Medicare Supplement insurance


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Medicare Supplement insurance (also referred to as MedSupp or Medigap) provides coverage for a beneficiary’s various obligations under traditional Medicare Fee for Service (Medicare FFS), such as the deductible and coinsurance for Parts A and B.

A brief summary of MedSupp regulation, benefits, and rating includes the following:

  • MedSupp generally allows age 65+ Medicare FFS beneficiaries to see any Medicare provider in the country who accepts Medicare.
  • MedSupp products are subject to different regulatory requirements than those of Medicare Advantage (MA). MedSupp is regulated at the state level (subject to federal provisions), rather than by the Centers for Medicare and Medicaid Services (CMS).
  • MedSupp benefits and plan designs:
    • With the exception of all but a few states (MA, MN, and WI), MedSupp is subject to federal standardization requirements with respect to benefit design with eleven (11) standardized plan options that all cover basic core benefits but differ based on additional coverages and / or benefit structure.
    • MedSupp plans do not cover Part D prescription drugs.
  • MedSupp revenue consists exclusively of member premium and is not “risk adjusted” like Medicare Advantage. However, premium can vary by age, preferred/standard and/or tobacco status. Preferred/standard and/or tobacco status are determined at the application / underwriting stage.
    • Medical underwriting is allowed (with the exception of a few states) to accept / reject applicants or classify individuals into preferred / standard status, though limited to individuals who don’t otherwise qualify under open enrollment or guarantee issue provisions which prohibit medical underwriting.
    • Premium rate structures may vary by state and typically consist of rating by age, geography, gender, tobacco use status, underwriting (preferred/standard) status, and may include same household discounts.

The growth of the Medicare-eligible market will keep the MedSupp industry viable and relevant. MedSupp membership grew approximately 4% from 2017 to 2018, to approximately 14 million members.1 Competitive loss ratios and average premiums vary by state, with overall 2018 industry loss ratios running below 80% and average premiums equal to about $200 per member per month (PMPM). Market/competitive concentration also varies by state, with several carriers involved in the MedSupp market at varying levels of market concentration and geographic distribution.

The MedSupp market has its own regulatory changes and challenges. The Medicare Access and CHIP Reauthorization Act of 2015 (“MACRA”) will affect the MedSupp industry in calendar year 2020 due to the introduction of new benefit coverage restrictions affecting what can and cannot be covered, depending on when an individual turns age 65 or otherwise qualifies for Medicare for the first time.

At Milliman, we have the experience, resources, and industry knowledge to help carriers evaluate the ramifications of the new legislation and stay ahead of emerging legislation and market trends. We specialize in the development and maintenance of MedSupp blocks of business.

We have extensive depth and deep connectivity in the MedSupp industry, providing independent third party strategic and tactical expertise and assistance across a spectrum of needs for both new potential market entrants and longstanding legacy carriers:

  • Market research and intelligence:
    • New market feasibility reviews for those considering MedSupp
    • Expansion opportunity assessments for parties looking to increase their number of states and market share
  • Pricing, claim experience, trend / trend driver, and expense benchmark analytics
  • New rate development and rate increase filings
  • Application / underwriting analyses, intelligence, comparisons, and insight
  • Proforma projections and actuarial appraisals to guide financial performance expectations and understanding
  • Financial reporting development, execution, and review, consistent with industry standards
  • Refund calculations and other specialized MedSupp reporting

1Source: Health Coverage PortalTM by Mark Farrah Associates, 2018 Medicare Supplement Insurance Experience Exhibit data as filed in NAIC Annual Statements