Variation and Trends in Medigap Premiums. Trends in Medigap Enrollment

12/16/2011

In 2010, according to data filed by insurers with the National Association of Insurance Commissioners, 9.6 million Medicare beneficiaries (about 20 percent of all beneficiaries) purchased supplemental coverage through Medigap.12 As displayed in Figure 2, the percentage of Medicare beneficiaries enrolled in Medigap plans declined over the past decade. At the beginning of the decade more than a quarter of Medicare beneficiaries had a Medigap policy, but this percentage has steadily declined to about 20 percent in 2010. This decline in enrollment has occurred in both the individual and group markets, although in both relative and absolute terms the drop has been greater in the individual market.

Figure 2:
Percent of Medicare Beneficiaries Covered by Medigap, 2001-2010

Figure 2: Percent of Children by State Below Poverty and Covered by Medicaid

Notes: “Group” refers to Medigap policies purchased through a former employer or union.

Source: ASPE analysis of 2001‐2010 NAIC Medicare Supplement Insurance Experience Exhibit data.


As displayed in Figure 3, much of the decline in Medigap enrollment has coincided with the rapid increase in Medicare Advantage enrollment that occurred after 2006. Medicare beneficiaries can choose between a Medicare Advantage (MA) plan (such as an HMO or PPO) or the traditional Medicare program, the latter with the additional option of purchasing a Medigap plan. Both MA and Medigap cover some of Medicare’s cost sharing requirements, and MA enrollees cannot be sold a Medigap policy. Enrolling in MA can be a direct substitute for purchasing Medigap. Since related provisions of the Medicare Modernization Act of 2003 were implemented, Medicare’s payments to MA plans have been substantially above the payment that would be made for a similar beneficiary in traditional Medicare. Thus, MA plans have been able to offer benefits above and beyond traditional Medicare. For example, many MA plans offer prescription drug coverage at no additional cost—52 percent of MA enrollees with drug coverage are in plans that charge no additional premium beyond the Part B premium required of all Medicare beneficiaries.13 In contrast, Medigap enrollees who want drug coverage must purchase a separate prescription drug plan.

Figure 3:
Medicare Advantage and Medigap Enrollment, 2001-2010

Figure 3: Medicare Advantage and Medigap Enrollment, 2001‐2010

Source: ASPE analysis of 2001‐2010 NAIC Medicare Supplement Insurance Experience Exhibit data; CMS State‐County‐Plan Files, State‐County‐Contract Files, and Medicare Advantage, Cost, PACE, Demo, and Prescription Drug Plan Contract Reports; and 2011 Medicare Trustees Report, Table III.A3.


Medicare beneficiaries can purchase Medigap coverage on their own or through a group policy, such as through a former employer or union.14 Unlike the private insurance market for persons under 65, the Medigap market is dominated by individual, not group, policies. Over three‐quarters of persons with a Medigap policy have an individual policy.

Figure 4:
Distribution of Medigap Policies between Group and Individual Market Policies in 2010

Figure 4: Distribution of Medigap Policies between Group and Individual Market Policies in 2010

Notes: Market share is calculated by number of lives covered. “Group” refers to Medigap policies purchased through a former employer or union.

Source: ASPE analysis of 2010 NAIC Medicare Supplement Insurance Experience Exhibit data


The two most popular Medigap plan types, F (44 percent) and C (14 percent), are also the most comprehensive ones (Figure 5). Plans F and C cover 100 percent of the deductibles and coinsurance charged by Medicare. Plan F, but not plan C, also covers Part B excess charges.15

In recent years, Congress has discontinued some of the standardized plan types, authorized new plan types, and allowed new versions of original standardized plan types to be sold. Plan F is now authorized to be sold as a high deductible plan. The Medicare Modernization Act of 2003 (MMA) created two new plan types, K and L, which were introduced in 2006. These new plan types included more cost sharing to address longstanding concerns about overutilization of services by those with Medigap relative to fee‐for‐service only Medicare beneficiaries.16 Because beneficiaries with these plan types have higher out‐of‐pocket costs on Medicare‐covered expenditures, their premiums are generally lower than for the other plan types.17 These two plan types do not cover the Part B deductible and, unlike the other Medigap plan types, also have a limit on annual out‐of‐pocket costs—$4,640 and $2,320 for plans K and L respectively, in 2011.18

The MMA also required the Secretary of Health and Human Services to request NAIC to revise the standard plans under its Medigap model law and regulations. NAIC issued its recommendations in March 2007 and received Congressional approval through the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA). These changes were effective in June 2010. New plans M and N also became available; plan M covers 50 percent of the Medicare Part A deductible, and plan N includes 100 percent coverage for the deductible with $20 copays for physician office visits. In addition, plans D and G sold after June 2010 have different benefits than D or G plans purchased before that date. Also, plans E, H, I and J are no longer sold, but beneficiaries with those plans can keep their coverage. Further changes to standardized plans are expected in the future; the Affordable Care Act of 2010 requires the NAIC to revise standards for Plans C and F to include nominal cost sharing for Part B physician services beginning in 2015.

Participation in new plan types (K‐N) continues to be extremely low. In 2006, plans K and L combined to cover less than 0.1 percent of Medigap enrollees (0.04 percent and 0.04 percent for plans K and L, respectively).19 In 2010, participation had only marginally increased in these two plans. Plan K accounted for 0.3 percent of Medigap policies in 2010, while plan L accounted for only 0.4 percent. More recent data from the first quarter of 2011 suggests that plan N, with its predictable cost sharing, is the most popular choice among new plan types and represented 15 percent of all new Medigap policies issued or sold during that quarter, though its share among all Medigap policies is still quite low.20

Figure 5:
Market Share by Medigap Plan Type, 2010

Figure 5: Market Share by Medigap Plan Type, 2010

Notes: Plan type refers to the standard plans A‐N as required by Section 9E of the Model Regulation to Implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act. This includes all plans identified as A‐N issued prior to a State’s revisions to its regulatory program and identified as a standard plan at the time of issue. Policies issued prior to the effective date of the State’s revisions to its Medicare supplement regulatory program pursuant to the Omnibus Budget Reconciliation Act (OBRA) of 1990, and no longer offered in a State, are designated here as “pre‐standardized.” Policies not meeting either of these definitions are designated here as “other.”

Source: ASPE analysis of 2010 NAIC Medicare Supplement Insurance Experience Exhibit data


This distribution of participation in plan types reflects a continued preference for lower out‐of‐pocket spending despite higher premiums. The more comprehensive and more popular plans, C and F, cost an average of $178 and $171 per month, respectively, while the plans with higher out‐of‐pocket spending, K and L, cost an average of $82 and $121 per month, respectively (Table 2).21

Table 2: Average Enrollment‐Weighted Monthly Premiums by Medigap Plan Type in 2010

Plan type Average monthly premium/member in 2010 ($) Market share (%) by number of covered lives
Other 202 5.7
Pre‐standardized 218 8.0
A 146 2.0
B 161 4.6
C 178 14.1
D 190 3.5
E 183 1.6
F 171 43.7
G 166 3.5
H 193 0.7
I 202 1.6
J 190 9.0
K 82 0.3
L 121 0.4
M 47 0.00
N 28 1.6

Notes: Plan type classification here follows NAIC guidance, which means “the standard plans A‐N as required by Section 9E of the Model Regulation to Implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act. This includes all plans identified as A‐N issued prior to a State’s revisions to its regulatory program and identified as a standard plan at the time of issue. Policies issued prior to the effective date of the State’s revisions to its Medicare supplement regulatory program pursuant to the Omnibus Budget Reconciliation Act (OBRA) of 1990, and no longer offered in a State, should be designated as ‘pre‐standardized.’ Policies not meeting either of these definitions should be designated as ‘other.’”

Source: ASPE analysis of 2010 NAIC Medicare Supplement Insurance Experience Exhibit


Premiums vary widely across states. The average enrollment‐weighted monthly premium in 2010 at the state level ranged from $129 in Michigan to $219 in New York. These averages do not take into account the distribution of plan types within a state, so a higher average premium might be due to a higher proportion of enrollment in more comprehensive, and therefore more expensive, plan types. However, looking at premiums for only plans C and F, there still was considerable variation across states. Tables with average enrollment‐weighted premiums by state are included in the Appendices.

Figure 6:
Average Enrollment-Weighted Monthly Medigap Premiums for All Plan Types, 2010

Figure 6: Average Enrollment‐Weighted Monthly Medigap Premiums for All Plan Types, 2010

Note: This map does not weight by distribution of plan types.

Source: ASPE analysis of 2010 NAIC Medicare Supplement Insurance Experience Exhibit data


The Medigap market is dominated by relatively few insurers. In 2010, two insurers accounted for 40 percent of the Medigap market. UnitedHealth Group is the largest insurance carrier for Medigap policies, covering about a third of all Medigap enrollees. Mutual of Omaha Group and the rest of the top 10 insurers cover another third of beneficiaries with Medigap coverage.

Figure 7:
Market Share of Top 10 Insurers Selling Medigap Policies in 2010

Figure 7: Market Share of Top 10 Insurers Selling Medigap Policies in 2010

Notes: Organizations are identified based on NAIC insurer group code.

Source: ASPE analysis of 2010 NAIC Medicare Supplement Insurance Experience Exhibit data


The Medigap market is very concentrated in most states. The top two insurers account for more than half of the Medigap market in 45 states and more than 80 percent of the market in 12 states (Figure 8).

Figure 8:
Percent of Lives Covered by Top 2 Medigap Insurance Groups, 2010

Figure 8: Percent of Lives Covered by Top 2 Medigap Insurance Groups, 2010

Source: ASPE analysis of 2010 NAIC Medicare Supplement Insurance Experience Exhibit data


12 Estimates from the most recent 2009 Medicare Current Beneficiary Survey suggest that 18% of 43 million beneficiaries, or approximately 7.8 million Medicare beneficiaries, purchased Medigap in 2009. It is not clear whether the NAIC data for some reason overcounts Medigap enrollment (for example, policy switchers may be counted twice), or whether, as seems more likely, some beneficiaries who purchase Medigap fail to report that coverage when interviewed by the MCBS.

13 Kaiser Family Foundation Program on Medicare Policy, ‘Data Spotlight: Medicare Advantage Market Enrollment Update,” September 2011. http://www.kff.org/medicare/upload/8228.pdf

14 While some employers or unions offer supplemental retiree coverage that wraps around Medicare Parts A and B, others offer enrollment in a group Medigap plan to protect against Medicare’s cost sharing requirements.

15 These charges are the difference between the price (“allowed charge”) Medicare will cover (80 percent of the allowed charge) and what a physician not accepting Medicare assignment (“nonparticipating provider”) can charge (which can be up to 15 percent higher than the allowed charge).

16 For example, the Physician Payment Review Commission (PPRC) showed that 1995 Medicare spending for FFS‐only Medicare beneficiaries was less than 75% of that for beneficiaries with Medigap. (Physician Payment Review Commission, Annual Report to Congress, 1997). Another study of 1994 data reported that Medicare enrollees with Medigap used 28% more services than those with no supplementary coverage, while those with employer‐based coverage used 17% more. The authors attributed the differences to the fact that Medigap plans often covered all of Medicare’s cost‐sharing charges, while employer‐based plans typically did not. (Sandra Christensen, and Judy Shinogle, “Effects of Supplemental Coverage on Use of Services by Medicare Enrollees,” Health CareFinancing Review, vol. 19, no. 1 [fall 1997], 5‐17).

17 America’s Health Insurance Plans (AHIP). “Trends in Medigap Policies, December 2004 to December 2006.” 2008. www.ahipresearch.org/pdfs/MedigapTrendReport.pdf.

18 CMS, “Choosing a Medigap Policy.”

19 AHIP, “Trends in Medigap policies.”

20 America’s Health Insurance Plans, Center for Policy and Research (2011). “Trends in Medigap Coverage and Enrollment, 2010‐2011”. http://www.ahipresearch.org/pdfs/Medigap2011.pdf

21 Table 2 does not adjust for variation in Medigap premiums across States or variation due to the characteristics (i.e. health status) of beneficiaries in individual plans.

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