California tries but fails to fix a major Medicare loophole for seniors

Many seniors are grateful when they turn 65 and become eligible for Medicare. But to get enrolled they first have to make a big decision — choosing a Medicare plan.

The initial choice is whether to go with traditional Medicare or Medicare Advantage.

Traditional Medicare has deductibles, co-pays, and co-insurance, and the extra costs can add up. To fill in the gaps, people often buy a private supplemental plan, called Medigap insurance.

“One of the main benefits of Medigap is that it provides people on Medicare predictable expenses, because people pay monthly premiums to avoid unpredictable expenses if they get sick,” said Tricia Neuman, Executive Director for KFF’s Program on Medicare Policy.

This combination also gives people the most options in choosing doctors, because most accept traditional Medicare.

The other option a newly-eligible senior can choose is Medicare Advantage. This plan, sold by a private insurance company, streamlines the upfront costs, making a separate Medigap plan unnecessary.

Insurance companies often heavily market their Medicare Advantage plans, and offer extra benefits like dental and vision insurance.

Because of the initial appeal of Medicare Advantage plans, over half of people eligible for Medicare opted for a Medicare Advantage plan in 2023.

But there’s a major drawback to Medicare Advantage plans: they lock patients into a preferred network of doctors and hospitals, narrowing options for treatment.

“They might be, 65, 66, 67 — in the scheme of things, they’re at their healthiest, but it could be that over the course of several years, they develop a serious illness,” said Neuman.

The limited nature of the Advantage plans, Neuman added, means seniors might not be able to go to the specialists they want.

Sometimes seniors decide they’d rather have the flexibility and choice of providers available under traditional Medicare, and try to switch back.

But they might be stuck. If they try to switch back after the first 6 months of enrollment in Medicare, there’s no guarantee they can get a Medigap policy to pair with traditional Medicare.

That’s because private insurers who issue Medigap policies have the power to refuse coverage or set a high price, once the six-month window is closed.

“People can be denied a policy because they have a pre-existing condition, or they can be charged more, or they can get the policy — but not for the particular condition that will require medical attention,” Neuman said.

These coverage denials and price hikes were common in the individual health insurance market before reforms under the Affordable Care Act. But the ACA’s regulations don’t apply to seniors seeking Medigap plans after the six-month window.

California takes a stab at opening Medigap enrollment

A bill that would have changed that was introduced in the California legislature this year.

Driving the effort was concern among legislators that California seniors on Medicare Advantage plans were facing fewer and fewer choices in their networks.

In 2023, Scripps Health, a major San Diego hospital system, stopped accepting Medicare Advantage plans, saying the plans paid less than other insurers for the same treatments, and required doctors to navigate prior authorization protocols that were burdensome and time-consuming.

The move sent seniors in the San Diego region scrambling to sign up for traditional Medicare, supplemented by Medigap plans. The high numbers of people who found Medigap plans unaffordable drew the attention of State Senator Catherine Blakespear, who put forward a Medigap reform bill.

Four states reformed Medigap in the 1990s — Connecticut, Maine, Massachusetts, and New York. The rest, including California, allow Medigap insurers wide leeway in setting prices and issuing denials.

California’s bill would have created a 90-day open enrollment period for Medigap, every single year. That would allow seniors to opt-in or out each year and not be denied — or face exorbitant premiums due to pre-existing conditions.

The Leukemia and Lymphoma Society became a major supporter of the effort to pass the bill.

“Cancer or any chronic illness is very, very expensive, and that's why having supplemental coverage is important,” said Adam Zarrin, a policy analyst for the Society. “The second part is about making sure that patients have access to the best health care available.”

Zarrin says leukemia and other blood cancers are more commonly diagnosed in older adults, after age 55.

That was the case for Oakland resident Judith Dambowic.

Dambowic was 58 and working as a physical therapist when she found out her swollen and painful eye was a symptom of multiple myeloma, a cancer of the bone marrow.

Ten years after being diagnosed, Dambowic has become a patient advocate in the effort to reform Medigap in California.

“It's the options. It's the choice that matters,” she said.

Dambowic has a Medicare Advantage plan, and for the moment, she is satisfied with her network choices. But with her cancer, traditional treatment options often stop working to manage the disease.

Dambowic wants flexibility in the future to seek out different clinicians, or even experimental trials.

“These slots are highly coveted and it's very hard to get in from an Advantage plan. And the Advantage plans aren't really running these cutting edge clinical trials,” Dambowic said.

But unless the regulations change, Dambowic will have to stay in Medicare Advantage. She thinks it’s unlikely she could get a Medigap policy that would allow her to return to traditional Medicare.

There’s some evidence that indicates cancer patients may have fewer options in Medicare Advantage.

A recent study in the Journal of Clinical Oncology found “[Medicare Advantage] beneficiaries have significant barriers in accessing optimal surgical cancer care,” when compared to people with traditional Medicare.

Insurance rates would increase, industry fights back

As the bill was being debated in the state Capitol this spring, Steffanie Watkins spoke to lawmakers on behalf of the insurance lobby.

If more sick Californians are able to move onto Medigap plans, Watkins argued, insurance companies would have to raise premiums for everyone.

“We are concerned with the potential devastating impacts this bill could have on the 1.1 million seniors who, by no fault of their own, would experience significant rate increases if this bill were to pass,” she said.

A state budget analysis of the proposed bill found the average Medigap premium would increase by 33 percent, about 80 dollars a month.

That’s a valid concern, according to KFF’s Tricia Neuman.

“For people with modest incomes, people [on]of the sort of lower end of the income scale who have Medigap, they might feel priced out of the market,” she said.

In the end, the bill failed to make it out of the appropriations committee to advance to a full vote in the Senate.

Zarrin blamed legislators for siding with the insurance companies, but said his group will keep pushing for this reform in future sessions.

Judith Dambowic was also disappointed.

For now, she’ll continue to focus on educating friends and other cancer patients about their Medicare options, so they know what they’re signing up for from the start — and how difficult it might be to change.

This story comes from NPR's health reporting partnership with CapRadio and KFF Health News.