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Medigap limits could save Medicare money

Jul 20, 2011, 2:48 p.m.

WASHINGTON (Reuters) - Federal deficit-reduction proposals that would limit Medicare supplemental insurance plans could save money but raise costs for some elderly beneficiaries, a study said on Wednesday.

Requiring higher out-of-pocket costs and deductibles for private "Medigap" plans is contained in most deficit reduction proposals being weighed by Congress. Medicare is a big-ticket item in the federal budget because its costs will balloon as baby boomers, those born between 1946 and 1964, hit retirement age and begin drawing on health benefits.

A study sponsored by the Kaiser Family Foundation said restricting coverage of deductibles by Medigap plans could save anywhere from $1.5 billion to $4.6 billion a year, depending on how much out-of-pocket expenses elderly beneficiaries would be required to pay.

Higher deductibles and co-payments would reduce the demand for care and most likely lower supplemental insurance premiums because of reduced expenses for insurers, the study said.

"If premium reductions were fully proportionate to the drop in (insurer) expenses, the savings for the average beneficiary would be sufficient to more than offset his or her new direct outlays for Medicare cost sharing," the study said.

But it also warned that the proposal could discourage people from seeking necessary care that can prevent more costly treatments.

Medigap plans are popular because they pay most or all expenses not covered by Medicare, which has high deductibles and no cap on out-of-pocket expenses. Budget hawks argue that limiting the amount of coverage by these supplemental insurance plans will discourage unnecessary trips to the doctor as well as elective care and some types of tests.

But about one in five Medigap enrollees would pay more, the study said.

"Medigap reforms would have a disproportionately negative impact on enrollees with modest incomes, in relatively poor health and those with any inpatient hospital utilization," the study said.

(Reporting by Donna Smith; Editing by Doina Chiacu)