Got Medigap? It’s Gonna Cost You, and it’s Gonna Cost Medicare.

Beneficiaries with Medigap supplemental insurance coverage had higher out-of-pocket costs than those in fee for service-only Medicare, according to a report from the Government Accountability Office. Specifically, in 2010, beneficiaries with Medigap spent about $2300, while FFS-only beneficiaries spent about $1700 annually. The report also found beneficiaries with FFS-only Medicare who were enrolled in the Part D prescription drug program spent 133 percent more on average than those without Part D.

Perhaps more notable, Medicare spent much more on Medigap beneficiaries than FFS-only beneficiaries. The program spent about $5,000 annually on FFS-only beneficiaries, and nearly $10,500 annually on beneficiaries with Medigap coverage. Given the current focus on lowering Medicare costs, the report raises questions about the role changing Medigap might have in reform discussions. As John Gorman, the executive chairman of Gorman Health Group told me, Medigap plans are purely volume-based, and basically fly in the face of Medicare payment reform efforts.

Of course, there are others who disagree with that premise—namely, insurance companies. They point out that Medigap plans pay benefits only after
Medicare has determined that the services are medically necessary, and say they are worried any entitlement reform efforts would cut valuable services to seniors. It will be some time before any policy recommendations are made, but Gorman said he hopes the report can at least start that discussion.