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Yet Again, OIG Approves Medigap Policy Contracts with Preferred Hospital Network

On March 11, 2016, the U.S. Department of Health Human Service, Office of the Inspector General (OIG) issued an advisory opinion approving the use of a preferred hospital network as part of Medicare Supplemental Health Insurance (Medigap) policies, whereby two insurance companies would indirectly contract with hospitals for discounts on Medicare inpatient deductibles for their policyholders and, in turn, provide a premium credit of $100 to policyholders for using a network hospital for an inpatient stay (Proposed Plan). In Advisory Opinion 16-03 [PDF], the OIG determined that the Proposed Plan would not constitute grounds for the imposition of sanctions under the civil monetary penalty prohibition against inducements to beneficiaries (CMP) or the anti-kickback statute (AKS). This opinion is yet another in a long line of favorable advisory opinion approving Medigap policy preferred hospital networks.

The requestors are two licensed insurers owned by the same corporate parent. They plan to start offering Medigap policies in several states and proposed to participate in an arrangement with a preferred hospital organization (PHO). The PHO has contracts with hospitals nationwide (Network Hospitals) and the Network Hospitals would give discounts of up to 100 percent on Medicare inpatient deductibles incurred by the requestors’ Medigap plan policyholders, which would otherwise be covered by the requestors. The discounts apply only to Medicare Part A inpatient hospital deductibles. The Hospital Networks would not provide any other benefit to the requestors or their policyholders. Whenever the requestors receive a discount from a Network Hospital, they would pay the PHO a fee for administrative services. And, if a policyholder were to be admitted to a hospital other than a Network Hospital, the requestors still would pay the full Medicare Part A hospital deductible as provided under the Medigap plan. The Hospital Network would remain open to all qualified, accredited, and Medicare-certified hospitals. Finally, the physicians and surgeons at Network Hospitals would not receive any remuneration in return for referring patients to a Network Hospital.

Under the Proposed Plan, the requestors would return a portion of the savings resulting from the discounts directly to any policyholder who has an inpatient stay at a Network Hospital, in the form of a $100 premium credit. Policyholders would be informed in advance of the Proposed Plan and the premium credit, and they also would be told that use of a non-Network Hospital would not affect their liability for costs under the covered plan, or result in any other penalty.

The savings realized by the requestors would be reflected in their annual experience exhibits filed with various state insurance departments that regulate premium rates, and thus would be taken into account when states review and approve rates.

The OIG analyzed the Proposed Plan under the AKS and the beneficiary inducement CMP. With respect to the AKS, the OIG determined that the Proposed Plan would not be protected by two potentially applicable safe harbors. First, the safe harbor for waivers of beneficiary coinsurance and deductible amounts specifically excludes waivers when they are part of an agreement with insurers, such as the case with the requestors. Similarly, the safe harbor for reduced premium amounts offered by health plans requires such reductions for all enrollees, whereas the Proposed Plan offers the premium reduction only for policyholders who choose Network Hospitals. Still, even absent a safe harbor protection, the OIG concluded that in combination with Medigap coverage, the discounts offered on inpatient deductibles by Network Hospitals, and premium credits offered by Requestors to policyholders, presents a low risk of fraud or abuse under the AKS for several reasons:

  1. The discounts and premium credits would not affect per-service Medicare payments because Part A payments for inpatient services are fixed and unaffected by beneficiary cost-sharing.
  2. The Proposed Plan is unlikely to increase utilization because it is effectively invisible to policyholders and only applies to the individual’s cost-sharing obligations that supplemental insurance otherwise would cover.
  3. The Proposed Plan would not unfairly impact competition among hospitals because any qualified hospital can join the contracting PHO’s network.
  4. The Proposed Plan would not affect professional medical judgment because policyholders’ physicians and surgeons receive no remuneration.
  5. The Proposed Plan is transparent and policyholders may choose any hospital without incurring additional expenses.

Meanwhile, under the beneficiary inducement CMP, the premium credit would implicate the provision because it could induce the policyholders to choose a particular provider from a broader group of eligible providers. There is an exception to the definition of a prohibited remuneration, however, for differentials in coinsurance and deductible amounts as part of a benefit plan design, where the differentials are properly disclosed to affected parties. This includes cost-sharing plans that differentiate between in-network and out-of-network providers. Although the premium credit is not technically a differential in coinsurance or deductible amounts, it would have substantially the same purpose and effect as such a differential. Even so, the OIG concluded that the premium credit would present a sufficiently low risk of fraud or abuse under the prohibition on inducements to beneficiaries.

Further, the OIG noted that the Proposed Plan has the potential to lower Medigap costs for the requestors’ policyholders who choose Network Hospitals, as well as the potential to lower costs for all policyholders because the savings realized by the requestors is reported to state insurance rate-setting regulators. In short, given the low risk of fraud and abuse and the potential for savings for beneficiaries, the OIG determined it would not impose administrative sanctions on the requestors under the AKS or the beneficiary inducement CMP in connection with the Proposed Plan.

Medigap insurance costs can vary widely by location

When choosing a place to live in retirement, many seniors pay close attention to state taxes and housing costs. Often overlooked, however, is another key consideration: Medigap insurance.

Premiums for supplemental Medicare insurance, known as Medigap, vary widely by geography, according to a new industry pricing study by the American Association for Medicare Supplement Insurance.

Monthly costs for plan F supplemental policies, the most popular option, ranged from $118 in San Antonio to $444 in New York, according to the trade association that represents Medigap insurers.

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There also was a wide range in costs within each region. Among the nation’s 10 largest metropolitan areas, there was an average range of 39 percent between the lowest and highest premiums within a market. In New York, the highest premium was 68 percent higher than the lowest premium. In Los Angeles, the gap was a smaller 14 percent.

The association published the data to raise consumer awareness about the differences in cost, both compared to other geographic markets and to other plans within the same market, said Jesse Slome, the association’s director. Most consumers are unaware of these differences, he said.

That may be because traditional Medicare rates are set at the federal level, and consumers don’t pay different rates based on where they live, while state insurance departments regulate private Medigap providers. Those private firms have their own rate-setting policies.

“We always tell people to shop around because you can often find lower cost alternatives” within a geographic market, said Joe Baker, president of the Medicare Rights Center, an advocacy organization. “People are feeling Medigap premiums in some geographies are too expensive, which is why Medicare Advantage is becoming attractive.”

Offered as an alternative to traditional Medicare, Medicare Advantage plans are sold by private carriers as a one-stop shop replacing the various distinct parts of Medicare. They can be less expensive than coupling Medicare and Medigap plans, but they operate more like a managed care plan, with restrictions on which doctors consumers can choose, for example. And, once participants have been out of traditional Medicare for a year, it can be difficult to get back in.

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“If we had a national risk pool, there wouldn’t be this disparity” among state Medigap policies, Baker said. “We do get calls from people wondering why their relatives in other parts of the country pay so much more.”

Medigap insurance often overlooked by those planning to retire



When choosing a place to live in retirement, many seniors pay close attention to state taxes and housing costs. Often overlooked, however, is another key consideration: Medigap insurance.

Premiums for supplemental Medicare insurance, known as Medigap, vary widely by geography, according to a new industry pricing study by the American Association for Medicare Supplement Insurance.

Monthly costs for plan F supplemental policies, the most popular option, ranged from $118 in San Antonio to $444 in New York, according to the trade association that represents Medigap insurers.

There also was a wide range in costs within each region. Among the nation’s 10 largest metropolitan areas, there was an average range of 39 percent between the lowest and highest premiums within a market. In New York, the highest premium was 68 percent higher than the lowest premium. In Los Angeles, the gap was a smaller 14 percent.

The association published the data to raise consumer awareness about the differences in cost, both compared to other geographic markets and to other plans within the same market, said Jesse Slome, the association’s director. Most consumers are unaware of these differences, he said.

That may be because traditional Medicare rates are set at the federal level, and consumers don’t pay different rates based on where they live, while state insurance departments regulate private Medigap providers. Those private firms have their own rate-setting policies.

“We always tell people to shop around because you can often find lower cost alternatives” within a geographic market, said Joe Baker, president of the Medicare Rights Center, an advocacy organization. “People are feeling Medigap premiums in some geographies are too expensive, which is why Medicare Advantage is becoming attractive.”

Offered as an alternative to traditional Medicare, Medicare Advantage plans are sold by private carriers as a one-stop shop replacing the various distinct parts of Medicare. They can be less expensive than coupling Medicare and Medigap plans, but they operate more like a managed care plan, with restrictions on which doctors consumers can choose, for example. And, once participants have been out of traditional Medicare for a year, it can be difficult to get back in.

“If we had a national risk pool, there wouldn’t be this disparity” among state Medigap policies, Baker said. “We do get calls from people wondering why their relatives in other parts of the country pay so much more.”

While Medicare standardizes rates to adjust for regional price differences for care, state Medigap plans do not, so price differences reflect variations in how much care consumers in a geographic region use, as well as differences in physician and other medical care costs.

But it isn’t entirely intuitive. Though costs were highest in New York — a city known for higher costs on most goods — medical care in other big cities isn’t necessarily more expensive than in other markets, all the more reason to scrutinize Medigap rates in a given market, experts said.

“There’s actually a bit of a trend toward people moving away from Medigap policies and into Medicare Advantage” because Advantage plans are often cheaper, said Brooke Thomas, director of Medicare sales at eHealth, a company that helps consumers choose insurance plans.

For those who do want a Medigap plan, be sure to pay attention to the timing of starting the plan, in addition to checking out pricing of the different options, Thomas said.

“A lot of people today are working past 65 and they’re on a group insurance plan but they make the mistake of signing up for Medicare Part B,” Thomas said. Then they continue working and don’t sign up for a Medigap plan, he said. After six months, the guaranteed right to buy a Medigap plan expires, he said.

Medigap Plan F the most costly, yet popular

Most people would rather pay higher premiums for a plan that offers more coverage. Kali Nine LLC/Vetta/Getty Images

Most folks apparently would rather pay higher premiums for a plan that offers more coverage. Kali Nine LLC/Vetta/Getty Images

Most people who opt for traditional Medicare and a Medicare supplement to protect themselves from gaps in the program choose the Medigap insurance known as Plan F. Of those who decide to buy a Medigap plan, 66% choose F, according to the American Association for Medicare Supplement Insurance, a trade organization.

That’s in spite of the fact that Plan F is the most expensive, and many people will go years paying the premiums without getting their money’s worth. Does that make choosing it a good or bad decision?

“The reason most people pick F is that it covers every row on the Medicare coverage chart. If you can afford it, why not pay a little extra money and not have to worry about paying for your health care?” says Melissa Simpson, senior program manager for the National Council on Aging, or NCOA. She coordinates programs that connect Medicare beneficiaries with benefits and programs that address economic security.

Saving on premiums may cost more in the long run

Jesse Slome, executive director of the American Association for Medicare Supplement Insurance, a trade group, concurs. “At 65, you want the best. Sign me up for the free colonoscopy. My internist wants me to go for a test. If it is totally covered by Medicare, I’m there, baby,” Slome says. “By 65, you learn where to save and where not to save. At the end of the day, you aren’t going to save on your health care.”

Source: American Association for Medicare Supplement Insurance

Here are some things to think about when you are contemplating Medigap insurance and thinking about choosing Plan F.

Understand what you’re getting when you choose Plan F. Here’s a summary of what the various plans cover, as published on the Medicare website. With Plan F, the website Senior65.com calculates that you could save nearly $1 million in a single year of serious illness, compared to going without a Medigap policy at all.

Shop for price. If you go to Medicare.gov’s Find-a-Plan section and put in your Zip Code, you’ll see that there are an array of Medigap policies named Policy A through Policy N. All the plans with the same letter are required by the government to offer the same coverage, yet the prices vary greatly, depending on a variety of factors, including where you live. A good place to start is by figuring out the range of prices for Plan F in your Zip Code. There is no quick way to do that. Medicare lists the companies that sell Plan F in your Zip, but it doesn’t list prices. It is up to you to contact the companies that you are interested in or get an insurance broker to do it for you.

Investigate other customers’ experiences. Medicare doesn’t rate Medigap plans like it rates Medicare Advantage or Part D prescription drug plans. But service is a big issue, says Slome. So ask around. Find out what your neighbors think about a Medigap policy you’re considering. When they encounter a problem with Medigap coverage, how difficult is it to get the issue resolved?

Consider high-deductible Plan F. Medicare sells a a high-deductible Plan F that is priced in many places at less than $50 per month. But in order to claim under that plan, you must meet the deductible, which in 2016 is $2,180, not including the premiums. After that you get all the coverage of Plan F. This plan might work for you if you are generally healthy, but if you do the math, you’ll see that it might be hard to see much savings if you go to the doctor even for routine care.

Take a look at other Medigap plans. Plan G, for instance, covers everything that F does except that it doesn’t pay the annual Part B deductible, which in 2016 is $167. Often, Plan F and Plan G are only priced a few dollars apart and you won’t save anything at all choosing Plan G, but you never know without checking.

If you have two addresses, check the price at both. Medigap has to cover you wherever you seek health care. If you have a winter and a summer home, it might be cheaper to establish coverage at the place where the price is cheaper. For instance, it’s lots cheaper to buy insurance in Michigan than it is to buy it in Florida. And it is cheaper to buy in Florida than it is to buy in New York. Simpson says that the insurer can adjust your rate if you move full time to one location or the other, but they don’t always do it.

Switching Medigap plan letters is not always an option. “Some states have a more generous policy, but generally if you aren’t in that initial 6 months (of Medicare eligibility) or affected by one of 7 specific conditions (such as if your insurer goes out of business), you will be subject to medical underwriting,” NCOA’s Simpson says. That means you can be denied the right to change, charged more or subjected to pre-existing condition limitations. Simpson cited the experience of a woman she talked to recently whose insurer denied her the right to switch Medigap plans because she had a hospital visit related to a bout with the flu. “It was not a chronic issue. She got sick, got dehydrated and went to the hospital. The Medigap company was within the law to deny her the right to change. … So, picking the plan initially that you think you are going to need down the road is really pretty important,” she says.

Get good advice. You’re making a big decision. It doesn’t cost anything to use a broker, and Slome’s organization offers a referral service to brokers all over the country. For official help, in every state you can also contact either your state insurance department or get in touch with your State Health Insurance Assistance Program, or SHIP.

Medicare prods doctors to charge less for drugs administered in their offices.

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