Lack of Uniformity and Transparency
When selecting a Medigap plan, seniors are largely left in the dark. This does not allow patients to make informed decisions about coverage and price, resulting in them paying more than they otherwise would. Beyond simply an absence of information available to a patient, there is a lack of uniformity in how rates are determined.
Different companies can use varying pricing methods to determine monthly premiums, for what is presumably the same coverage. What’s most interesting is the variance that occurs based on factors over which patients have little to no control. Demographic and geographic information heavily plays into determining a senior’s premium. The results of this being that seniors can wind up paying more for the same coverage simply because they live in a different state, county, and even zip code. Lack of uniformity is never followed by an equal field of play.
If seniors had access to a one-stop hub where they could see all available Medigap plans, they could have the necessary pricing and coverage information they need to make informed decisions, which would both lower costs and increase access. There are places where people can go to compare rates for other types of insurance, but no such location exists at the State or Federal level for Medigap.
What are Medical Loss Ratios?
Medical Loss Ratio (MLR) is the amount an insurance company spends on patient care divided by its total revenue, with the resulting figure represented as a percentage. As part of the Affordable Care Act, there are mandated ratios that insurance companies must meet in order to ensure money paid by patients as premiums is then spent on those same patients when they need it, as opposed to being spent on administrative expenses or taken as profit. Additionally, these ratios are required to be made public to ensure company compliance. These requirements vary based on what type of plan a patient has.
Medicare Advantage and Medicare Part D plans have a set MLR of 85%. Medigap plans, however, have set MLRs of 65% in the individual market and 75% in the group market. Money earned through Medigap premiums can be spent on administrative expenses or as profit than on care at a higher rate when compared to other plans. Given that Medigap plans are a supplement to traditional Medicare, benefits for Medicare patients are determined by the Federal Government, not by Medigap companies. This means that Medigap companies do not determine their own coverage and do not spend money on these determinations, so they theoretically have lower administrative costs than other types of plans.
If Medigap plans were held to the same standards as other types of coverage, we could be sure that more beneficiaries were getting appropriate coverage when needed.
Conflicts of Interest
The conflict of interest problem is twofold in the Medigap space.
First, since Medigap broker commissions are calculated as a percentage of premiums, there is no incentive to lower premiums. This is especially troubling considering that the Medical Loss Ratio for Medigap plans is significantly lower than other types of insurance. Seniors who opt for traditional Medicare plus Medigap for their coverage should not be financially penalized for making that choice.
Second, some Medigap plans are marketed and sponsored by third parties. Those third parties then receive a royalty for referring patients to those plans. Information on these deals is hard enough to come by and the patients who sign up through this process are not informed of these relationships. As a result, seniors don’t know whether the plan that they’re being offered is truly best for them or a plan that the third party has a vested interest in.