Medigap Insurance: Effects of the Catastrophic Coverage Act of 1988 on Future Benefits

GAO discussed how the Medicare Catastrophic Coverage Act will affect Medicare supplement, or Medigap, insurance policies and the percentage of Medigap loss ratios over the years. GAO found that the act will: (1) limit beneficiary liability to $560 and one hospital deductible per year; (2) increase the number of days of care for skilled nursing facility care from 100 to 150; (3) make beneficiaries responsible for coinsurance for the first 8 days of care, and the coinsurance was equal to 20 percent of the national average cost of $25.50 per day; and (4) extend hospice care benefits from a maximum of 210 days to an indefinite period and cover more intensive home care. GAO also found that, in 1990, the act will: (1) limit beneficiary liability to $1,370 and adjust it each year so that 7 percent of beneficiaries will meet it; (2) add new benefits for respite care to relieve persons who normally assist beneficiaries and for periodic mammography screening; (3) help beneficiaries pay for insulin and other self-administered out-patient prescription drugs and pay a portion of their drug costs after they meet a certain set deductible; (4) eliminate the need for inpatient hospital coinsurance and limit coinsurance for skilled nursing facility care to $204; (5) cover 365 days of hospital care per year; and (6) cap beneficiaries' coinsurance liability at $1,295. In addition, GAO found that the 1987 loss ratios for commercial policies averaged 74 percent on premiums of $1.7 billion, while Blue Cross/Blue Shield individual plans had an average loss ratio of 93 percent and group plans had an average loss ratio of 96 percent.