Medicare Supplements cost Medicare more

A New York Times article (10/15/2009) reported that  “Congress may cut back on the current 100 percent coverage of medical bills for people who wait to buy their first Medigap policy….The change is intended to discourage medically unjustified visits.”

The article reported that out of 43 million people on Medicare, 7 million have Medigap plans.  14 million seniors have employer-sponsored health coverage in retirement, and these plans seem to have been targeted by a report commissioned by the Medicare Payment Advisory Commission (Medpac). The June 2009 report looked at how  secondary insurance influences how much healthcare people seek out.

Through number crunching and regression analysis, the the researchers determined that “secondary insurance has a substantial impact on Medicare spending, especially Part B spending, particularly among people who had first-dollar or nearly-first-dollar coverage.”

This “first-dollar-coverage” refers to good retirement health plans that act as supplements to Medicare. These company-sponsored plans often require small or no co-pays for medical services like doctor visits, lab tests, CT scans, and MRIs. It would also refer to people who go out and purchase a Medicare Supplement plan F or G which cover most of  the 20% co-insurance imposed by Medicare.

The report’s regression analysis showed that seniors paying less than 5 percent of the total [bill] averaged 68% to 83% higher total Part B spending than seniors who had only Medicare.

The report goes on to say that there was “evidence of a direct effect on elective hospital admissions. Preventive care, minor procedures and endoscopies were strongly affected by secondary insurance coverage, with substantially higher use among those with private secondary insurance.”

More from the report:

“First, beneficiaries themselves report that out-of-pocket costs are a significant reason for delaying care. Nearly 20 percent of beneficiaries without secondary insurance reported delaying care due to concerns over cost, versus 5 percent of beneficiaries with private secondary insurance. Thus, survey data provide direct evidence that out-of-pocket cost is a mechanism by which secondary insurance increases demand for care.”

“ Ultimately, it did not matter whether beneficiaries chose to purchase coverage or not, or earned coverage as a retirement benefit or not. The only factor that mattered was whether or not their Part B care was free or nearly free of copayment is the simpler explanation of what we have observed.”

“In summary, the evidence is reasonably clear that secondary insurance raises Medicare costs…..This analysis merely shows that beneficiaries in fee-for-service Medicare will tend to use much more health care when each additional service is free (to them) than they would if they had to pay a significant portion of the cost of each additional service.”

FYI:  The NY Times article referred to the cost of Medicare Supplement plans:
Plan C in NY $232 for AARP,
Florida Plan C $189 to $322, depending on the company

In Arizona:  AARP Plan C is 118.82 /month
Plan F in Arizona through United of Omaha offers slightly more coverage for $90.80 for a woman, $98.75 for a man.

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