Super Committee looking to Medigap insurance for savings?

Senator Pat Toomey and the super committee in Washington have just a week to cut $1.2 trillion from the national budget.

Insiders say among the slew of budget-cutting proposals on the table, they are considering changes to policies governing Medigap plans–the supplemental insurance that pays for the deductibles and co-payments Medicare does not cover.

Mildred Fruhling, a retired insurance broker who lives in Edison, N.J., had hip replacement surgery this summer and did not pay a dime because she has one of the Medigap plans.

“I paid nothing out of pocket, because Medicare covered 80 percent and my supplement picked up the difference,” Fruhling said.

She pays about $3,000 a year in premiums to protect herself from high out-of-pocket expenses when she goes to the hospital. Nationwide, one in five seniors purchase a Medigap plan. In Pennsylvania, it is more like one in four.

“People tend to purchase Medigap policies to help soften the blow,” said Tricia Neuman, Director of the Kaiser Family Foundation’s Medicare Policy Project, “To spread the cost over the course of a year so they’re not suddenly stuck with a $1,000 bill they hadn’t budgeted for.”

But because cost-sharing is low or almost non-existent, they also get more care, and the government has to pay out more in Medicare reimbursements. As of 2009, Medicare expenditures were about a third higher for those with Medigap plans than for those without, according to MedPAC, the group that advises Congress on Medicare. Two proposals floated this year aim to give beneficiaries more skin in the game. One, from the Obama administration, would levy a 30 percent surcharge on some supplemental plans. The other would impose a deductible on Medigap plans so patients have to pay $550 out of pocket, then half the costs for the next $4,950 before the plan could cover 100 percent of of what Medicare doesn’t. The non-partisan Congressional Budget Office said either change would save the government billions over the next ten years, and according to an analysis by the Kaiser Family Foundation, most beneficiaries would actually save money through lower premiums.

However, Neuman says saving money could have other, unknown consequences.

“We do know that people go without services when they’re confronted with high costs,” Neuman said, “we just don’t know what it means in the long run or the short run if they go without needed care.”

Edwin Park, with the Center on Budget and Policy Priorities, said the discussions over Medigap plans are part of a larger conflict among members of the committee on how to reign in Medicare spending.

“That’s sort of the big political fight within Medicare,” he said. “To achieve significant Medicare savings for deficit reduction, how much should come from beneficiaries and how much should come from providers, drug manufactures and the like?”

If the super committee does not meet its November 23rd deadline, an automatic two percent cut to Medicare would be triggered.

Those cuts would come from payments to plans and providers, and would not affect Medigap plans this time around, though Neuman said Medigap is likely to remain on the Congressional radar in future budget talks.