Academic journal article Health Care Financing Review

Medigap Reform Legislation of 1990: Have the Objectives Been Met?

Academic journal article Health Care Financing Review

Medigap Reform Legislation of 1990: Have the Objectives Been Met?

Article excerpt

The 1990 medigap reform legislation had multiple objectives: To simplify the insurance market in order to facilitate policy comparison, provide consumer choice, provide market stability, promote competition, and avoid adverse selection. Based on case study interviews with a cross-section of individuals and organizations, we report that most of these objectives have been achieved. Consumers of medigap plans are able to make more informed choices, largely because they can adequately compare policies based on standard benefits. Marketing abuses have apparently declined, as evidenced by a decrease in the number of consumer complaints. Finally, no major detrimental impact on the insurance industry was detected. Beneficiaries still face some confusion in this market, however, such as understanding the rating methodologies used to set premiums and how this may affect their choices. Confusion could increase with the growth of managed care options.

INTRODUCTION

The 1990s ushered in a new era of health care competition with the inclusion of a little-known provision in Congress' Omnibus Budget Reconciliation Act (OBRA) of 1990. Calling for the establishment of mandatory standardized benefit packages, this legislation revolutionized the marketing and sale of Medicare supplemental ("medigap") insurance to the elderly. Future insurance reform efforts based on managed competition would be remiss in not considering the lessons learned from standardizing the medigap market.

All medigap policies sold after July 31, 1992(1) must conform to 1 of 10 uniform benefit packages, labeled A through J, as stipulated by OBRA 1990 and subsequent State regulations. Previously, hundreds of different benefit packages were available to consumers. Standardizing benefits, effectively limiting the number of options available, was designed to simplify consumer purchases, thereby making it easier to compare benefits and premiums.

Standardized benefit packages fulfill a key tenet of managed competition by facilitating comparisons between alternative health insurance choices (Enthoven, 1988). The Clinton Administration's Health Security Act and several rival bills proposed that health benefits be standardized. Although these reform efforts failed, it is still possible to learn about standardization by a careful examination of the medigap experience. As set forth in the House Conference Report, the OBRA 1990 medigap legislation had five objectives:

* Simplifying the market to facilitate policy comparisons.

* Providing consumer choice.

* Providing market stability.

* Promoting competition.

* Avoiding adverse selection.

Based on interviews and data collected from nine States over a 4-year period, this article is organized around these five objectives and the extent to which they have been met. In addition, we have included a section on Federal and State administration of the medigap program since regulatory oversight cuts across several of the objectives.

The next part of the article provides background on the problems in the medigap market and regulatory responses. Then, the data sources and methods employed for the study are discussed. This is followed by the results, in which we examine the success or failure of the legislation in meeting its five objectives. We conclude with a summation of the legislation's overall effect and a discussion of remaining problems in the medigap market.

BACKGROUND

Problems in the medigap market date back to the inception of Medicare. The program was not designed to pay all of the health care costs of the elderly and disabled. Therefore, gaps in coverage remain, in the form of various copayments and services that are not covered at all, such as long-term care and prescription drugs. To fill some of these gaps, private insurers responded by selling supplemental health insurance, known as "medigap" policies. …

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