Medicare Compliance & Reimbursement

MediGap's rural route can lead to a gold mine of customers.

Medicare Advantage plans looking to build enrollment bases should take a look at the MediGap population.

As more plans are offering Medicare Advantage products and are preparing for the Part D drug benefit and regional PPOs in 2006, insurers are looking for any advantage they can find. MediGap purchasers have traditionally been an attractive target for managed Medicare plans, but it hasn't always been easy for plans to reach out to them.

Data released by America's Health Insurance Plans May 12 helps break down the differences between MediGap purchasers and other Medicare beneficiaries. Using government data on the 2002 Medicare population, the study confirms industry wisdom that MediGap policyholders are more likely than Medicare fee-for-service members to live in rural areas: 32 percent of MediGap members live in rural areas, as opposed to 24 percent of all Medicare beneficiaries.

The study also found that MediGap enrollees had lower-than-average incomes when compared to all Medicare beneficiaries. Forty-five percent of all MediGap policyholders had incomes under $20,000.

Big Future Looms In MediGap

AHIP says the study shows that MediGap is an important offering for low-income and rural beneficiaries, but its members may be an even more important building block for Medicare Advantage plans in 2006 and beyond.

MediGap enrollees are used to cutting a check every month, so they may be more inclined than other fee-for-service beneficiaries to move over to MA plans, explained Jack Ebeler, president of the Alliance of Community Health Plans, at a recent press conference.

"MediGap purchasers are definitely low-hanging fruit for enrollment in Medicare Advantage," John Gorman, president of Gorman Health Group, agrees. This has long been true for managed Medicare plans, but it will become more so for two reasons.

First of all, the two products that are most attractive to MediGap purchasers - PPOs and private fee-for-service - are going mainstream in Medicare Advantage. There will be more than 100 local PPOs in Medicare by the end of the year, and dozens of companies will offer private FFS, Gorman says.

Secondly, the reach of Medicare Advantage products is finally extending into the rural areas where MediGap purchasers are most plentiful. These people might not have had access to Medicare HMOs in the past, since health plans found it unprofitable to offer such plans in areas with small provider networks and low population densities. But the new Medicare Advantage payment rates make it much more appealing to offer a PPO or HMO in rural areas, Gorman says, so MediGap purchasers will have several new options to coax them into Medicare Advantage.

"The days of MediGap as we know it are numbered," Gorman says. "It won't disappear, but it will see a lot of cannibalization" as MediGap purchasers move on to MA.

Even if only one-third of the MediGap population enrolled in MA, they would make up twenty percent of the MA population within five years, Ebeler said.