Medigap Issuers Face Spike in Small Problems That Got Serious

Issuers of Medicare supplement insurance policies are facing stress of their own this fall.

Manoj Pawar, the chief medical officer at Mutual of Omaha, a major Medicare supplement insurance policy issuer, said in a recent interview that one main reason is the lingering effect of COVID-19 on people’s health and their use of health care services.

Health insurers noticed a dramatic decrease in health insurance claims during the early years of the COVID pandemic, partly because some doctors were too busy responding to COVID to handle other kinds of care, and partly because patients were afraid of catching COVID at health care facilities.

“People weren’t even getting screening tests,” Pawar said.

What it means: Insured patients are now finding out that neglected small problems have turned into big, costly problems, Pawar said.

For Medicare Advantage plan issuers, that’s combining with tighter federal subsidy rules and regulatory framework changes to make this a terrible year.

For Medicare supplement insurance issuers, it’s pushing premiums higher.

For a client, a neglected small problem that becomes a big problem is a catastrophe. It could force the client to give up on any plans to retire in Hawaii or open up a bait shop in Maine, and it could replace glamorous restaurant meals with whatever snacks happen to be left in the hospital or cancer treatment center vending machine.

Pawar thinks it’s important for anyone who’s talking to the clients to tell them to get their checkups.

The two Medicare gap fillers: Medicare is a federal program that pays for care for about 64 million people who are 65 or older, have severe kidney disease or are disabled.

“Original Medicare” is based on a framework developed in 1965 and exposes enrollees to many deductibles, coinsurance bills and other out-of-pocket costs.

Medicare Advantage plans help about 30 million Medicare enrollees fill in the original Medicare coverage holes.

Roughly 13.6 million people use Medicare supplement insurance policies, or Medigap policies, to fill in the gaps.

Medigap policies are based on an older federal law. Unlike Medicare Advantage plans, which are regulated by the federal Centers for Medicare and Medicaid Services, Medigap policies are regulated by state insurance departments. The underwriting rules and other rules vary from state to state.

Mutual of Omaha: To ordinary consumers, Mutual of Omaha may be best known for sponsoring “Mutual of Omaha’s Wild Kingdom” nature documentaries.

Mutual of Omaha has also been a major player in the Medigap market. It ranked second in 2023 in terms of market share and served about 1.3 million of Medigap insureds, according to Mark Farrah Associates.

Medigap vs. Medicare Advantage plans: Conventional wisdom is that Medigap policies are better for high-income and high-net-worth clients because they tend to be much more flexible than Medicare Advantage plans and give the patients more choices.

In the real world, how Medicare Advantage plans work can vary dramatically from location to location, Pawar said.

But Pawar said it’s important for financial professionals who are talking to people who are eligible for Medicare to help them think about their overall health care and needs and spending, and to show them that Medigap policy savings on out-of-pocket costs could quickly exceed the premium bills.

When people sign up for Medicare Advantage plans based mainly on the premiums, without thinking about the implications, “there’s a lot of buyer’s remorse,” Pawar said.

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