States with consumer protections see higher Medigap premiums

Medigap premiums vary by state, largely differentiated by the eight U.S. states that have passed Medigap consumer protection policies and the 42 that have not. In those eight states, premiums are higher and there are fewer plan options, a research letter published in JAMA Health Forum noted.

However, the financial burden for beneficiaries in these states is distributed across a larger population, reducing the burden that beneficiaries with poor health might face under an individual rating model.

Medigap, also known as the Medicare supplement insurance market, is sold by private insurance companies to fill the gaps in typical Medicare coverage.

In 42 states and Washington, D.C., insurance companies use medical underwriting to set premiums. This process, known as individual rating, involves using the beneficiary's age and health status to determine the cost of a Medigap plan.

However, in the eight states that have passed Medigap consumer protection policies, insurers provide policies with different factors in mind. For example, under the guaranteed issue model, insurers are required to sell Medigap plans to anyone applying. Under the community rating model, insurers must offer one flat rate for everyone who applies for a policy.

"Beneficiaries with high expected medical costs may have difficulty affording the individually rated premiums, and several states, including California, Hawaii, Pennsylvania, and South Carolina, are currently considering reforms that require guaranteed issue and community rating," the research letter stated.

"The concern is that if such reforms are enacted, insurers will increase premiums or exit the market due to adverse selection, potentially affecting Medigap market stability and beneficiary access."

The research letter's results were informed by the Mark Farrah Associates Medicare Supplemental Market Dataset and specifically focused on Medigap plan G -- the most popular plan offered in 2023. The results excluded plans operating in Wisconsin, Massachusetts and Minnesota, since Medigap plans in these states stray from federal guidelines.

Across the 47 states and Washington, D.C., the mean number of Medigap plan G plans was 15.7 per 100,000 beneficiaries. In states with no Medigap consumer protection policies, there was a mean of 17.3 plans per 100,000 beneficiaries, versus 4.1 in states with community rating and guaranteed issue.

What's more, Medigap enrollment was significantly lower in states with community rating and guaranteed issue, at 2.4%, compared to 14.6% in states with no protections. States with both community rating and guaranteed issue faced the highest premiums, at $2,760 on average.

"Lower Medigap enrollment in community rating and guaranteed issue states could have been due to fewer plans with higher premiums resulting in lower uptake or beneficiaries waiting to enroll until they experienced illness," the research letter stated.

The researchers suggested that states examine the potential trade-offs and effects of changes in Medigap market policies when considering future Medigap reform.

Jill McKeon has covered healthcare cybersecurity and privacy news since 2021.