2012 Fall National Meeting

Senior Issues Task Force
National Association of Insurance Commissioners (NAIC), November 30, 2012

Patient Protection and Affordable Care Act
(a) ‘(y) ‘(1) IN GENERAL- The Secretary shall request the National Association of Insurance Commissioners to review and revise the standards for benefit packages described in paragraph (2) under subsection (p)(1), to otherwise update standards to include requirements for nominal cost sharing to encourage the use of appropriate physicians’ services under part B. Such revisions shall be based on evidence published in peer-reviewed journals or current examples used by integrated delivery systems…

11-5-12 Draft of proposed letter from NAIC to HHS Secretary Kathleen Sebelius

(Excerpts of draft)

Pursuant to section 3210 of the Patient Protection and Affordable Care Act (ACA) you have requested the National Association of Insurance Commissioners (NAIC) to review and revise the NAIC Medicare Supplement insurance (Medigap) model regulation to include nominal cost sharing in Medigap Plans C and F to encourage the use of appropriate physicians’ services.

The NAIC has performed its requested review of the standards for Plans C and F under Section 3210 of the ACA.  We were unable to find evidence in peer-reviewed studies or managed care practices that would be the basis of nominal cost sharing designed to encourage the use of appropriate physicians’ services. Therefore, our recommendation is that no nominal cost sharing be introduced to Plans C and F. We hope that you will agree with this determination.

Medigap is a product that has served our country’s Medicare eligible consumers well for many years, offering them security and financial predictability with regard to their Medicare costs. Medigap’s protections are now inappropriately being held responsible for encouraging the overuse of covered services and increasing costs in the Medicare program.

The statute requires the NAIC to base nominal cost sharing revisions on “peer-reviewed journals or current examples of integrated delivery systems”. However, the Subgroup discovered that there is a limited amount of relevant peer-reviewed material on this topic. None of the studies provided a basis for the design of nominal cost sharing that would encourage the use of appropriate physicians’ services. Many of the studies caution that added cost sharing would result in delayed treatments that could increase Medicare program costs later (e.g., increased expenditures for emergency room visits and hospitalizations) and result in adverse health outcomes for vulnerable populations (i.e., elderly, chronically ill and low-income).

The Subgroup also gathered information from integrated delivery systems (Medicare Advantage plans) but concluded that, because these managed care plans make medical necessity determinations for Medicare, that any such practices were not directly relevant for Medigap.

In summary, based on our thorough review and deliberation on this topic, we believe, and hope that you will agree, that no changes should be made to Plans C and F to add beneficiary cost sharing at this time.

Respectfully submitted,


From a health policy perspective, this is a big deal. A very big deal! The National Association of Insurance Commissioners (NAIC) is perhaps the most credible and authoritative organization involved with private health insurance. Although this decision by their Senior Issues Task Force is limited to Medigap coverage of Medicare cost sharing, the principles involved challenge the wisdom of trying to control health spending by creating consumer sensitivity to health care prices through deductibles, coinsurance and other forms of cost sharing.

One very fundamental issue with cost sharing is that now we have enough studies to show that there is absolutely no doubt that exposing patients to up-front costs causes many of them to avoid obtaining health care services or products that are beneficial. Cost sharing should be rejected on this basis alone, as the highly flawed policy that it is.

Another crucial point is that the policy community tremendously overestimates the savings that could be achieved by expanding cost sharing. They base their estimates primarily on the findings of the RAND Health Insurance Experiment (RAND HIE). This was a large study of a healthy workforce and their young, healthy families, during a few healthy years of their lives. When they were faced with significant cost sharing they did modestly reduce their use of health care. Obviously that was selective since they would not be parsimonious when it came to disease or injury that threatened life or limb (where most health care spending is).

Since the subjects in the RAND HIE were fundamentally healthy, most of them used little health care during the year and so care forgone because of the cost sharing proved to be a significant percentage of the total spending on their health care. As an example, if $1000 of care were recommended for a person who decided to forgo $300 worth of it but accepted the other $700 worth, then the policy people conclude that cost sharing reduces spending by 30%. They then apply this to total health spending and conclude that we can save 30% of health care costs by requiring deductibles, copayments, and coinsurance.

The defect with this reasoning is that these healthy people consume only a minute fraction of our total health care. The 20% of people with more serious problems consume about 80% of all health care. Because of their serious problems, these people quickly use up their deductibles, and then cost sharing plays only a very minor role. As a percentage of their care received, forgone care rapidly approaches 0%. Thus the percentage savings to the system for this high cost sector is almost negligible.

So the alleged 30% savings applies only to a very small portion of our total health expenditures. Even there, the NAIC conclusion is that forgone care can “result in delayed treatments that could increase Medicare program costs later and result in adverse health outcomes for vulnerable populations.” The NAIC is right to reject this flawed cost sharing policy that saves little and can have serious adverse outcomes. After all, it is the patient that really counts.

Now, as far as the Medigap plans are concerned, they are outrageously overpriced, largely because of their profoundly wasteful administrative excesses. It would be much less expensive to roll the benefits over into the traditional Medicare program. There would be zero extra administrative costs, and even a net reduction since processing the cost sharing has its own administrative costs.

Folding Medigap benefits into Medicare should be a no brainer, especially since it is one of the steps that we want to take in order to improve Medicare as we convert it into a single payer national health program covering all of us – an improved Medicare for all.