AARP Medigap Premium Increases, 1996

Pursuant to a congressional request, GAO examined why Medigap premiums offered through the American Association of Retired Persons (AARP) were increasing. GAO noted that: (1) premiums for more than 3 million AARP Medigap policyholders increased an average of 26 percent; (2) the increases varied by state and ranged between 0 to 40 percent for both standardized and prestandardized policies; (3) in 1994 and 1995, premiums increased in 8 and 10 states, respectively; (4) because benefit payments were less than expected, AARP standardized policyholders received an average credit of $75 and prestandardized policyholders received an average credit of $79 in 1994 and 1995; (5) in 1992, policyholders in 45 states received refunds averaging $47 because of lower than expected benefit payments; (6) AARP believes that the 1996 Medigap rate increases are justified because the number of services received and costs incurred by policyholders substantially increased; (7) although the average Medigap loss ratio decreased to 81 percent between 1991 to 1993, in 1994, the average loss ratio ratio increased to 93 percent; (8) in 1994, average loss ratio for prestandardized policies was 98 percent and 82 percent for standardized policies; and (9) the average loss ratio for 1995 policies was 100 percent and could increase to 112 percent without a rate increase.