New Medigap Bill Offers Questionable Benefits. Yesterday, amid debt ceiling stonewalling, a bill called the Medigap Medical Loss Ratio Improvement Act was introduced to Congress. The bill increases Medicare Supplement minimum loss ratio (“MLR”) requirements to 80% for the individual market and 85% for the group market. This bill will make Med Supp MLR’s consistent with other products in the recent healthcare reform law. The benefits of this bill are questionable and may lead to unintended negative consequences.
According to the 2010 NAIC Medicare Supplement experience exhibit, carriers are already experiencing a 79% loss ratio on these plans. It would appear, in aggregate, that market forces have already driven carriers to price with much higher loss ratios than is required by current regulations. The Medigap bill will force small to medium size companies to drive down expenses to compete with larger companies, who would see their competitive advantage grow. Agent compensation is the most likely source of expense reduction, which leads to question how Medicare Supplement will be distributed in the future. This also presents a question around implementation—does the bill apply to new business only or to in-force plans as well? This change could also drive companies to increase their offerings of “other” supplemental type products not subject to the higher MLR requirements.
Overall, we believe the Medicare Supplement market could adapt to this change; however, it would have a major impact on many of the market’s participants. We do expect AHIP to weigh in with Congress on the value created by these plans and the unintended negative consequences of implementing these proposed changes.
Click HERE to read the bill’s press release.