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MEDIGAP PRESCRIPTION DRUG COVERAGE
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Because of its high cost relative to its benefit, less than one in ten Medicare beneficiaries purchases a
Medigap plan with prescription drugs. Three of the ten standardized Medicare supplemental plans,
(plans H, I, and J) include prescription drug coverage. All three plan types have a $250 deductible for the
drug benefit and require 50 percent coinsurance. The H and I plans have a cap on drug benefits of $1,250 while
the J plan caps the benefit at $3,000. The typical premium for a plan with the lower cap costs about $90 per
month or $1,080 per year.
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Medigap is expensive, inefficient, and often uses higher prices to discriminate against the oldest
beneficiaries.
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Expensive. Medigap policies that cover prescription drugs are expensive relative to comparable policies
that do not cover drugs. Additionally, premiums vary tremendously from place to place, and from beneficiary to
beneficiary. Finally, a beneficiary cannot only pay for prescription drugs -- they must also buy the other
benefits in the package.
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Inefficient. Because it is sold to individuals, Medigap does not offer beneficiaries the kind of premiums
that result from group purchasing. This also adds to the administrative costs per policy, which are typically two
to three times more than that of group coverage.
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Costs increase with age as well as health inflation. This "attained age" pricing practice causes excessive
premiums for those who need it most -- the very old. It also disproportionately affects women since they comprise
nearly three-fourths of people over age 85.
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