Higher Cost-Sharing for ‘Medigap’ Policies Could Curb Medicare Spending

Increasing out-of-pocket costs for Medicare supplemental insurance plans -- known as "Medigap" policies -- could save the program between $1.5 billion and $4.6 billion annually, according to a new study by the Kaiser Family Foundation, CQ HealthBeat reports.

Many beneficiaries purchase Medigap policies to help with high deductibles and other out-of-pocket charges under Medicare. However, experts say the policies prompt beneficiaries to seek unnecessary care, which increases Medicare spending (CQ HealthBeat, 7/20).

Several proposals in Congress that seek to reduce the deficit include higher out-of-pocket costs and deductibles for Medigap policies (Smith, Reuters, 7/20).

For example, a recent budget proposal by Sens. Tom Coburn (R-Okla.) and Joseph Lieberman (I-Conn.) specified limiting what Medigap plans could cover. The National Commission on Fiscal Responsibility and Reform put forth a similar proposal.

Study Details

For the study, researchers examined three scenarios in which Medigap policyholders experienced higher out-of-pocket spending. In each scenario, beneficiaries used fewer services.

Researchers noted that using fewer services would reduce the number of Medigap claims, which would decrease premiums for the supplemental insurance plans. According to the study, even though certain costs would increase, Medigap policyholders generally would pay less for health care overall under the scenarios (CQ HealthBeat, 7/20).

However, researchers noted that such changes could cause out-of-pocket costs to increase disproportionately for policyholders in poor health who have modest incomes (Zigmond, Modern Healthcare, 7/20). According to the study, such beneficiaries make up about one in five Medigap policyholders.

Researchers also warned that limiting Medigap policies could discourage beneficiaries from seeking preliminary care that can prevent more costly treatments (Reuters, 7/20).