Introduction and Background

This report provides brief descriptions of Medicare and Medigap, including the different types of Medigap plans on the market, which are identified by letter and financing. The report describes sources of Medigap data and their limitations, and it concludes with tables providing enrollment trends and demographics.

Medicare

Medicare is a federal program that pays for covered health care services of qualified beneficiaries, which include most individuals aged 65 and older and certain younger individuals with permanent disabilities.

Medicare consists of four parts:¹

• Part A (Hospital Insurance) covers inpatient hospital services, skilled nursing care, some home health care, and hospice care.
• Part B (Supplementary Medical Insurance) covers physician and non-physician practitioner services, outpatient services, some home health care, durable medical equipment, clinical laboratory and other diagnostic tests, preventive services, certain prescription drugs and biologics, and other medical services.
• Part C (Medicare Advantage, or MA) is a managed care plan option offered by private insurers that covers all Part A and Part B services, except for hospice care.²
• Part D is a voluntary option offered through private insurers that covers outpatient prescription drug benefits.

Part A and Part B together comprise original Medicare, which pays providers of covered benefits on a fee-for-service basis.³ In contrast, the private insurers that offer MA and Part D plans are paid under a capitation model.⁴

Medigap

Medigap (or "Medicare Supplement Insurance") is private insurance designed to provide secondary coverage to original Medicare (Parts A and B). Medigap is not equivalent to Medicare and is distinct from Part B ("Supplementary Medical Insurance"), Part C ("Medicare Advantage"), and Part D (which covers outpatient prescription drug benefits).

Although original Medicare provides broad protection against the costs of many covered services, beneficiaries can still face significant out-of-pocket spending. Many Medicare beneficiaries therefore have some form of additional coverage (private or public) to pay for some or all of their out-of-pocket costs.

Medigap is one type of private supplemental insurance and is designed to cover cost-sharing gaps under original Medicare, such as deductibles, coinsurance, and copayments.⁵ Other sources of coverage that Medicare beneficiaries may have include retiree coverage through a former employer, group health care coverage through a current employer, and/or coverage through other governmental sources, such as Medicaid, the Department of Veterans Affairs (VA), or the TRICARE health care program for military personnel and veterans.

Eligibility and Enrollment

Medigap enrollment is voluntary. To be eligible to purchase a Medigap plan, a Medicare beneficiary must be

• enrolled in both Part A and Part B, and
• not enrolled in an MA plan.

Applicable statutory and regulatory requirements and consumer protections are outlined below.

As of 2021, 14.6 million Medicare beneficiaries were enrolled in Medigap plans, as shown in Table 3. Medigap enrollment is tracked primarily through the National Association of Insurance Commissioners (NAIC),⁶ an association of the insurance commissioners, though there are other sources. Selected statistics are presented in the "Data and Sources" section of this report.

Financing

Medigap is financed through premiums paid by Medicare beneficiaries who choose to enroll in Medigap. Retirees may have premiums paid on their behalf by their former employers. There are no federal contributions toward Medigap premiums.

Statutes and Regulations

Medigap plans are regulated by states, which may use NAIC-developed model legislation.⁷ As part of the Medicare Catastrophic Coverage Act of 1988 (MCCA; P.L. 100-360),⁸ Congress required that state Medigap plans meet or exceed NAIC guidelines. States may either adopt the NAIC model and any subsequent revisions or enact regulations that are more stringent than those in the NAIC model. If the requirement is not met, then federal model standards are imposed on the state.

Congress has also enacted legislation to standardize Medigap offerings and mandate consumer protections, including

• The Omnibus Budget Reconciliation Act of 1990 (OBRA-90; P.L. 101-508), which replaced previous voluntary guidelines with federal standards, including standardized plans, guaranteed plan renewal, and medical loss ratio standards.
• The Medicare Prescription Drug Improvement and Modernization Act of 2003 (MMA; P.L. 108-173), which established the Medicare Prescription Drug (Part D) benefit and barred Medigap plans from offering drug coverage to new beneficiaries. Provisions of the MMA also ordered the Department of Health and Human Services (HHS) to request that NAIC develop additional standardized Medigap plans.
• The Medicare Improvement for Patients and Providers Act of 2008 (MIPPA; P.L. 110-275), which required participating insurers to offer certain standardized plans.

In addition to the standardization of plans, legislation, including the laws highlighted above, has afforded consumer protections to Medigap insurance plan purchasers who are at least aged 65. These protections include

• Guaranteed Issue Protections.⁹ During the initial six-month open enrollment period for new beneficiaries,¹⁰ insurers cannot refuse to sell an individual any Medigap policy that the insurer offers. Plans cannot exclude coverage for pre-existing health conditions, and insurers cannot charge more based on an individual's health history. Medicare beneficiaries also have some guaranteed issue protections after their initial open enrollment period, including
• the ability to buy a different plan following changes in residence or employment, in which they are forced to change plans,
• "trial rights" to switch from Medicare Advantage to Original Medicare and obtain a Medigap policy within the initial year of enrollment, and
• "no fault rights" that allow a beneficiary guaranteed issue if an insurer no longer offers an enrollee's plan or has misled an individual.

Some states have additional open enrollment rights according to state law.

• Guaranteed Renewal.¹¹ The insurer cannot cancel a Medigap plan as long as the beneficiary remains enrolled and pays the premium.

There is no federal requirement that insurers sell Medigap plans to disabled individuals under the age of 65. Some states require that Medigap plans be available to some or all disabled Medicare beneficiaries. In other states, insurers may choose to sell Medigap plans to younger disabled beneficiaries even though there is no requirement that they do so.

In most cases, Medigap enrollees do not have a federal right to change Medigap policies beyond the open enrollment period unless they are eligible under the guaranteed issue rights outlined above.

Medigap plan insurers must meet certain federal requirements.

Required plans. If an insurer offers any Medigap plans, it must offer the basic plan (Plan A; see Table 1). If an insurer offers any other plans, it must at least offer Plan C or Plan F to individuals who are not new to Medicare on or after January 1, 2020¹², and either Plan D or Plan G to individuals who are new to Medicare.¹³

Premiums. The three rating options or methods by which an insurer can set premiums for health insurance policies within Medigap are (1) the community rating option (all individuals in a plan pay the same premium and it does not increase with a beneficiary's age), (2) the issue-age rating option (the premium is based on a beneficiary's age when the policy was first purchased), or (3) the attained-age rating option (the premium is based on a beneficiary's current age).¹⁴

Medical Loss Ratios (MLRs).¹⁵ MLRs measure the share of enrollee premiums that health insurers spend on medical claims as opposed to other non-claims expenses, such as administrative fees or profits earned, over a set time period (e.g., a calendar year or plan year). These measures are intended to ensure that health plans meet a minimum benefit standard. Medigap plans must return to the policyholders, in the form of aggregate benefits, at least 75% of the aggregate amount of premiums in the case of group policies and at least 65% of the aggregate amount of premiums in the case of individual policies.¹⁶

Federal statutes and regulations governing Medigap are

• 42 U.S.C. §1395ss: Certification of Medicare supplemental health insurance policies;¹⁷ and
• 42 C.F.R. Part 403 Subpart B - Medicare Supplemental Policies.¹⁸

Plan Types and Benefits

Federal statutes and regulations require Medigap plan standardization. Each plan is identified by letter and associated with a specific benefit package. For example, all Plan A policies, regardless of insurer, have the same common benefit package.¹⁹ Insurers may offer any of the standardized plans in Table 1, but insurers are not allowed to sell certain plans to newly eligible Medicare beneficiaries.²⁰ Medigap plans range from covering all allowable Medicare copayments, coinsurance, and deductibles to more limited options.

Medigap policies are sold in both the individual and the group health insurance markets. Whether purchased in the individual or the group market, each Medigap policy covers one individual. Standardized Medigap policies are guaranteed renewable by enrollees so long as the plan remains for sale in the geographic market.

Federal Medigap plan standards do not apply to insurers in Massachusetts, Minnesota, and Wisconsin. These states had their own standardized Medigap plans prior to the enactment of the federal standardization requirements, so they were exempted from federal standardization. Their state standardized plans are called waivered state plans.

• Massachusetts's Medigap state plans fall into three categories: "Core," "Supplement 1," and "Supplement 2."²¹ The Massachusetts Division of Insurance licenses insurers, reviews plans, and provides annual guides to available plans and carriers,²² and the laws of the Commonwealth of Massachusetts address state-level requirements for these plans.²³
• In Minnesota, state versions of some of the federal standardized plans are available, as well as the state "Basic Plan" and "Extended Basic Plan."²⁴ In addition to the federal standards, these plans cover state-mandated benefits such as diabetic equipment and supplies, routine cancer screening, reconstructive surgery, and immunizations. The Minnesota Department of Commerce reviews and approves Medigap plans sold in Minnesota.²⁵
• Wisconsin's Medigap state plans are either the "Basic Plan" or plans known as "50% and 25% Cost-sharing Plans," which are similar to federally standardized Plans K and L. A high-deductible plan is also available.²⁶ In addition to the federal standards, these plans cover state-mandated benefits such as skilled nursing facilities care and home health care. The Wisconsin Office of the Commissioner of Insurance approves policies and provides lists of insurers.²⁷

Table 1 lists Medigap standardized benefit plans by identifying letter and the covered benefits of each plan.

Data and Sources

Medigap enrollment is tracked by multiple agencies or institutions. Available information regarding Medigap enrollment trends is accessible through the sources outlined below.

Centers for Medicare & Medicaid Services

The Centers for Medicare & Medicaid Services (CMS) is the operating division within HHS that administers the Medicare program. CMS does not directly track Medigap enrollment because these plans are private options and not a part of the federal Medicare program. The Medicare Current Beneficiary Survey (MCBS),²⁸ a representative survey conducted by CMS, contains some questions regarding supplemental coverage, including Medigap. However, these data (from the Community Survey component of the MCBS) do not include information on beneficiaries residing in institutional settings, such as long-term care nursing homes. MCBS does not gather information on specific types of Medigap plans.

National Association of Insurance Commissioners and America's Health Insurance Plans

NAIC, an association of the insurance commissioners of the states and territories, collects financial and enrollment infornamation from insurance companies based on state requirements. NAIC does not directly make this information publicly available. AHIP,²⁹ a trade group for health insurers, uses NAIC data to publish an annual report outlining Medigap enrollment trends at the national and state levels.³⁰ California's data are not fully represented by NAIC, but AHIP gathers this information through the California Department of Managed Health Care (DMHC)³¹ and combines NAIC and DMHC data to determine the national Medigap enrollment. Additionally, AHIP uses MCBS data to provide demographic information about Medigap enrollees.

Medicare Payment Advisory Commission

The Medicare Payment Advisory Commission (MedPAC) is a nonpartisan independent legislative branch agency that provides the U.S. Congress with analysis and policy advice on the Medicare program. MedPAC's annual Data Book includes basic Medigap enrollment and benefits information within its "supplemental coverage" section,³² based on MCBS and NAIC data. MedPAC reports overall enrollment in Medicare supplemental coverage products based on MCBS data, which exclude those in long-term care institutions.

MedPAC has also issued reports that discuss or analyze Medigap and other supplemental health coverage.³³

Enrollment and Trends

CRS provides selected enrollment data based primarily on the data sources outlined above. More information on state-level enrollments and beneficiary demographics are available in the AHIP and MedPAC sources. The data presented below align with the most recent years available from each source.

Statistics come from different sources, and not all Medicare beneficiaries are eligible to enroll in Medigap. Some sources provide the share of Medigap enrollees as a percentage of "Original Medicare" (Parts A and/or B) enrollment. However, this does not take into account those in original Medicare who may not be eligible to enroll in Medigap due to their

• eligibility status (disabled beneficiaries under age 65 do not have a federally guaranteed right to enroll);
• Part B enrollment status (not all Original Medicare enrollees have Part B); or
• decision not to enroll during open enrollment (there is no federal guaranteed-issue right after open enrollment).

Because the Medicare and Medigap enrollment data are compiled from different sources, these numbers are not directly comparable. As explained above, not every Medicare beneficiary is eligible to enroll in Medigap.

Medicare Enrollment

Table 2 provides total Medicare enrollment during 2017-2021, with breakdowns by eligibility status (aged/disabled), and coverage type (Original Medicare or Medicare Advantage).

Medigap Enrollment

Table 3 provides total national Medigap enrollment, while Table 4 highlights enrollment by plan type, but does not include California enrollees. For demographic information on Medigap enrollees, including age, income, eligibility status, and health status, see Table 5.

Medigap Enrollment by Plan Type

As described in the "Plan Types and Benefits" section, Medigap plans must conform to uniform benefit packages, known as standardized plans. However, waivered states (Massachusetts, Minnesota, and Wisconsin) offer their own standardized plans, which are exempt from the federal standardization requirements. Waivered state plans vary; states may offer one or multiple waivered plans, and there may be state versions of the federally standardized plans, with additional state-required benefits required. Some pre-standardized plans are still held by beneficiaries who originally enrolled before the standardization requirements took effect.

Table 4 lists Medigap enrollment by plan type, including waivered state plans and pre-standardized plans. California enrollees are not included in Table 4 due to differences in reporting requirements and available data. State-level data (except for California) are available through the AHIP report.

Demographics of Medigap Enrollees

Data on certain demographic characteristics of Medigap enrollees are available only through the MCBS, with the most recent data available from 2019. Both the MedPAC Data Book and the AHIP report provide demographic analyses. Table 5 replicates MedPAC's analysis of MCBS data on sources of supplemental coverage among noninstitutionalized Medicare beneficiaries. See the AHIP report for additional breakdowns.