Medigap Insurance

Although the Medicare program covers a substantial share of its beneficiaries' health expenses, it does require deductibles and coinsurance that can amount to thousands of dollars a year. Most beneficiaries obtain private insurance to supplement Medicare when they become eligible for the program at age 65. On occasion, beneficiaries decide to change Medigap policies and may then become subject to medical underwriting--that is, the insurer can take into account a person's health status or medical history in deciding whether to sell a policy. GAO found that few beneficiaries decide later to change their policies, and those that do have at least one alternative for changing without being subject to medical underwriting. These alternatives, however, are not guaranteed by federal law, and it is possible that circumstances could change in the future. Federal Medigap law could be amended to furnish such a guarantee to beneficiaries who have been continuously covered by Medigap. Such a change should not have any major effect because it would not alter beneficiary incentives for Medigap coverage.

GAO found that: (1) 11 of the 25 largest Medigap insurers use medical underwriting to determine whom they will insure, 5 sell some policies without medical underwriting, and 9 sell all of their policies without medical underwriting; (2) the American Association of Retired Persons' (AARP) insurer accepts all Medicare beneficiaries who are AARP members without medical underwriting for certain Medigap policies; (3) some Medicare beneficiaries can obtain supplemental insurance from local Blue Cross/Blue Shield plans depending on where they reside; (4) federal law requires Medicare SELECT program insurers to offer participants who want to drop their SELECT policy the option of purchasing a traditional Medigap policy without medical underwriting; (5) some beneficiaries have the option of enrolling in health maintenance organizations (HMO) with Medicare risk contracts; (6) about 99 percent of Medicare beneficiaries do not change their private health insurance, but about 25 percent supplement their existing coverage; (7) few beneficiaries have made formal complaints to their state insurance departments about Medigap underwriting practices; and (8) insurers may discontinue the few policies that do not require medical underwriting in the future, since federal law does not require these insurers to offer such policies.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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