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Gaps in Medicare and Supplemental Coverage

Traditional Medicare does not cover long-term care services and supports and dental, vision, and hearing services. However, Medicare beneficiaries are at risk of incurring significant OOP costs for covered services as well as for services that aren’t covered, such as dental, vision, and long-term care. Approximately 81 percent of traditional Medicare enrollees have some form of supplemental coverage. Approximately one in five beneficiaries is fully “dually eligible,” qualifying for Medicaid coverage in their state, which covers cost sharing, the premium for Part B, and provides benefits not covered under Medicare. Many people with low incomes who do not qualify for Medicaid in their states may still qualify for cost-sharing assistance that reduces or eliminates their OOP costs, thereby reducing potential cost-related barriers to accessing services.

Many beneficiaries have private supplemental coverage either through a former employer or private Medigap policies that may fully or partially cover Part A and Part B cost-sharing requirements. Employer-sponsored insurance (ESI) coverage provides supplemental coverage to approximately 30 percent of Medicare beneficiaries. In 2019, only 28 percent of all large firms (200 or more workers) that offered ESI coverage to current employees also offered retiree health benefits. The availability of retiree coverage differs by firms’ characteristics: Firms offering ESI benefits are more likely to offer retiree health benefits if they have at least some union workers, a larger share of high-income workers, or a larger share of older workers. Of these firms, 91 percent offered health benefits for early retirees (individuals retiring before the age of 65), and 61 percent offered health benefits to individuals ages 65 and older in 2019.

Approximately 29 percent of traditional Medicare beneficiaries in 2016 were enrolled in Medicare supplemental insurance plans to pay health costs not covered by Medicare, popularly known as Medigap. The benefits offered by these plans are standardized by the Centers for Medicare & Medicaid Services, but significant variation occurs in the operation of Medigap marketplaces across states. Beneficiaries are eligible to enroll in a Medigap plan during their open enrollment period (the first six months of their enrollment in Part B). During this open enrollment period, Medigap coverage must be offered on a guaranteed-issue basis, meaning Medigap insurers cannot deny a policy to any applicant based on age, gender, or health status. In addition, for Medigap coverage purchased during the open enrollment period, premiums cannot vary by health status. Most states allow Medigap insurers to practice medical underwriting outside of this open enrollment period and deny coverage or charge higher premiums to beneficiaries with preexisting conditions. Federal law does not require Medigap insurers to sell policies to beneficiaries who qualify for Medicare based on long-term disability or to any beneficiaries switching from a Medicare Advantage plan to traditional Medicare during the annual open enrollment period. States have the flexibility to go beyond these minimum standards for Medigap policies.

Medicare coordinates benefit coverage with other coverage sources. While in some circumstances, Medicare is the secondary payer, in most instances, Medicare is the primary payer, with any supplemental coverage providing secondary, wraparound coverage. The Medicare Secondary Payer provisions specify that Medicare is the primary payer for beneficiaries with supplemental coverage through a group health insurance plan under the following conditions: for individuals 65 years or older enrolled in a group health plan through an employer with fewer than 20 employees; for persons with a disability who are younger than 65 enrolled in a plan through an employer with fewer than 100 employees; and for people 65 years or older with retiree coverage through a former employer. Medicare is the secondary payer for beneficiaries with supplemental coverage from a group health insurance plan for individuals ages 65 and older if the employer has more than 20 employees and for people under the age of 65 with a disability if the employer has 100 employees or more. Medicare is the primary payer for beneficiaries dually covered by Medicare and Medicaid and for individuals with a private Medigap plan.

 

For a more detailed discussion, see: