I am often asked why I understand health insurance as well as I do. To me, the answer is easy. When I am not working with clients or doing personal stuff, I am studying about health insurance. (I wish the politicians who are making state and national health care laws would spend as much time studying as they do talking about stuff they do not understand.)
Earlier this week I was asked, “Why are Medigap plans not subject to the same Medical Loss Ratio (MLR) as other private health insurance?”
I must admit that my first thought was that this was just another attempt to get me involved in a political argument over something that neither of us can do anything about. Whether I like it or not, the politicians in D.C. have decided that for the good of our nation the PPACA is the law of the land.
I still have my doubts about how good the PPACA will be. However, as long as our current president is in office and has the power to veto any attempt to repeal and replace it, there is not much that I can do other than to understand the new law and give people options and strategies to survive until a future congress and president change things again. When that happens, I predict another national division and debate.
Although my first reaction to this question was that it was asked for political reasons, on reflection, I realized that it is a legitimate, non-partisan question. When I first read the PPACA I wondered the same thing.
Unlike politicians, I do not want to talk about something unless I know all the facts. In this post I am going to offer my best guesses as to why Medigap Plans are not subject to the MLR rules.
IT WAS AN “ACCIDENTAL OMISSION”
One of, if not the largest, lobbies in support of Obamacare was also has lent their name to marketing Medigap. Coincidentally, Medigap is one of their largest sources of revenue. The commissions they get for each Medigap that is sold using their brand adds up to millions of dollars each year.
Since the PPACA was written in secret by 6 senators, it is plausible that lobbies like that greased the palms of those senators sufficiently to “accidentally omit” any mention of MLR to companies that sold Medigap. Stranger things have happened in D.C.
FUTURE CHANGES TO MEDICARE
When reading the PPACA, it is important to realize that the law is aimed primarily at health care for those who are not enrolled in Medicare. Changes to Medicare, Medicare Advantage and Medicare D are minor when they are compared with the over-all scope of the PPACA.
I am convinced that modifications to the Medicare system were only put into the PPACA for political reasons. The politicians wanted to be able to say to their older constituents, “See what I voted for (or against).”
There is no question that Medicare will face bankruptcy in the near future. Something has to change. Both political parties agree that change to Medicare is required. They just have different ideas on what changes need to be made.
The real changes to Medicare will take place in a different piece of legislation in the future. It may be from this administration or the next. Regardless of who makes the change, it has to be done.
Medigap is not a true Major Medical policy. It is only a supplement to traditional Medicare. Medigap is a voluntary program that allows people to pay a premium so that the portion of their health care that is not paid by Medicare is paid.
It is my understanding that the current administration has bi-partisan support on some changes to Original Medicare and Medigap. However, D.C. would not be the source of power that all Americans respect unless there were arguments over the best way to do something.
Although the politicians agree on some of the changes to Medicare, they are waiting until they iron out their differences, (or until they are ready to retire, whichever comes first,) before they commit to sweeping changes to the Medicare system.
MEDIGAP IS DIFFERENT
The PPACA completely over-hauls the nation’s health insurance program for Major Medical insurance. It creates 4 Essential Health Benefit Plans that all Americans must have unless they are specifically exempted.
(There is a 5th acceptable plan that is available only to young adults who have not yet reached their 30th birthday. The catastrophic plan has only limited benefits for routine medical conditions. The primary goal of the catastrophic plan is to make certain that young adults are able to pay their medical bills if they are seriously hurt or ill.)
Medigap is different from Major Medical insurance. Major Medical insurance pays the biggest share of medical bills. For an American over 65 who does not have Major Medical insurance from their work, that large bill is paid by Medicare.
Medigap is also called Medicare Supplement insurance. It pays all, or part, of the medical bills that Medicare does not pay.
Medigap is voluntary. Many Americans are content to rely on a Medicare system that has an “open end” payment system. If they only have $100 of doctor bills each year, they only have to pay $20. However, those people on Medicare who have $100,000 of Medicare B bills in a year have to pay $20,000.
Medigap is designed so that whether a person has $100 or $100,000 of medical bills in a year, their bills will be paid. The amount of their premiums are predictable.
Premiums increase every year. Since Medigap is voluntary, if a person feels like the premium increases no longer justify the knowledge that all their medical bills will be paid, they are free to drop the coverage. There is no law that requires any American to buy Medigap. (As of January 1, 2014, the same cannot be said about Major Medical insurance for people who are not enrolled in Medicare.)