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A few weeks ago I was paging through a number of insurance industry and agent trade publications when I came across a headline that went something like this: “Medigap insurers to take big hit if H.R. 2 passes.”
That headline immediately caught my eye. Medicare supplement (Medigap) reinsurance is an important focus for Gen Re’s North American Life company, and anything that could negatively impact our carrier clients, as well as those selling their products, is worth our time and attention. That headline, and others like it, seemed to be sounding the alarm – big trouble ahead!
We’ve been following the discussion about first-dollar coverage and how it might increase Medicare utilization and cost; the bill was going to prohibit coverage for the Part B deductible, which covers costs for physician services, including lab tests. After President Obama signed the bill on April 16, both our experts and those in the industry reassured us that the real story is not nearly as dire as predicted. Here’s why.
Yes, Medigap insurers will need to adjust once again to changes in the Medicare program – as they’ve been doing since its inception. The insurers will need to work with the NAIC to develop the exact rules and procedures to be followed for filing and administration. There will be a period of agent and consumer confusion that will need to be addressed.
But let’s take a look at the details before we decide that the sky is falling:
The new rules on Part B deductibles are not effective until January 1, 2020.
As of that date, new Medicare beneficiaries will be unable to purchase coverage for the Part B deductible. Policyholders who already have coverage for Part B will be able to continue with their current carrier. It is yet to be determined how this will impact existing beneficiaries and their ability to switch carriers and still retain Part B coverage. This is an issue that will need to be worked out with NAIC.
Of the 10 standardized plans available today, only two provide coverage for the Part B deductible (although they make up about 60 percent of sales).
It will be easy and logical for agents and buyers to shift away from plans C and F toward plans D, G and N for a lower premium that will probably more than offset the loss of first-dollar coverage. (According to NAIC, Plans G and N in fact are already the fastest growing Med Supp plans since 2010.)
Many consumers buy Medigap for reasons having nothing to do with the Part B deductible, including freedom to choose their own doctors/hospitals. An HMO/PPO-style health plan is not for everyone.
Many retirees in rural areas do not have access to Medicare Advantage plans, so Medigap remains a vital coverage option for these buyers.
In our view Medigap still remains the more predictable way for seniors to budget for medical expenses.
On balance we believe that the changes to Medigap are evolutionary, not revolutionary. Insurers, agents, administrators and consumers will have more than four years to adapt to the new rules (though insurers and administrators should start planning for this now).
During that time, millions of people will turn 65 and the market for Medigap insurance will continue to expand. As it has many times before, the insurance market will deal with the evolution of Medicare and all involved will be better served through the process.
An earlier version of this article ran on the Gen Re Corp. website. Copyright, General Re Corp. 2015, all rights reserved, reprinted with permission.