Medigap Insurance:

Insurers Whose Loss Ratios Did Not Meet Federal Minimum Standards in 1988-89

HRD-92-54: Published: Feb 28, 1992. Publicly Released: Mar 30, 1992.

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Pursuant to a congressional request, GAO reviewed Medigap insurance, focusing on the percentage of premiums returned to policyholders as benefits, or loss ratios, in 1988 and 1989.

GAO found that: (1) between 1988 and 1989, the number of insurance companies collecting Medigap insurance premiums increased from 335 to 348 and the amount of premiums they collected increased from $7.3 billion to $8.1 billion; (2) premiums on individual and group policies that did not meet federal loss ratio standards increased from $388 million in 1988 to $805 million in 1989; (3) a federal requirement, effective for policies sold or issued after November 5, 1991, requires insurers to grant refunds or credits to policyholders in amounts sufficient to raise loss ratios to the federal standards; (4) in 1988 and 1989, this requirement would have entitled policyholders to about $75 million in refunds and credits; (5) Medigap insurers' aggregate loss ratios declined from 85.6 percent on individual policies and 95.7 percent on group policies in 1988 to 82 percent on both types of policies in 1989; (6) total premiums paid to companies whose aggregate loss ratios in the applicable state met minimum standards declined from 90 percent in 1988 to 83 percent in 1989; and (7) in both 1988 and 1989, 11 insurers failed to meet the federal loss ratio standards in every state in which they sold Medigap policies and 14 insurers failed to meet such standards for group policies.

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