NCPA - National Center for Policy Analysis

Correction: Prescription Drugs and Minimum Medigap Standards

July 11, 2003

Congress is debating the addition of out-of-hospital prescription drug coverage to Medicare to cover gaps in the existing program. Many seniors currently have drug coverage of some type -- either under retiree health plans or through the purchase of individual private health insurance called Medigap.

A recent

Policies that did not conform to the federal mandates did disappear from state-regulated insurance markets, but that fact was unrelated to their drug coverage (or lack thereof):

  • A paper by Harvard University economist Amy Finkelstein, mentioned by Reynolds, concluded that adoption of minimum federal standards for Medigap policies was followed by a 25 percent decline in the number of seniors with such policies.
  • The federal mandates were also associated with reduced coverage of nonmandated benefits in Medigap policies that met the standards, according to Finkelstein's research.

Medigap policies were further standardized in 1992, according to Reynolds, and some of those plans cover prescription drugs -- but they are among the most expensive supplemental policies.

Source: Joe Barnett, NCPA, July 11, 2003; see Alan Reynolds, "Cure for Costly Drug Plans Is the Freedom to Choose," Investor's Business Daily, June 20, 2003; see also, Amy Finkelstein, "Minimum standards and insurance regulation: evidence from the Medigap Market," Working Paper No. 8917, May 2002, National Bureau of Economic Research.

For NBER abstract


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