Nearly 200,000 Michigan seniors can expect to pay more for their Medigap supplemental health insurance plans next year — for some older individuals, more than twice their current amount — when Blue Cross Blue Shield of Michigan goes forward with a long-awaited rate increase that does away with what the insurer says are below-market rates.
Blue Cross today proposed the new Medigap rates that would take effect on Jan. 1, following a five-year rate freeze for its Legacy Medigap plan.
The new rates would — for the first time — take into account a person’s age, gender and geographic location. This change will result in men and older seniors paying more than women and younger seniors.
For seniors in the popular Legacy Medigap Plan C, the size of the proposed increases range from about $48 additional per month for a 65-year-old woman in southeast Michigan (a total of $170 per month, not including potential subsidy), to a high of $177 additional per month for an 80-year-old man (a total of $300 per month, not including potential subsidy).
Under current rates, both the 65-year-old woman and the 80-year-old man are paying $122.86 per month for Legacy Medigap Plan C — as is everyone else.
Rates would jump the most for policyholders under age 65, typically the disabled. Their Legacy Medigap Plan C rates would increase by $192, hitting about $315 per month.
Blue Cross says its current rates do not reflect the actual cost of health care, resulting in big losses that are unsustainable.
“We are bringing our Medigap premiums closer to what competitors charge today,” said Blue Cross spokesman Andy Hetzel. “Even with this rate increase, we do not expect to make a profit on Legacy Medigap plans.”
The proposed increases reflect the end of a direct Medigap subsidy program that dated to 1980 and was set to end once Blue Cross transitioned to become a nonprofit mutual insurer in 2014.
The insurer says it anticipates that the rates it filed today with the Michigan Department of Insurance and Financial Services will ultimately get approved by regulators there. “A thorough review of filed rates will be done to ensure compliance with state law,” said department spokeswoman Andrea Miller.
Michigan Medigap subsidies ranging from $40 to $125 a month are still available for income-eligible seniors through the Michigan Health Endowment Fund, but an application is required.
Household income must be $17,820 or less for one person to qualify or $24,030 or less for two people. The application start date is Oct. 1 and the deadline is Dec. 15. To apply, go to MichiganMedigapSubsidy.com or call 1-866-824-9772. About 32% of the Legacy Medigap customers are eligible for a subsidy.
Going forward, Blue Cross expects its Medigap rates to adjust every year — as health care costs and insurance rates always do. While the new rates take into account age, gender and geography, they don’t use health status as a rating factor and Blue Cross will continue to accept all Medigap applicants regardless of pre-existing conditions.
Prices will be slightly lower for seniors outside of southeast Michigan becasue of regional differences in health care costs. The age-based rate hikes would eventually stop at age 80 for men and women.
“This is going to be a big jump for just about everyone,” said Jo Murphy, executive director of the Michigan Medicare/Medicaid Assistance Program. The proposed increases “add up quickly, especially if you are retired and on a fixed income,” she said.
Sold by private companies, Medigap policies pay some of the costs that Medicare doesn’t, such as co-payments, co-insurance and deductibles.
Medicare Advantage plans are not affected by the new rates. Health care experts say that some seniors might be better off switching to a different Medigap plan or an Advantage plan, which tend to be less expensive. Advantage plans offer managed care coverage, such as that through health maintenance organizations known as HMOs.
“Those folks who are just over the (subsidy) thresholds will have to look at the plans and see what is affordable for them next year,” said Jennifer Therrien, a coordinator for the Michigan Medicare/Medicaid Assistance Program, which helps beneficiaries sort through their Medicare options during open enrollment periods.
Blue Cross says its Medigap plans have been priced far below the actual cost of providing care, with its Legacy Medigap program costing the insurer $1.54 for every $1 it took in.
Overall, the insurer projects a $249-million loss on the program this year, which it calls a “disproportionate strain” on its business as Medigap Legacy plans represent just 4% of its total customers. The projected size of the insurer’s 2017 loss under the higher Medigap rates was not available Wednesday.
Blue Cross said the new rates are more in line with other insurance companies in Michigan. It says it still expects to spend $1.10 for every $1 it takes in from Medigap under the new rates.
Blue Cross has just more than 50% of the Medicare supplement insurance market in Michigan.
Those who follow the health care industry had been anticipating a large Medigap rate increase from Blue Cross once the five-year rate freeze ended. The freeze was the result of a 2011 agreement between Blue Cross and Michigan Attorney General Bill Schuette. Although the freeze expires July 31, Blue Cross opted to keep the current rates until Jan. 1.
“The five-year rate freeze we negotiated with Blue Cross in 2011 saved seniors more than $1 billion on Medigap,” Schuette’s office said in a statement. “But with new health care laws in effect we recommend that these seniors, and those who care for them, use this advance notice to work with Blue Cross and the Health Endowment Fund now to research the best plans for their needs, and see if they qualify for the new subsidy.”
While current Blue Cross Legacy Medigap Plan C members can keep their plans, the Legacy plan will close to new enrollment on Nov. 14. New customers will be directed to various new, yet similar, Medigap plans.
Medigap policyholders in recent days were to receive the first of several informational letters about the proposed changes. Additional information is available at MIBluesPerspectives.com.
The Michigan Health Endowment Fund that will provide the new Medigap subsidies was created as part of the Blue Cross reorganization. Blue Cross is required by law to contribute up to $1.56 billion over 18 years to the fund.
The new Michigan Medigap subsidies:
Legacy Medigap Plan C Proposed Rates
Effective Jan. 1, 2017
Changes are subject to the completion of the regulatory review process.
Source: Blue Cross Blue Shield of Michigan