Rising Medigap costs risk payment safety net

Medicare deductibles also increasing

With Medigap supplemental policies rising 20% to 40% each year and the threat of Congress raising Medicare premiums again, seniors will have difficult decisions regarding what health care they can afford. Given those constraints, reimbursement staff for physician practices will feel the financial impact of those difficulties in 1997, experts predict.

Physician practices collect deductibles and other payments from Medigap policies that traditional fee-for-service Medicare does not cover, points out Joan Bosse, reimbursement coordinator for the Beth Israel Surgical Group in Boston.

When seniors carry Medigap, the co-insurance deductible is automatically piggy-backed to their Medigap insurer. If that policy is dropped, however, physician practices would have to bill and collect from the patients themselves. That would carry serious costs, including administrative, collection, and patient relationship hassles, Bosse says.

Seniors are hit with these two critical cost trends:

Rising Medigap costs. Close to 75% of senior citizens now carry Medigap insurance policies to cover items such as deductibles or prescription drugs, says Ron Pollack, executive director of Families USA, a senior advocacy group in Washington, DC. But the ranks of those who can continue to carry it will likely decline, he predicts.

For example, in California, where 10% of the nation’s elderly reside, the annual premium for Prudential’s basic Medigap plan rose 37% in 1996 to $774, up from $552 in 1995. For its more generous Medigap plan, premiums increased by 39% to $1,614, up from $1,161. With the average monthly Social Security benefits for a single person totaling $724, the new premium costs more than two months of Social Security checks.

In other states, Prudential’s increases ranged from 40% in Hawaii to 26% in South Carolina.

Rising Medicare Part A and Part B deductibles. Monthly Medicare Part B premiums are scheduled to rise by $1.30, or 3%, up to $43.80, effective Jan. 1, 1997. Seniors pay 25% of the cost of this premium. Also, Medicare Part A deductibles, which cover hospital stays, rose by $24, from $736 in 1996 to $760 in 1997.

On a more positive note, Medicaid costs are declining, according to recent report from the U.S. Treasury. This slowed growth rate may be due to Medicaid managed care plans, a federal crackdown on fraud and abuse, and a reduction in the federal inflation rate. While the growth rate of the Medicaid program is expected to increase in the future, its growth will be substantially slowed, experts predict — much slower than its peak growth rate of 29% in 1992.

Yet seniors could avoid the entire hassle if they sign up with a Medicare HMO. "My advice to senior citizens is to join a Medicare HMO," says Bosse. "We have three or four in Massachusetts, and they are doing fantastic. A senior told me she was paying $1,600 a year for a Medigap plan, and it hardly covers anything. The managed care plans offer low-cost pharmacy benefits, eyeglasses, taxi vouchers, and YMCA membership."

For physicians, while capitation rates are competitive, most physician practices in the state are adjusting to managed care, she says, and they tend to prefer its ability to deliver more services to the elderly. In cases where physicians either have ownership in or work for an HMO plan, the plan often extends the same services to non-Medicare beneficiaries at a profit.

Boston, she points out, has three of the HMOs top-rated by consumers nationally, but nevertheless, as market competition increases nationwide, benefits are likely to shift more in favor of managed care, Bosse says.