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Deficit committee could bite CNO

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Medicare supplement policies reportedly are one of the targets of Congress’ special deficit-reduction committee—and that’s not good news for Carmel-based CNO Financial Group Inc.

CNO Financial, formerly known as Conseco Inc., derives nearly a quarter of the insurance premiums it collects from Medicare supplemental policies, which shield retirees from deductibles and other out-of-pocket expenses not covered by the traditional Medicare program.

The plans are being targeted, according to a report by Reuters, because some budget studies suggest they drive up costs for the government as the extra coverage for out-of-pocket expenses causes policyholders to use more medical services than those without supplemental coverage.

President Obama has called for a 30-percent surcharge on premiums, beginning in 2017, for Medicare recipients who buy a low-deductible Medicare supplement policy. Such a change is projected to save the federal government $2.5 billion over the next 10 years.

Other proposals call for assessing surcharges on current holders of Medicare supplement policies, which could save up to $93 billion in the next decade.

Reuters cited an unnamed congressional aide who said the special committee is considering various ideas to curtail purchases of the supplemental plans.

“This one is clearly on the table,” added a lobbyist, whom Reuters also did not identify. The special committee, made up of six congressional Republicans and six Democrats, is trying to produce a plan by Nov. 23 that would reduce federal spending $1.5 trillion over the next decade.

If the committee comes up with a plan, it must be voted on by Congress within a month. If no plan is passed, $1.2 trillion will be cut automatically out of the federal budget.

CNO Financial collected $419 million in Medicare supplement premiums during the first six months of the year, or 23.5 percent of the nearly $1.8 billion in premiums it collected on its life, health and annuity policies.

“We are working to make the committee aware of the important protection that these products provide to millions of policyholders, especially those with low and middle incomes and those in rural areas," said Scott Perry, president of Bankers Life and Casualty, a subsidiary of CNO that sells the bulk of its Medicare supplement policies. "Disruption to Medicare supplement plans would lead to confusion and could impact consumers through higher out-of-pocket expenses."

Interestingly, both the health insurance industry and health care advocates are opposing aggressive hits to Medicare supplement policies. Both worry, according to Reuters, that efforts to curtail unnecessary medical care would cause seniors to forgo necessary care.

“My hope is that Democrats are going to be loath to make changes in something that deals with out-of-pocket expenses for seniors and I believe they will be,” said Ron Pollack, executive director of Families USA.

The National Association of Insurance Commissioners submitted a letter to the special committee last month, warning especially against changes that would affect current policyholders of Medicare supplement insurance, also called Medigap policies.

“An abrupt alteration of the Medigap cost-sharing benefits for in-force policies will cause a major market disruption and cause serious confusion for seniors,” the group wrote.

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  • Congress Shifts Costs to Seniors
    The so-called Medigap "first dollar coverage" effect is flawed public policy that rests on a theory that supplemental insurance coverage causes Medicare beneficiaries to "overuse" Medicare benefits. It is based on a simple comparison of those with and those without Medigap coverage.

    Medigap insurance only pays benefits for Medicare cost-sharing after Medicare has determined that the services are "medically necessary". Medigap coverage does not and cannot make a "medical necessity" determination as supplementary to Medicare. As a result, Medigap coverage does not affect utilization of Medicare services.

    Studies have not concluded that the additional care was a waste or of marginal value. In fact, studies have shown that: (1) increased cost sharing reduced the use of both needed and unneeded health care services; and (2) that an important 1982 study did not review the impact of increased cost sharing on Medicare beneficiaries.

    Studies have found that increased cost sharing only reduces the use of services where the patient has decided not to initiate treatment or services because of the higher cost sharing. However, once patients entered the health care system, cost sharing only modestly affected the intensity or cost of an episode of care and has little effect on costs once care is sought.

    Physicians affect the "overuse" of Medicare services after patients seek treatment, more so than the presence of secondary coverage. Better scrutiny of Medicare's approval of all physician treatments would best address the utilization concerns. Indeed, for example, various recent studies have documented overuse of CT scans for Medicare beneficiaries, and lack of medical necessity for power wheel chairs.

    Prohibiting Medigap cost-sharing coverage will only shift costs and reduces medically necessary services to beneficiaries. In fact, more recent studies have concluded that such proposals would likely offset savings with significantly increased hospitalization costs.

    In its "Budget Options" CBO recognized that seniors would strongly object to these restrictions because of greater uncertainty about out-of-pocket costs and that such restrictions would lead Medicare beneficiaries to forgo needed services.

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