Medigap: Current Polices Contain Coverage Gaps, Undermine Cost Control Incentives

Testimony issued by the General Accounting Office with an abstract that begins "Medicare provides valuable and extensive health care coverage for 40 million elderly and disabled beneficiaries. Nevertheless, significant gaps leave some beneficiaries vulnerable to sizeable out-of-pocket expenses. Medicare provides no limit on out-of-pocket spending and no coverage for most outpatient prescription drugs. Most beneficiaries have supplemental coverage that helps to fill Medicare coverage gaps and pay some out-of-pocket expenses. Privately purchased Medigap policies are a widely available source of supplemental coverage. The other sources--employer-sponsored policies, Medicare + Choice plans, and Medicaid--are not available to all beneficiaries. Medigap policies help to fill in some of Medicare's gaps but also have shortcomings. In 1999, premiums paid for Medigap policies averaged $1,300, with more than 20 percent going to administrative costs. Medigap plans typically cover Medicare's required deductibles, coinsurance, and copayments but do not fully protect beneficiaries from potentially significant out-of-pocket costs. Medigap policies offering prescription drug coverage can be inadequate because beneficiaries still pay most of the cost and the Medigap benefit is capped.