By reducing reliance on Medigap coverage, premiums for those plans go down and increase cost-sharing in Medicare. Net reductions for most beneficiaries would be reduced annual costs of $575.
Currently, about 90 percent of seniors with fee-for-service Medicare have some type of supplemental coverage – whether through Medicaid, Medicare Advantage, an employer retiree health plan, or a private Medigap plan. About 30 percent of fee-for-service Medicare enrollees also hold Medigap policies or private insurance plans that seniors can buy to “wrap around” their Medicare policies in order to provide extra insurance.
Medicare spends, on average, about 33 percent more on services for beneficiaries with Medigap and 17 percent more than those with retiree health plans than it does for Medicare enrollees with no supplemental coverage.
Because Medigap plans largely help with first-dollar coverage, they mainly cover the types of regular and easily anticipated medical expenses which could be more easily paid out-of-pocket. In this sense, much of Medigap is closer to a “prepayment plan” than insurance. However, using a third party for pre-payment means paying for administrative expenses, risk premiums, and profits. In the end, the average Medigap beneficiary pays almost $2,000 per year in premiums, but receives only $1,500 in benefits – more than a $450 annual loss