Medigap Insurance

The Medigap market grew steadily from 1988 to 1993, from $7.3 billion to $12.1 billion. Medigap insurers' aggregate loss ratios were relatively stable during the first four years of that period. During the next two years, however, these ratios fell about 10 percent, to an aggregate 75 percent for individual policies and 85 percent for group policies. In 1991, 19 percent of Medigap policies failed to meet loss ratio standards; this rose to 38 percent by 1993. The premium dollars spent on such policies increased from $320 million in 1991 to $1.2 billion in 1993. If insurers had been required to give refunds or credits on substandard policies, as they will in the future, policyholders would have been due about $124 million during 1992 and 1993.

GAO found that: (1) the Medigap market grew from $7.3 billion to $12.1 billion between 1988 and 1993; (2) Medigap insurers' aggregate loss ratios were stable from 1988 to 1991, but these ratios decreased about 10 percent by 1993 to an aggregate 75 percent for individual policies and 85 percent for group policies; (3) the percentage of Medigap policies that failed to meet loss ratio standards increased from 19 percent in 1991 to 38 percent in 1993; (4) the premium dollars spent on such policies increased from $320 million in 1991 to $1.2 billion in 1993; and (5) in the future, insurers will be required to give refunds or credits on substandard policies.