Dec 17, 2018

There is another pre-existing conditions problem — for seniors

Illustration: Aïda Amer/Axios

Pre-existing conditions are in the news again, now that a federal judge's ruling could wipe out the Affordable Care Act. But there's been a similar issue all along that's drawn less attention: Seniors with pre-existing conditions can be denied coverage in many cases when they apply for Medicare supplemental insurance policies, or Medigap.

The big picture: The Affordable Care Act prohibits most private health plans from denying coverage to individuals based on their medical history. Medicare and Medicaid also cover all eligible individuals regardless of their medical history. But Medigap doesn’t have this protection, at least not fully. The problem could be addressed, but with the expected side effect: premiums would go up.

Background: More than 1 in 4 people in traditional Medicare have a Medigap policy to help beneficiaries cover out-of-pocket costs, which are not capped under Medicare.

How did Medigap fall under the radar on pre-existing conditions? It happened because Congress had already dealt with the issue — but in a way that left huge holes — and the ACA was aimed at the parts of the private health insurance market that didn't already have protections.

  • In 1990, Congress established consumer protections for Medigap, but with limited protections for people with pre-existing conditions.
  • Medigap insurers have to issue a policy without regard to pre-existing conditions during the first six months of enrolling in Medicare Part B at age 65 or older, after an employer terminates retiree coverage, and after a brief trial period in a Medicare Advantage plan, and other narrowly defined circumstances.
  • Otherwise, Medigap insurers can and do deny applications from seniors with pre-existing conditions.

There's no hard data on how many people have been affected, but we know anecdotally that it happens. Here's a good piece by my Kaiser Family Foundation colleague Tricia Neuman about a friend who was turned down for Medigap coverage because of his pre-existing condition.

And pre-existing conditions aren't exactly rare among seniors. My best estimate is that 65% of Medicare beneficiaries have a condition Medigap insurers might use to deny coverage.

  • That's based on how many seniors have the kinds of conditions that have been targeted by insurers: diabetes, cancer, congestive heart failure, chronic lung/pulmonary disorders, Alzheimers and related dementias, end-stage renal disease, coronary artery disease, rheumatoid arthritis, mental disorders, osteoporosis and stroke. 

Between the lines: States can go beyond minimum federal protections by prohibiting Medigap insurers from underwriting during an annual open enrollment period (meaning they can't use pre-existing conditions to determine whether to cover someone and under what terms).

But just 4 states do so for seniors. And while many other states go beyond the minimum federal requirements, the circumstances are typically narrowly defined.

Outside the 4 states, people on Medicare have a limited window of opportunity to buy a Medigap policy, and if they miss the window, they may be denied a policy due to a pre-existing condition. This potentially affects:

  • Some of the 6 million people in traditional Medicare without supplemental insurance.
  • Some of the 20 million enrollees in Medicare Advantage who may at some point in their lives want to switch to traditional Medicare, with the added protection of a Medigap policy.
  • Other adults on Medicare besides seniors — those under age 65 with serious disabilities with no protections for pre-existing conditions in some states, even when they first go on Medicare.
  • People on Medicare who now have a Medigap policy who may be unable to switch to a lower-premium policy sold by another company if they have a pre-existing condition. 

The bottom line: The problem is fixable. Congress could require Medigap insurers in all states to accept people on Medicare, including those with pre-existing conditions, during an annual open enrollment period. Or it could add an out-of-pocket limit to traditional Medicare, mitigating the need for supplemental insurance.

But, as always, there would be tradeoffs, in the form of increased Medigap premiums and higher federal Medicare spending.

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