In House “Doc Fix,” An Unconservative Approach to Insurance Reform

The “doc fix” legislation that the House passed Thursday would add $141 billion to the deficit and make some structural changes to Medicare. Some of those changes aim to make Medicare more solvent by reducing the growth of program spending, a conservative goal, but it would achieve this by liberal means: prohibiting the sale of certain types of insurance policies.

The issue involves Medigap supplemental insurance, which pays for beneficiary cost-sharing (deductibles, co-payments, and co-insurance) not covered by the traditional Medicare program. The most popular Medigap policies cover the Medicare Part B deductible, along with other forms of cost-sharing. Studies have shown that these types of policies—which allow seniors to visit medical providers without any out-of-pocket costs—encourage beneficiaries to over-consume care, raising taxpayer spending on Medicare.

The House legislation responds to this by making some types of Medigap coverage illegal. It would prohibit the sale or issuance of any policies that insulate beneficiaries from the Medicare Part B deductible of $147. This provision would apply only to new beneficiaries and only after Jan. 1, 2020; it would not take away health insurance plans for seniors currently enrolled.

In contrast, the Obama administration’s budget plan took a more conservative approach to this problem. It proposed a “premium surcharge for new beneficiaries beginning in 2019” choosing first-dollar Medigap coverage. Under its approach, insurers could still offer, and seniors could still purchase, insulating Medigap insurance—but they would have to repay taxpayers for additional Medicare spending engendered by their generous supplemental coverage. The president’s budget did not go so far as to apply this to today’s seniors, but it would be easier to extend this premium surcharge concept to existing Medicare beneficiaries; they could keep their existing insurance and would have to make taxpayers whole.

Medigap supplemental insurance is hardly a free market. Over and above state regulation of plans, the federal government has prescribed benefit packages for many years thanks to Medigap’s interactions with Medicare. But it’s striking that policy makers in the House decided the best way to reform this insurance market was to ban certain types of insurance outright, as opposed to implementing changes to ensure that Medicare does not lose money from seniors’ overconsumption of care.

This post was originally published at the Wall Street Journal Think Tank blog.