Analysis of the Economic Value of Selected Medicare Supplement and Dread Disease Policies

GAO analyzed the economic value of various health insurance policies issued individually by nine insurance companies as Medicare supplemental policies for the elderly and disabled (Medi-Gap insurance), and dread disease (cancer) coverage. Also, GAO commented on the policy alternatives contained in the staff report of the House Select Committee on Aging, as related to legislation for the alleviation of reported abuses in the sale of Medicare supplemental insurance policies. GAO based its analysis of various policy values on loss ratios, the proportion of gross premiums which, on the average, is returned to policyholders as benefits. They are, as such, indicators of the economic value of policies. Other factors should also be considered, such as alternative coverage available, affordability of other insurance, and contingent reduction of payments under coordination of benefits provisions. Also, there is no generally agreed upon standard of acceptable loss ratios. Loss ratios for the nine companies' Medi-Gap or cancer insurance policies ranged from 19 to 61 percent. One of the Committee's policy alternatives would require the Department of Health, Education, and Welfare to issue clear explanations of Medicare coverage, but this would not eliminate beneficiary confusion; most beneficiaries interviewed in an inpatient survey conducted by GAO could not answer the most elementary questions about the program and its benefits, even after receiving simple written information. Another Committee policy option was expansion of coverage to close the gaps, but GAO data indicated that only 2 percent of inpatient beneficiaries were subject to daily co-insurance charges. Absorption of this cost by the government would eliminate one source of beneficiary confusion. The Committee staff also proposed a voluntary Medi-Gap policy certification program, which GAO approved, and a program for the direct purchase of Medi-Gap insurance from the government. Physician charges for co-insurance coverage would be regulated under another proposal, as well as Medi-Gap insurance generally. GAO recommended further study as to restricting physicians' billing practices, and deferred judgment on the matter of Medi-Gap insurance pending completion of another agency report on federal regulation of insurance.