The United HealthCare Insurance Company (United) is pleased to provide the Subcommittee with this written statement to supplement the transcript of the Subcommittee’s May 9 hearing on modernizing beneficiary cost sharing in Medicare. The United HealthCare Insurance Company underwrites Medicare Supplement Insurance plans provided to AARP members through AARP’s Health Care Options program. The views expressed in this statement are solely those of the United HealthCare Insurance Company and are not necessarily the views of AARP.

Medicare cost sharing is an important issue. Over the years, beneficiaries have been asked to cover an increasing share of their health costs. Today, Medicare covers roughly half of a typical beneficiary’s health care costs, and it is likely that this proportion will continue to decline.

To remain viable, Medicare has relied upon supplemental coverage from a number of sources, including employers and Medicare Supplement carriers. Without this supplemental coverage, many seniors would not be able to meet their cost-sharing obligations.

Roughly one third of Medicare beneficiaries have a Medicare Supplement policy. For many beneficiaries, particularly in rural areas, Medicare Supplement policies are the only available supplemental insurance option. Therefore, it is extremely important that Congress consider the impact upon Medicare Supplement of any potential legislation to reform or modernize Medicare.

In reviewing the supplemental insurance market, Congress should consider whether to revise the existing standardized benefits and whether there are ways to make supplemental insurance more affordable and accessible to beneficiaries.

Standardization was intended to provide consumers with a common set of benefits around which carriers would compete based upon price and service. Ten years of experience, however, has shown that standardization has not achieved all of its original goals.

First, although there are ten plans, only a few are frequently purchased by consumers. This suggests that some of the benefits need to be reexamined in light of the existing market and changes that have been implemented in Medicare.

Second, premiums have increased substantially, primarily due to medical inflation and additional requirements placed on Medigap carriers, such as coverage for beneficiaries under age 65. At the same time, many carriers have switched to attained age rating, a pricing system that raises premiums annually based solely upon age. To ensure that fee-for-service remains viable, Medicare Supplement plans need to be affordable for seniors of all ages.

Finally, since standardization, most Medicare Supplement carriers have imposed substantial medical underwriting requirements, excluding many people with high cost health conditions. At the same time, recent changes in guaranteed issue rights have created an extremely complex set of requirements that are almost impossible to administer. Underwriting requirements and guaranteed issue rules should be examined to ensure that Medicare Supplement plans are as widely available as possible.

There are a number of reform options that Congress should consider in examining the Medigap market. First, because only a few plans are popular among consumers, Congress should consider combining existing plans and adding new benefits that consumers want, such as alternative medicine.

Similarly, Congress should review the prescription drug benefit in plans H, I, and J. Despite consumer desire for prescription drug coverage, these plans are not as popular as the non-drug plans. Moreover, most companies do not offer the drug plans in many areas. United is the only carrier offering at least one of the three drug plans in every state and, as a result, sells roughly half of all Medicare Supplement drug plans in the country.

Second, Congress should consider standardizing the rating methodology by which carriers establish premiums. Although standardization was intended to simplify the market, multiple rating methodologies are confusing to seniors and, particularly with attained age rating, create market incentives that actually disadvantage seniors. A uniform rating methodology would help accomplish one of the original goals of standardization – competition based upon comparable prices, value, and service.

Third, Congress should consider options that reduce premiums and utilization, such as co-pays and additional deductibles. Although these low-cost options should not be in every plan, they could provide broader benefit choices for people who want to reduce or minimize their monthly payments.

Finally, Congress should consider other reforms designed to reduce premiums and increase benefits to consumers, such as standardizing enrollment and other regulatory requirements, implementing "speed to market" measures that reduce administrative burdens on states and insurers, and allowing standardized plans as additional options in waiver states.