, Baucus, Kerry Pen Letter To Secretary Sebelius Requesting More Cost‐Control Protections For Seniors Who Obtain Medigap Supplemental Coverage.” 2010. http://reid.senate.gov/newsroom/pr_101006_medigapcoverage.cfm.
2 Plan M covers 50 percent of the Part A deductible ($1,132 in 2011), and Plan N covers 100 percent of the deductible with $20 copays for doctors office visits.

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