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Study: Supplemental Plans Raise Medicare Costs 22 Percent

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MIT economist Jonathan Gruber calls it "the best study to date in terms of finding price variation between otherwise similar plans." At the same time, he said, "it shows that this price variation drives both use of Medigap plans and associated spending on Medicare."

Bruce Vladeck, who ran Medicare under President Bill Clinton in the 1990s and opposes restrictions on Medigap plans, said the paper shows only that Medigap is associated with higher Medicare spending -- not whether that spending was medically necessary.

"They can say nothing at all about whether that utilization is life-saving cancer care or discretionary back surgery," he said. "Maybe it would be a good paper in a graduate econometrics course, but it just doesn't reflect reality."

But their research did suggest that wider Medigap coverage encouraged the use of non-crucial procedures, Cabral said. Areas with wider Medigap enrollment showed "a particularly large increase" in tests and imaging such as MRI scans that are often thought to be overused, she said.

Nor is Vladeck crazy about a 15 percent tax floated by the authors that would raise the price of Medigap coverage, discourage its use and, they say, save billions. (The combination of tax revenue and reduced Medicare spending would net the government $13 billion annually, they calculate.)

While relatively affluent seniors often get tax-free, supplemental retirement coverage through former employers, he said, "to tax Medigap premiums is exactly to target a tax at the lower middle class, with a kind of radar-like precision."

Taxing employer-sponsored supplemental plans in addition to Medigap plans might generate even larger cost-savings for Medicare, Cabral said.

Federal officials have targeted Medigap policies with particularly low cost-sharing requirements for overhaul. In his budget proposal last year, President Barack Obama sought to make Medicare beneficiaries who opt for these plans pay a surcharge starting in 2017. The idea has also been supported by House Budget Chairman Paul Ryan and other Republicans.

Kaiser Health News is an editorially independent program of the Henry J. Kaiser Family Foundation, a nonprofit, nonpartisan health policy research and communications organization not affiliated with Kaiser Permanente.

Wed, Jan 08 2014

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