'Medigap' policies may be on the table in Congressional debate

WASHINGTON--On July 1, a Washington health advocacy group issued a dire warning about a small but significant Medicare provision on the table in the debt talks.

"Under some of the proposals being discussed, seniors could pay as much as $7,500 per year out of pocket for medical care," read the alert from the Partnership to Protect Medigap.

Rep. Joe Courtney, Sen. Joseph Lieberman: Do gap policies drive Medicare costs?

That figure may be inflated. And the group that sent the missive is linked to Washington's major insurance lobby, America's Health Insurance Plans (AHIP).

But the issue that AHIP has flagged is real. It could be front-and-center in the coming months, as the newly-appointed "super committee" on debt reduction gets to work. And insurance companies aren't the only ones fretting as that panel looks for new savings in entitlement programs such as Medicare.

At issue, in this particular case, are so-called "Medigap" policies, supplemental insurance plans that many seniors purchase to cover health care costs that Medicare does not. According to one recent report, about one in six Medicare beneficiaries--or more than 7 million elderly Americans--had purchased some kind of supplemental private insurance in 2008.

That's because Medicare, the government health insurance program for seniors, has high deductibles, significant co-insurance costs, and no cap on annual out-of-pocket expenses. Proponents say that without private Medigap polices to fill in those holes, many seniors could face unexpected, destabilizing health care bills.

"Most Medicare beneficiaries on are fixed incomes," noted Toby Edelman, a senior policy attorney at the Center for Medicare Advocacy. And while the public perception may be that Medicare covers everything, it doesn't.

If an elderly man qualifies for nursing home care, for example, "the first 20 days could be paid in full, but starting on day 21 there's a very, very large copayment of at $141.50 per day," she noted. "That's a big chunk of money."

Similarly, an AHIP analysis noted that an extended hospital stay could easily leave a Medicare patient with bills running into the thousands of dollars. After 60 days, they're on the hook for a $283 per day charge. And they could face a deductible of as much as $1,132 for any stay shorter than that.

Medigap policies are similar to regular health insurance. Seniors pay a monthly premium; in return, insurance companies cover certain expenses, such as a patient's share of an emergency-room visit or their deductible for a doctor's appointment.

But some critics see Medigap as an obstacle to ensuring that seniors have some "skin in the game." In other words, if seniors pay little or nothing out-of-pocket for their health care, they have little incentive to monitor, let alone curtail, their use of services. And the more health bills that seniors rack up, the higher Medicare costs are for taxpayers.

"Medigap encourages people to use more health care," said Henry Aaron, a health care financing expert at the Brookings Institution, a Washington think tank, because it shields seniors from co-pays and deductibles. "If something costs more, you buy less of it than if it doesn't cost you anything."

So lawmakers like Sen. Joseph Lieberman, a Connecticut independent, have called for limiting what Medigap policies can cover. The Medicare overhaul bill he has cosponsored with Oklahoma Republican Tom Coburn would bar Medigap policies from paying for any part of the first $550 of a patient's out-of-pocket costs, whether deductible or something else. And while it would cap seniors' out-of-pocket expenses at $7,500 a year, it would prevent Medigap policies from covering more than 50 percent of a patient's co-insurance costs.

"Because Medigap plans cover all of the 'gaps' in an enrollee's Medicare coverage, policyholders use up to 25 percent more services than Medicare participants who have no supplemental coverage, even though numerous studies have indicated that this increase in utilization does not lead to better health care outcomes,"  a summary of the Lieberman-Coburn Medicare proposal states. "And because enrollees are only liable for a small portion of this increase in utilization, it is taxpayers--through Medicare costs--and not Medigap insurers who bear most of the costs that result from the increased utilization."

Lieberman and Coburn's Medigap provision isn't new. It's very similiar to a recommendation by  President Barack Obama's bipartisan fiscal commission--a document that will likely provide a debt-reduction primer to the special congressional committee tasked with finding at least $1.2 trillion in savings over the next ten years.

The Congressional Budget Office has estimated that curbing Medigap policies, as outlined by the fiscal commission and the Lieberman-Coburn bill, would save about $53.4 billion over nine years, from 2013 to 2021.

The impact on seniors' pocketbooks is not clear. AHIP says the proposals to curb Medigap could end up forcing seniors to shell out $7,500 in additional annual health care expenses. An analysis by the non-partisan Kaiser Family Foundation said there's no question that for some elderly patients, out-of-pocket costs would jump considerably, although they put the range at $500 to $1,000 a year.

"Most Medigap enrollees could see their direct costs rise as their Medigap policies become less generous, imposing higher deductibles and cost-sharing requirements," the Kaiser report states. Lieberman's proposal, for example, could cost seniors an extra $823 a year, the Kaiser report concluded.

But the report also suggests that Medigap premiums would likely decrease as the coverage became less costly for insurers, so for some enrollees it could be a wash.

No matter how the finances shake out, changing Medigap will be a tough sell, both inside Congress and among outside interest groups.

Many seniors see Medigap insurance as a critical component of their health care safety net.

Edelman said the concept of making sure seniors have skin in the game is "disgusting" and off-base. "I don't think people generally get health care just because," she said. "I wouldn't get an extra colonoscopy just because it's available. People do it because they need it."

She argued that curbing Medigap policies could end up costing the system more, by erecting new barriers to preventive screenings or other care. "The problem is then people won't get the health care they need because they can't afford it," she said. "They're going to get sicker and then people wind up going to the emergency room, which is the most expensive way of getting care and the least efficient."

Some Democrats also argue that targeting Medigap policies is only nibbling around the edges of spiraling health care costs.

"That's not a big cost driver in the system," said Rep. Joe Courtney, D-2^nd District. He argued that other steps, such as the focus on health outcomes over patient volume including in the federal health reform, will achieve better results, both for seniors and for the federal budget.

And if the opposition from seniors groups and key Democrats isn't enough, the insurance industry is also clearly girding for a fight. AHIP's member companies fanned out on Capitol Hill in early July in an urgent campaign to warn lawmakers against restricting Medigap plans.

"Medigap provides peace of mind and vital financial protection to more than 10 million seniors across the country," said AHIP spokesman Robert Zirkelbach, in a statement after their insurance company's lobby day. Congress, he said, should take note of "soaring" medical costs and make sure that "no one is forced to give up their current coverage."

AHIP helped form the Partnership to Protect Medigap last summer. Although the group bills itself as a "grassroots initiative" and a "coalition of seniors, their families and health care providers," AHIP is a Washington powerhouse that's spent about $5 million on lobbying in the first six months of this year.

Zirkelbach declined to specificy who else was in the coalition, beyond the characterization on the Partnership's website. And he said he did not have data on how much Medigap policies account for the insurance industry's market portfolio.

But, says Aaron of the Brookings Institution, "I can understand why the AHIP folks are manning the barricades. This clearly is a significant area of business. They're probably making a decent return on these plans, and therefore they would not like to see even the start of legislative changes that would curb that market."

Whether the special debt-reduction committee can find consensus on this sliver of federal spending is far from clear.

"Everyone is already out trying to protect their issues," Edelman said, wincing at the thought of all the lobbying efforts now cranking up and aiming their fire at the new panel. "It's going to be quite a horrible situation watching that committee operate."