In a recent study published in October 2024 in Health Affairs Scholar, researchers from the Johns Hopkins Bloomberg School of Public Health’s Department of Health Policy and Management investigated a critical issue for Medicare beneficiaries enrolled in Medicare Advantage (MA) plans. Lead author Angela Liu, PhD, MPH and her team, including David Pittman, MPH, Gerard Anderson PhD, and Jianhui Xu, PhD, examined how Medigap— private supplemental insurance designed to cover out-of-pocket expenses not covered by Original Medicare— affects disenrollment rates from MA, particularly when beneficiaries encounter high-cost medical care.
While MA plans have grown in popularity, accounting for most Medicare enrollment, the research revealed that beneficiaries undergoing expensive treatments, such as physician-administered drugs, are more likely to return to traditional Medicare if Medigap coverage is accessible and affordable. According to the researchers, the core of the problem is the so-called “Medicare Advantage Trap,” where beneficiaries cannot leave their MA plan because the out-of-pocket costs associated with obtaining Medigap coverage become prohibitive. Beyond minimal federal regulations, states regulate how Medigap insurers price their premiums. In most states, premiums are based on individual health risks. When beneficiaries first age into the Medicare system, they can purchase Medigap at community rates without penalties based on health status, but they can only take advantage of these cost-savings during a one-time, six-month enrollment period. Switching back to traditional Medicare later makes the coverage financially inaccessible for those with high-cost medical needs.
The study analyzed data from 2019-2020, focusing on beneficiaries who received one of the top 10 highest-spending Part B physician-administered drugs, such as cancer treatments like Opdivo and Keytruda. These drugs often result in substantial cost-sharing responsibilities for patients. The researchers found that beneficiaries residing in states with guaranteed issue Medigap policies— where insurers are required to sell Medigap policies at community rates to all eligible applicants— were significantly more likely to disenroll from MA when they faced high medical expenses.
In states without consumer protection policies, disenrollment rates remained around 1%, regardless of whether beneficiaries received costly drugs. However, in states with guaranteed issue policies, disenrollment rates for those receiving high-cost drugs spiked to 4.8%, compared to just 1.3% for those not facing such expenses.
The research highlights the significant impact of state policies on beneficiary decisions. For example, Keytruda and Opdivo, both expensive cancer treatments with high out-of-pocket costs, were associated with the highest rates of disenrollment in guaranteed issue states. On the other hand, drugs with lower cost-sharing liabilities, such as Infliximab, did not exhibit a statistically significant increase in disenrollment rates.
The findings have far-reaching implications for policymakers and insurers alike. The “trap” faced by high-cost beneficiaries suggests a need for broader reforms to Medigap policies across states. “The actuarial reasons for the Medigap insurers not wanting to enroll beneficiaries with high medical needs are clear since these individuals are likely to incur higher medical costs. Policies to address the ‘MA trap’ should balance improving beneficiary access to Medicare coverage by regulating guaranteed issue and community rating while monitoring adverse selection and the stability of the Medigap market,” said Liu.
Furthermore, the research points to potential conflicts of interest within the insurance industry. Many insurers offer both MA and Medigap plans, yet they may have less financial incentive to encourage beneficiaries to leave MA for traditional Medicare if MA is more profitable for them. Future research could explore the nuances of how these insurers structure their offerings in states with different Medigap policies.