How MACRA Will Change The Medicare Supplement Market

The legislation commonly referred to as MACRA (Medicare Access and CHIP Reauthorization Act of 2015) will have a significant impact on the Medicare Supplement (Medigap) industry in calendar year 2020. Specifically, what will change is the Part B deductible can’t be covered. As a result, starting January 1, 2020, plans C and F will no longer be an option for individuals newly eligible for Medicare. A common misconception is that these plans will be completely eliminated as of January 1, 2020. That is not the case, in-force policyholders will be able to keep their current versions of Plan C and F and individuals eligible for Medicare prior to January 1, 2020 (i.e., not “newly eligible”), can purchase the current version of Plan C and F on or after January 1, 2020.

This change is part of the broader trend of making patients have some “skin in the game”. We have seen this Consumer Directed Health Plan (CDHP) trend in the commercial and under 65 market with first-dollar plans being eliminated and replaced with High Deductable Health Plans (HDHP’s) and other high deductible plans. These plans are designed make beneficiaries think of the financial implications of healthcare since they can have significant out-of-pocket costs before their insurance starts to pay.

Economists and lawmakers believe Medicare Supplement plans in which beneficiaries don’t have to pay anything beyond the premium leads to higher utilization of healthcare services, which inflates Medicare spending because they have no “skin in the game”. “Beneficiaries have incentives to receive more care without experiencing many additional costs, and providers have no incentives to manage utilization,” the Medicare Payment Advisory Commission wrote about Medicare Supplement plans in 2012.

On the flip side of that argument, consumer advocates have opposed this change as they believe it could lead seniors to ration their care. “Prohibiting or discouraging Medicare Supplement first-dollar coverage would bring the most harm to those beneficiaries who have the greatest need for coverage—the sickest individuals and people with low and modest incomes,” according to the Medicare Rights Center.

Regardless of which camp you are in, MACRA will change Medicare Supplement buying behaviors, and it could lead to more seniors turning to Medicare Advantage when they first become eligible. But there is a major caveat for people who initially choose Medicare Advantage and then later want to go to original Medicare with a Medicare Supplement. Medicare Supplement insurers are able to medically underwrite enrollees, meaning they can deny people coverage based on health status. However, there are guaranteed issue rights which outline certain situations when insurance companies must offer you certain Medicare Supplement policies, cover pre-existing conditions and not charge more because of past or present health problems.