[Congressional Record Volume 141, Number 78 (Thursday, May 11, 1995)]
[Extensions of Remarks]
[Pages E1004-E1005]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


              THE MEDIGAP CONSUMER PROTECTION ACT OF 1995

                                 ______


                         HON. RICHARD J. DURBIN

                              of illinois

                    in the house of representatives

                         Thursday, May 11, 1995
  Mr. DURBIN. Mr. Speaker, today I am introducing the Medigap Consumer 
Protection Act of 1995, which will help millions of seniors hang on to 
the private health insurance they purchase to pay for the deductibles 
and services which are not covered by Medicare.
  In recent years, insurance companies have increasingly sold Medigap 
policies whose premiums are determined using a method known as 
``attained age rating''. An attained age policy offers the buyer lower 
premiums at an early age but its premiums increase as a result of the 
aging of the policyholder. At various age thresholds the insurer raises 
premiums to reflect the expected greater use of health care by older 
policyholders. Due to the high inflation rate in the cost of health 
care, all Medigap policy premiums increase with time, but the premiums 
of attained age policies increase much more sharply.
  The Medigap Consumer Protection Act would prohibit annual Medigap 
premium increases from being based on the age or aging of the 
policyholder. This would prohibit insurance companies from selling any 
more attained age Medigap policies. Ten States already prohibit 
attained age rating for Medigap: Arkansas, Connecticut, Florida, 
Georgia, Idaho, Maine, Massachusetts, Minnesota, New York, and 
Washington. The bill would allow people who have already purchased 
attained age policies to keep them if they choose to do so. However, 
insurance companies would have to offer these policyholders the option 
of changing their insurance coverage to a policy not based on attained 
age rating, for example, a community rated or issue age rated policy.
  Most Medigap purchasers, and many insurance agents, do not understand 
how attained age rating works, so prospective policy buyers often have 
a difficult time in making an informed decision. Senior citizens who 
purchase attained age policies and later face unexpectedly large 
premium increases as they age find it difficult to change policies 
because they usually must face a 6-month waiting period for pre-
existing health conditions. When seniors enter the Medicare system--
usually at age 65--they have a 6-month window of opportunity during 
which they can sign up for Medigap insurance without being denied 
coverage because of pre-existing conditions. At all other times they 
are subject to such a pre-existing condition waiting 
period. [[Page E1005]] 
  The Medigap Consumer Protection Act would direct the National 
Association of Insurance Commissioners [NAIC] to develop guidelines to 
eliminate attained age rating which would then be implemented in all 
States. The NAIC, founded in 1871, is the Nation's oldest association 
of State public officials. It is composed of the chief insurance 
regulators of all 50 States, the District of Columbia and the 4 U.S. 
territories. In the past, Congress has requested similar action from 
the NAIC, which has successfully completed these requests.
  For instance, the Omnibus Budget Reconciliation Act of 1990 
instructed NAIC to develop model standardized benefit packages for the 
Medigap market. After holding public hearings, and consulting with 
interested parties, the NAIC completed the standards, which were 
approved by the Secretary of Health and Human Services and became law.
  I would like to include in the Record the following excerpt from a 
Consumer Reports article of August 1994 which describes the attained-
age pricing problem in the Medigap market:

       Many companies have changed the way they price policies so 
     they can bait consumers with low premiums at the outset and 
     trap them with very high increases later on.
       In 1989, most carriers used either ``community rates'' or 
     ``issue-age rates'' to price their policies. With community 
     rates, all policyholders, young or old, pay the same premium. 
     With issue-age rates, premiums will vary depending on the age 
     of the buyer. But in either case, the annual premium will go 
     up only to reflect inflation in the cost of benefits; it will 
     not rise because you get older. Both community and issue-age 
     rates protect policyholders from steep annual increases.
       Now, however, more and more insurance companies are 
     restoring to a less benign strategy as ``attained-age'' 
     pricing. It allows companies to gain a competitive advantage 
     by selling cheap policies to 65-year-olds when they enter the 
     Medicare-supplement market. With attained-age pricing, the 
     initial premiums, especially for those between 65 and 69, are 
     usually lower than for issue-age or community-rated policies. 
     But there's a catch: Premiums will rise steeply as the 
     policyholder gets older.
       In 1990, 31 percent of all Blue Cross-Blue Shield 
     affiliates sold policies with attained-age rates. In 1993, 55 
     percent did. At the same time, the proportion of Blue Cross-
     Blue Shield plans offering community rates has dropped from 
     51 percent to 21 percent. AARP/Prudential still offers 
     community rates but finds its initial premiums have become 
     less competitive for policyholders age 65 to 69.
       Attained-age policies are hazardous to policyholders. By 
     age 75, 80, or 85, a policyholder may find that coverage has 
     become unaffordable--just when the onset of poor health could 
     make it impossible to buy a new, less expensive policy. Take, 
     for example, an attained-age Plan F offered by New York Life 
     and an issue-age Plan F offered by United American. For 
     someone age 65, the New York Life policy is about $114 a year 
     cheaper. But by age 80, the New York Life policyholder would 
     have spent a total of $5000 more than the buyer of the United 
     American policy.
       Buyers are rarely warned of these consequences. Neither 
     insurers nor agents are required to tell consumers how 
     expensive attained-age policies will become over time. A 
     sales brochure from California Blue Cross, which boasts one 
     of the state's hottest-selling Medicare supplements, says 
     nothing about rate increases; it doesn't even mention that 
     rates are calculated on an attained-age basis. Of the 17 
     agents our reporter heard, only one discussed the way his 
     company's rates were set--and he thoroughly confused the 
     three methods. ``The vast majority of agents don't understand 
     attained-age pricing,
      so they can't possibly explain it to their customers,'' says 
     Mark McAndrew, president of United American.
       Only 10 states--Arkansas, Connecticut, Florida, Georgia, 
     Idaho, Maine, Massachusetts, Minnesota, New York, and 
     Washington--either require that insurers use community rates 
     or specifically ban attained-age policies. In most other 
     states, insurers are shifting to attained-age policies. 
     United American, a large seller of Medicare-supplement 
     policies, has just notified state insurance regulators that 
     it plans to switch from issue-age to attained-age rates. ``We 
     think attained-age rates are a bad thing, but our agents had 
     to eat,'' explains Joyce Lane, a United American Vice 
     president.

  Mr. Speaker, Bonnie Burns, a private contractor for California's 
Health Insurance Counseling and Advocacy Program delivered the 
following testimony before the House Health and Environment 
Subcommittee earlier this year:

       The danger [with attained age rating] is that just when 
     people begin to need more and more medical care, they will 
     also be hit with much higher premiums. Alternative methods of 
     calculating premiums mean that older beneficiaries will 
     almost always pay less than with attained age rates. The 
     impact of sharply increased premiums is minimized.
       Most seniors are in the middle class or below and are 
     already spending about 23 percent of their income on health 
     care expenses according to the AARP, while those under 65 
     spend about 8 percent. As people age their income and 
     resources go down over time, particularly for older widowed 
     women, and out of pocket costs for health care consume an 
     increasingly larger part of their income. Their ability to 
     absorb additional costs in premiums, deductibles and 
     coinsurance is limited.

  Mr. Speaker, affordable premiums and reliable health care coverage 
are crucial issues for millions of elderly Americans on fixed incomes. 
At age 65, virtually all Americans recognize the importance of good 
health coverage. Seniors face rapidly increasing health costs as they 
reach their seventies and eighties. It is inappropriate to lure seniors 
into attained age policies which they will not be able to afford if 
they live for a decade or two. That is why Consumers' Union and the 
National Council of Senior Citizens have written letters strongly 
supporting the Medigap Consumer Protection Act.
  I would like to close, Mr. Speaker, by describing a few of the things 
the Medigap Consumer Protection Act will not do:
  The Medigap Consumer Protection Act does not place price controls on 
the insurance industry. Under this bill each insurance carrier will 
continue to set its own rates and can charge as much or as little as it 
feels is prudent as long as it continues to meet the loss ratio 
requirements which are already in place under current law.
  The Medigap Consumer Protection Act does not diminish valuable 
consumer choice. Attained age rating makes it more difficult and 
confusing for consumers to make price comparisons and compare different 
policies. Attained age rating confuses prospective policybuyers and 
insurance agents. Attained age rating deceives the average Medigap 
purchaser into purchasing coverage which they may not be able to afford 
later in life. This bill only prohibits the sale of any more of those 
policies that Consumer Reports correctly described as bait and trap 
policies.
  The Medigap Consumer Protection Act will not force insurance carriers 
out of business. Under current law, insurance carriers must meet loss 
ratio requirements of 65 percent for the individual market and 75 
percent for the group market. Loss ratios represent how much an 
insurance company must spend on benefits for each dollar it collects in 
premiums. For instance, a carrier selling Medigap policies to 
individuals must offer an average of at least 65 cents in benefits for 
each dollar it collects in premiums. This bill will still allow 
insurance carriers to clear up to 35 cents on each dollar in premiums 
they collect.
  I hope that my colleagues on both sides of the aisle will join me in 
cosponsoring the Medigap Consumer Protection Act and in working toward 
its enactment so we can help seniors retain affordable, private Medigap 
coverage as they grow older. This legislation simply eliminates a type 
of policy that ropes seniors into policies with deceptively low initial 
premiums followed by sharp increases when those consumers may no longer 
have the option of switching to a competing policy.


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