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What's Reasonable About a 'Sick Tax' on Medigap Coverage?

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Medigap insurance, a widely used form of supplemental coverage to Medicare, was the subject of a leading article published by the Washington Post earlier this week. Because Medicare covers only 48 percent of the average beneficiary's health care and long term care costs, most people with Medicare have some form of supplemental insurance to pick up some of these out-of-pocket costs. Among the one in five (9.6 million) Medicare beneficiaries with Medigap coverage, most lack other options to supplement their Medicare benefits, such as through a retiree health plan.

The Washington Post article is ostensibly about proposals that would weaken Medigap coverage, forcing some people with Medicare to pay more for less health security, but in reality, the piece focuses almost exclusively on criticizing AARP. This swipe at AARP is unfair, but it is also puzzling given that AARP is one among hundreds of national organizations opposed to proposals that would reduce the nation's debt on the backs of people with Medicare.

Diminish Medigap Coverage and the Sickest Pay the Highest Price

Who is advocating for the preservation of Medigap coverage is far less concerning than the very real health and financial risks posed by proposals to diminish Medigap coverage. Proposals to increase cost sharing in Medigap plans, including, for example, imposing copays, co-insurance or deductibles and thereby eliminating "first dollar" coverage in Medigap insurance, are designed to achieve savings for the federal government merely by shifting costs to people with Medigap coverage. Most startling about these proposals is who pays the highest price.

The Kaiser Family Foundation analysis cited by the Washington Post shows that the beneficiaries who need Medigap coverage the most would be the hardest hit by eliminating first dollar coverage. A greater share of beneficiaries in fair or poor health (37 percent) and people with more hospitalizations per year (66 percent) would pay more for health care. One in five Medigap beneficiaries would experience significant cost increases -- an average of $806 per year. In the end, proposals like these amount to nothing more than a "sick tax" on people with Medigap coverage.

People with Medigap coverage living on low- and moderate-incomes would also be disproportionately harmed. One in four people with Medigap coverage and annual incomes below about $33,000 would face higher costs -- a greater share than those with higher incomes. A significant share of people with Medigap coverage live on modest incomes; two thirds (66 percent) have incomes below $40,000 per year. These beneficiaries already pay Medigap premiums ranging from $178-$220 per month, in addition to Medicare Part B and Part D premiums, to manage high, sporadic health care costs on limited incomes.

Medigap coverage ensures predictability in health care costs not afforded by the Medicare program outright. While limiting Medigap first dollar coverage might drive down premiums for some, this would come at the expense of those who need this predictability most of all.

More Medigap Cost Sharing Is the Wrong Tool for Cost Savings

Because Medigap coverage is secondary to Medicare, the only way to find federal savings through Medigap is to limit the use of health care services. Adding out-of-pocket costs to Medigap plans is designed to make people think twice about the health care they need. Limiting Medigap first dollar coverage, and other proposals that would increase cost sharing for people with Medicare, ultimately aim to force these kinds of questions: Am I really sick enough to go to the doctor? Do I really need the treatment that the doctor ordered? Should I really get that test the doctor wanted me to get?

But it is providers -- not beneficiaries -- who order health care services and treatments, and it is providers -- not beneficiaries -- who determine if a health care treatment or service is needed. Evidence shows that forcing these decisions through increased cost sharing leads beneficiaries to forgo needed care. Beneficiaries are most likely to skip doctor's visits, and going out without this primary care is shown to increase more costly visits to the emergency room and hospital stays. Not only is this trend not in the best interest of beneficiaries, it may contribute to greater costs for the Medicare program over the long haul.

Proposals to limit Medigap first dollar coverage and others that would increase cost sharing for people with Medicare pose significant risks to seniors and people with disabilities. These crude cost shifting measures are not the right tool for finding savings in the health care system and in Medicare.

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