Filed Under:Health Insurance, Medicare

Kaiser: Price not king in Medigap market

Do they shop for health coverage based mainly on price? Maybe not. (AP photo/Phil Coale)
Do they shop for health coverage based mainly on price? Maybe not. (AP photo/Phil Coale)

Medicare supplement (Medigap) buyers may be putting factors such as reputation and service quality ahead of price when they're shopping for Plan F type coverage.

Researchers at the Henry J. Kaiser Family Foundation come to that conclusion in a new review of Medigap market trends.

The Medigap program gives private insurers a chance to sell commercial insurance products that fill in some of the gaps in the Medicare Part A hospitalization and Medicare Part B physician services programs.

Since 1990, federal law has required Medigap issuers to sell plans based on a small number of plan design models. The plan types available today range from Plan A to Plan N, with plans E, H, I and J no longer being actively marketed.

About 23 percent of all Medicare enrollees had Medigap coverage in 2010, and 40 percent of those 9.3 million Medigap enrollees had Plan F type coverage.

Plan F is the richest, most popular Medigap plan type on the market.

A Plan F plan pays all Part A and Part B coinsurance amounts and deductibles, all Part B co-payment amounts for other than preventive services, all Part A costs after hospital benefits are exhausted, the cost of the first three pints of transfused blood and skilled nursing facility coinsurance. It also pays for Part B physician charges over the usual Part B limits, and it covers some costs resulting from medical emergencies that occur outside the United States.

A Plan F plan cannot restrict which providers an enrollee uses.

Another type of Medigap plan, a Plan C plan, also provides "first-dollar coverage" for health care, the Kaiser researchers noted.

Some would-be federal budget cutters contend that access to first-dollar Medigap coverage encourages enrollees to use too medical care. Other health policy specialists, including some at the National Association of Insurance of Commissioners (NAIC), contend that first-dollar coverage encourages enrollees to get much-needed care and protects seniors living on tight, fixed incomes from big, unexpected medical bills.

To study how sensitive Medicare plan enrollees are to premiums, the Kaiser analysts looked at how well carriers' Plan F market share figures correlated with prices in states in which Medigap prices were based entirely on claims for the entire community, rather than on an individual enrollee's age at time of purchase.

"Despite the fact that beneficiaries are offered identical benefits with varying premiums, there is little evidence that Medigap policyholders are choosing plans based on price," the researchers wrote. "Consumers do not show any systematic pattern of choosing plans with the lowest premiums -- even when the benefits are identical."

Market share patterns varied by state, but, in five of the six community-rating states included in the study, "fewer than 10 percent of Medigap policyholders were enrolled in either of the two cheapest plans offered in their states," the researchers said.

The most popular plans typically are substantially more expensive than the two lowest-cost plans, the researchers said.

In New York state, for example, the most popular Medigap Plan F plan costs twice as much as the cheapest Plan F plan, the researchers found.

Some consumers might not be aware that the Plan F benefits are standardized, but others might prefer to pay more for coverage from a company that they know better, that appears to be more financially stable, or that seems to provide better service, the researchers said.

"It is also possible that more cost-sensitive beneficiaries choose plans other than Plan F," the researchers said.

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