A little section in the Medicare Access and CHIP Reauthorization Act (MACRA) is bringing big changes to Medicare supplemental insurance, also known as Medigap, bought by more than 12 million seniors to help fill in the coverage holes in traditional Medicare. In the vast majority of cases, Medigap purchasers augment their coverage with a Medicare Part D Prescription Drug Plan (PDP). That means MACRA’s changes will cause a seismic event in senior markets – Medicare Advantage, Medigap insurers, and PDPs – nationally, starting now.
Beginning January 1, 2020, Medigap insurers will be banned from selling any Medigap policy that covers the annual Medicare Part B deductible ($183 this year) to new Medicare enrollees. These “first-dollar” plans, most notably Policies C and F, are the most popular and comprise the vast majority of Medigap enrollments and insurer revenues.
MACRA found Medicare beneficiaries with first-dollar coverage were among the highest utilizers of health services anywhere. Most of MACRA, a rare exercise in healthcare bipartisanship, was about Medicare physician payment, but one tiny section banned the sale of Medigap plans that cover the Part B deductible, with a goal of giving seniors more “skin in the game.” Eliminating these policies in 2020 is already beginning to shape senior markets. The Centers for Medicare & Medicaid Services (CMS) just sent the proposed rule to implement the MACRA changes for final approval.
Market-leading Medicare Advantage plans see this for the opportunity it presents: an unprecedented land grab of millions of displaced Medigap/PDP purchasers. And they’re already preparing for it with “Cadillac” type products to be sold in 2018 and 2019, so they’re already positioned once the MACRA ban takes effect.
The MACRA change will usher in a “golden age” of Preferred Provider Organizations (PPOs) in Medicare Advantage, which already comprise 6.4 million of the program’s 20 million enrollees. Policies C and F Medigap purchasers tend to be more affluent than average seniors, and, as we’re talking about Baby Boomers here, the ideal replacement product is a PPO, which most had during their work years, not a Health Maintenance Organization (HMO). Boomers view an HMO as a product for the low-income, but a PPO done right, with a robust provider network and self-referral to specialists, is “Cadillac,” and an easy transition from Medigap to Medicare Advantage.
Expect to see an explosion of local Medicare Advantage PPOs with an integrated drug benefit and all the bells and whistles like eyeglasses and hearing aids in 2018 and 2019. And this isn’t just a product for individuals. Medigap/PDP are also purchased by many employers for their retirees, and an Medicare Advantage PPO offers a superior product from a cost accounting perspective under GASB rules. Large publicly-traded payers are spinning up PPOs with both individual and group salesforces for next year, so they’re ready to pounce in 2020.
A seismic event like this requires a plan and a product portfolio that positions your plan for what’s to come. If you don’t have one yet, you’re already behind: these Medigap-killer PPOs will start being marketed next month during open enrollment. The change is already here. We can help you catch up and get positioned.
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