Jan. 13—The supplemental insurance an increasing number of Medicare beneficiaries have purchased has lengthened hospital stays by 24 percent, according to new research.

The study, by economists Marika Cabral and Neale Mahoney, found that the popular supplemental insurance coverage that covers beneficiaries’ out-of-pocket costs increases per-beneficiary Medicare spending by $1,396, or 22.2 percent. Part of the increased spending also included a 24 percent increase in hospital stays and a 62 percent increase in the length of those stays.

In a related finding, Medigap coverage increased hospital Medicare Part A payments by 33 percent, according to the study. Part B payments increased by 17 percent.

The study also found testing increased 75 percent and imaging increased by 42 percent, due to Medigap plans.

The results of the research could fuel an ongoing push to restrict such supplemental plans, which are barred by most private insurers due to concerns that they lead to excess utilization.

For example, President Barack Obama’s 2013 budget plan proposed a 15 percent tax on Medigap premiums. The Cabral/Mahoney study found such a tax would reduce Medicare spending by nearly $13 billion annually through by both increasing revenue from beneficiaries and reducing the Medigap coverage 13 percentage points to 48 percent of beneficiaries.

A tax that fully offsets the increased spending that researchers believe is driven by Medigap plans would reduce Medicare spending by nearly $32 billion annually, the economists concluded.

The study authors referred to a Medigap tax as “a fairly blunt instrument” for increasing Medicare efficiency, and noted previous research had identified other approaches could provide better results. For instance, banning Medigap plans and adding annual out-of-pocket maximums to Medicare might better protect beneficiaries while reducing excess utilization.

“In general, the optimal policy to address this externality—and the optimal design of health insurance coverage more broadly—should trade off the risk-protection benefits against the moral hazard costs,” they concluded.

Publication Date: Monday, January 13, 2014