Big Increases in Medigap Premiums Expected in ’97
Medicare beneficiaries are likely to pay sharply higher prices next year for the supplemental insurance they buy to help with doctor and hospital bills, insurance industry officials said Thursday.
Prudential Insurance, the nation’s largest Medicare insurance carrier, said its prices could rise as much as 15% nationally, as much as 30% for some policies in California.
The increases are expected to be matched, at least in part, by the rest of the industry, and are likely to steer increasing numbers of Medicare beneficiaries into health maintenance organizations.
The increases are also likely to intensify the pressures on Congress to deal with Medicare’s runaway spending problems. Medicare expenses are rising 11% a year, making it the fastest-growing part of the federal budget.
Any increase in insurance premiums is also likely to mean substantial added burdens for the elderly, many of whom live on fixed incomes. Those 65 and older now spend an average of 18% of their after-tax income on health care, government figures show.
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Prudential is the biggest single marketer of the supplemental coverage known as Medigap, which covers medical expenses unpaid by Medicare. Prudential said Thursday that its average charge will rise 15% for older policies and 10% for the policies written since 1992, when the federal government imposed standards.
California, traditionally an area of high-cost health services, will face even larger increases than the national average under Prudential’s plans.
The basic Prudential plan in the Los Angeles-Orange counties area, which costs $66.50 a month, will jump to $86 next year, a 29% rise, the company said Thursday. Plan C, which also pays for the first day in the hospital and extra charges for doctors, will jump to $150.25 a month, up from $115.75 this year, a 30% increase. And Plan J, the most comprehensive, which includes drug coverage and home care, will climb 12% to $212 a month, up from $189.
Other companies did not formally announce their national or local rates, but some executives said privately that they expect to file significant hikes with state regulators. In Massachusetts, for example, one policy featuring drug benefits and preventive health care will have a 29% rate hike, a source said.
The higher prices will make HMOs much more attractive to hard-pressed seniors. HMOs typically cover prescription drugs and waive the co-payments and deductibles required by Medicare. The Medicare beneficiaries have a trade-off when they join HMOs: They can save money by dropping Medicare supplemental insurance, but are restricted to using the doctors and hospitals in the HMO network.
The added burden on elderly consumers is likely to increase the pressure on lawmakers to develop a long-term solution to the financial problems of the Medicare program, whose hospital trust fund is headed for bankruptcy in 2001.
“This is all about . . . the monster of health care costs,” said Cheryl Matheis, legislative representative with the American Assn. of Retired Persons. “This is about the crushing out-of-pocket costs beneficiaries have to bear, and they should be upset.”
AARP has been marketing the Prudential coverage to its members, but it is dropping the carrier in 1998, when it will offer new policies, including some HMO coverage.
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Prudential’s average Medigap premiums jumped more than 20% in 1996 alone, according to a report issued Thursday by Families USA, a research and health advocacy group. More than half of the plans offered by Blue Cross or Blue Shield had premium hikes of 10% or more, the report said.
The 1996 surge reflected Prudential’s attempt to offset expenses that began soaring in 1994. Some doctors and hospitals may have held off on increasing prices until it was clear that Congress would refuse to adopt President Clinton’s proposal for mandatory health coverage by business. And the trends toward more medical tests and procedures rose unexpectedly fast, surprising insurers.
There are 38 million persons enrolled in Medicare--34 million 65 and older and 3 million disabled persons of all ages--and the majority purchase supplemental insurance coverage.
The elderly are moving to HMOs in increasing numbers partly in response to the higher insurance premiums. Nationally, about 10% of beneficiaries belong to HMOs. In California, the figure is about 30%.
“As more and more seniors get priced out of the Medigap market, more and more of the elderly will join managed-care plans,” said Geri Dallek, the health policy director for Families USA. “The problem with this is that a one-size-fits-all formula may not be the right choice for seniors with chronic and disabling conditions.”
Aggressive marketing by HMOs in California has drawn ever-growing numbers of the younger and healthier Medicare beneficiaries, said Mary Lou Martin, general manager of the senior products division of Blue Cross of California.
One HMO, for example, recently invited prospective members to a dance on the Queen Mary, an event aimed at the obviously healthy.
