Congressman Pete Stark
Press Release, July 26, 2011
Today, Rep. Pete Stark (D-CA) and Sen. John Kerry (D-MA) introduced the Medigap Medical Loss Ratio Improvement Act. The legislation improves consumer protections in the Medigap marketplace by raising the minimum percentage of premium dollars that must go toward medical care, not executive compensation or administrative costs. This percentage is called the medical loss ratio (MLR).
Under current law, Medigap insurers are required to meet an MLR of only 65 percent in the individual marketplace and 75 percent in the group market. The Medigap Medical Loss Ratio Improvement Act would require Medigap insurance plans to spend at least 85 percent of every premium dollar on medical care in the group market and 80 percent in the individual market.
July 26, 2011
The insurance industry opposes Kerry and Stark’s bill.
The healthcare law’s MLR requirements didn’t extend to Medigap because it’s a form of supplemental coverage, said Robert Zirkelbach, a spokesman for America’s Health Insurance Plans.
As supplements, Medigap plans collect lower premiums than comprehensive policies, but the administrative costs aren’t necessarily lower. Extending the 80 to 85 percent MLR standards to Medigap would disrupt coverage with which seniors are satisfied, Zirkelbach said.
By Don McCanne, MD
Medigap policies are private plans that supplement Medicare coverage. They are quite popular because of the exposure that Medicare beneficiaries have to relatively high out-of-pocket expenses. They also represent one of the worst values in private insurance because of their very low medical loss ratios (a low percentage of of the premiums collected is spent on actual health care).
Rep. Pete Stark and Sen. John Kerry have introduced the Medigap Medical Loss Ratio Improvement Act (HR 2645 and S 1416) to bring the Medigap medical loss ratios up to the same level as other private plans under the Patient Protection and Affordable Care Act. Individual Medigap plans will have to spend at least 80 percent of the premium on health care, and group Medigap plans at least 85 percent.
To no surprise, the insurance industry is opposed, and understandably so. In order to calculate the supplemental benefits to be paid under the Medigap plans, the insurers must still process all services, most of which are paid by Medicare, thereby involving the same administrative effort as comprehensive plans. Also, their marketing costs are similar to their comprehensive private plans. Thus their administrative costs and profits are proportionately much higher considering the small amount paid out in supplemental benefits.
The insurers are really in a bind. They can’t reduce their administrative services, yet, because the plans are only supplements, they can’t pay out much more in benefits. Requiring the same medical loss ratios as apply to comprehensive plans would likely destroy the Medigap model, and insurers would have to withdraw these plans.
That would be good since these plans are such a terrible value no matter how you cut it. But we have to keep in mind why these plans exist. Medicare benefits are inadequate, leaving beneficiaries exposed to excessive costs. To eliminate this wasteful private industry of Medigap plans, the appropriate solution would be to reduce or preferably eliminate the out-of-pocket cost sharing of Medicare.
Although that reintroduces the “moral hazard” issue of “free” health care, other nations have shown that comprehensive “free” health care can be provided at much lower costs than ours. If we’re going to talk about morality, then we should ask, what is moral about injecting an expensive, superfluous, worthless industry into our health care?
This legislation is important because it identifies the problem of excessive administrative waste, which adds even more to our very high health care costs. But rather than this bill, we really do need an improved Medicare for all.