The Obama administration wants to raise $2.5 billion over 10 years by imposing a surcharge on Medicare enrollees who buy “near first-dollar” Medicare supplement insurance.
The surcharge would affect enrollees who use Medicare supplement insurance, or Medigap coverage, to fill in the coverage gaps left by the Medicare Part A hospitalization insurance program and the Medicare Part B physician services and outpatient services insurance program.
The government would collect the surcharge by adding an amount equal to about 15% of the average Medigap policy premium onto a Medigap policy owner’s Medicare Part B premium.
The administration has included the proposal in a federal fiscal year 2013 budget proposal.
Fiscal year 2013 starts Oct. 1; the new Medigap surcharge would take effect in 2017.
Current beneficiaries and near-retirees would not have to pay the surcharge.
Obama administration officials say the surcharge is necessary because reducing Medicare enrollees’ out-of-pocket costs to very low levels eliminates their incentive to think about cost when they get care.
“Of particular concern are Medigap plans that cover substantially all Medicare copayments, including even the modest copayments for routine care that most beneficiaries can afford to pay out of pocket,” officials say.
Bonnie Burns of California Health Advocates, Sacramento, Calif., says the surcharge would be terrible for consumers.
Burns, who represents consumer interests at the National Association of Insurance Commissioners (NAIC), Kansas City, Mo., serves on an NAIC panel that released a discussion paper on first-dollar Medigap coverage in 2011.
Regulators, insurance industry representatives and consumer advocates on the panel all agree on the need to protect consumer access to Medigap products with low out-of-pocket costs, Burns says.
Researchers at the RAND Corp., Santa Monica, Calif., found 40 years ago that high out-of-pocket costs reduced health care use, but the study sample included no Medicare enrollees, and no one tried to determine whether the extra care the subjects with low out-of-pocket costs received was medically necessary, Burns says.
Burns says she thinks consumers with near first-dollar Medigap coverage tend to have high Medicare costs because the rich, high-premium Medigap plans appeal to consumers who already have health problems.
“They’re trying to budget their health care expenses,” Burns says.
Blaming Medigap issuers and customers for any over-use of care seems particularly unfair because federal law prohibits sellers of Medigap insurance from determining whether the care a policyholder has received is medically necessary, Burns says.
If the government wants to guard against Medicare waste, it should do more to enforce existing rules that require providers to document that the care they provide is medically necessary, Burns says.