Traditional Medicare lacks an out-of-pocket maximum, which often leads beneficiaries to seek supplemental coverage to manage their financial exposure and make costs more predictable. In 2021, 89% of traditional Medicare enrollees had additional insurance, with 41% purchasing Medigap policies. While Medigap plans help make traditional Medicare costs more manageable, they have historically lacked federal consumer protections. This has allowed insurers to engage in discriminatory practices, such as setting higher premiums for older adults and people with disabilities, and refusing coverage based on medical history.
Section 1557 of the Affordable Care Act (ACA) prohibits discriminatory practices in health programs receiving federal financial assistance, but these protections have not traditionally applied to Medigap plans. However, new federal rules aim to change this by extending these protections to Medigap plans offered by insurers that receive federal funding. These rules prohibit discrimination based on factors like age, disability, and sex. Despite this progress, the market may still be divided, with some insurers not subject to these rules continuing discriminatory practices. This could result in increased consumer confusion, administrative burdens, premium volatility, and plan instability.
States have the option to implement their own nondiscrimination protections to prevent a split market, and Congress could also enact legislation to bolster Medigap rights nationwide. Without such interventions, insurers subject to the new rules may raise premiums to compensate for the inability to charge higher rates based on age or health status. This could push healthier beneficiaries toward lower-cost policies that are still allowed to discriminate, skewing the risk pool and driving up premiums for nondiscriminatory coverage. Such dynamics may ultimately jeopardize beneficiary participation and access to affordable Medigap plans.
The new regulations, set to take effect on January 1, 2025, are intended to create a fairer market but face potential delays due to legal challenges. Legislative reforms are necessary to ensure Medigap plans are equitable and accessible, providing standardized premiums and expanded enrollment rights for all beneficiaries. These modernizations would help avoid the confusion and uncertainty associated with the current divided market, making it easier for beneficiaries to transition between Medicare Advantage and traditional Medicare, and ensuring better access to care and financial protection.