Medicare is typically the primary source of health insurance coverage for seniors. Individuals who are eligible for Medicare automatically receive Hospital Insurance, known as part A, which helps pay for inpatient hospital care, skilled nursing facility services following a hospital stay, hospice care, and certain home health care services. Beneficiaries generally pay no premium for this coverage but are liable for required deductibles, coinsurance, and copayments. Medicare-eligible beneficiaries may elect to purchase Supplemental Medical Insurance, known as part B, which helps pay for selected physician, outpatient hospital, laboratory, and other services. Beneficiaries must pay a premium for part B coverage, currently $50 per month. Beneficiaries are also responsible for part B deductibles, coinsurance, and copayments. See table 1 for a summary of Medicare’s beneficiary cost-sharing requirements for 2001. To help pay for some of Medicare’s cost-sharing requirements as well as some benefits not covered by Medicare parts A or B, most Medicare beneficiaries have some type of supplemental coverage. Privately purchased Medigap is an important source of this supplemental coverage. Other supplemental coverage options may include coverage through an employer, enrolling in a Medicare+Choice plan that typically offers lower cost-sharing requirements and additional benefits such as prescription drug coverage in exchange for a restricted choice of providers, or assistance from Medicaid, the federal-state health financing program for low-income individuals, including aged or disabled individuals. The Omnibus Budget Reconciliation Act (OBRA) of 1990 required that Medigap plans be standardized in as many as 10 different benefit packages offering varying levels of supplemental coverage. All policies sold since July 1992 (except in three exempted states) have conformed to 1 of these 10 standardized benefit packages, known as plans A through J. (See table 2.) In addition, beneficiaries may purchase Medicare Select, a type of Medigap policy that generally costs less in exchange for a limited choice of providers. A high-deductible option is also available for plans F and J. Policies sold prior to July 1992 are not required to comply with these 10 standard packages. Insurers in Massachusetts, Minnesota, and Wisconsin are exempt from offering these standardized plans because these states standardized their Medigap policies prior to the establishment of the federal standardized plans. Medigap coverage is widely available to most beneficiaries. Federal law provides Medicare beneficiaries with guaranteed access to Medigap policies offered in their state of residence during an initial 6-month open- enrollment period, which begins on the first day of the month in which an individual is 65 or older and is enrolled in Medicare Part B. During this initial open-enrollment period, an insurer cannot deny Medigap coverage for any plan types they sell to eligible individuals, place conditions on the policies, or charge a higher price because of past or present health problems. Additional federal Medigap protections include “guaranteed- issue” rights, which provide beneficiaries over age 65 access to plans A, B, C, or F in certain circumstances, such as when their employer terminates retiree health benefits or their Medicare+Choice plan leaves the program or stops serving their area. Depending on laws in the state where applicants reside and their health status, insurers may choose to offer more than these four plans. Federal law also allows individuals who join a Medicare+Choice plan when they first become eligible for Medicare and who leave the plan within 1 year of joining to purchase any of the 10 standardized Medigap plans sold in their respective states. In 1999, about 10.7 million Medicare beneficiaries—more than one-fourth of all beneficiaries—had a Medigap policy to help cover Medicare’s cost- sharing requirements as well as some benefits not covered by Medicare parts A or B. Of those having Medigap coverage in 1999, about 61 percent purchased 1 of the 10 standardized plans (A through J), while about 35 percent had supplemental plans that predate standardization. The remaining 4 percent had Medigap plans meeting state standards in the three states—Massachusetts, Minnesota, and Wisconsin—in which insurers are exempt from offering the federally standardized plans. Among the 10 standardized plans, over 60 percent of purchasers were enrolled in two mid-level plans (C or F), which cover part A and part B cost-sharing requirements but do not cover prescription drugs. There are several reasons why these plans may be particularly popular among beneficiaries. For example, both plans cover the part B deductible, which insurers report is a popular benefit for purchasers. They also represent two of the four plans that insurers are required to guarantee issue during special enrollment periods. With the exception of plan B, in which 13 percent were enrolled, less than 7 percent of beneficiaries selected any one of the remaining seven plans. (See fig. 1.) Enrollment in the three plans with prescription drug coverage—H, I, and J—is relatively low (a total of 8 percent of standardized plan enrollment) for several reasons. Insurance representatives noted that the drug coverage included in these plans is limited while the premium costs are higher than plans without this coverage. For example, under the Medigap plan with the most comprehensive drug coverage (plan J), a beneficiary would have to incur $6,250 in prescription drug costs to receive the full $3,000 benefit because of the benefit’s deductible and coinsurance requirements. Moreover, insurers often medically underwrite these plans—that is, screen for health status—for beneficiaries enrolling outside of their open-enrollment period. Thus, individuals in poor health who want to purchase a plan with drug coverage may be denied or charged a higher premium. Further, insurers may be reluctant to market Medigap plans with prescription drug coverage because they would be required to offer them to any applicant regardless of health status during beneficiaries’ initial 6- month open-enrollment period, according to NAIC officials. Finally, an insurance representative attributed low enrollment in these plans to beneficiaries who do not anticipate a need for a prescription drug benefit at the time they enroll. Relatively few beneficiaries have purchased the Medicare Select and high- deductible plan options, which were created to increase the options available to beneficiaries. About 9 percent of beneficiaries enrolled in standardized Medigap plans had a Medicare Select plan in 1999. With Medicare Select, beneficiaries buy 1 of the 10 standardized plans but are limited to choosing among hospitals and physicians in the plan’s network except in emergencies. In exchange for a limited choice of providers, premiums are typically lower, averaging $979 in 1999, or more than $200 less than the average Medigap premium for a standardized plan. Similarly, insurers report that few individuals choose the typically lower priced high- deductible option available for plans F and J. These options require beneficiaries to pay a $1,580 deductible before either plan covers any services. An NAIC official noted that these options may have relatively low enrollment because beneficiaries may prefer first-dollar coverage and no restrictions on providers. In addition, an insurance representative noted that administrative difficulties and higher costs associated with operating these plans have discouraged some insurers from actively marketing these products, which likely contributes to the low enrollment. Beneficiaries do not have access to Medicare Select plans in all states— NAIC reports that 15 states do not have insurers within the state selling Medicare Select plans. While consumers typically have access to all 10 standardized Medigap plans during their 6-month open-enrollment periods, the extent to which they can choose from among multiple insurers offering these plans varies depending on where they live. Insurance companies marketing Medigap policies must offer plan A and frequently offer plans B, C, and F, but are less likely to offer the other six plans, particularly those plans with prescription drug coverage. (See table 3.) Our review of state consumer guides and other information from states and insurers shows that during the 6-month open-enrollment period applicants typically have access to multiple Medigap insurers, with the most options available for plans A, B, C, and F. For example, in 19 states, every Medigap insurer offered plan F to these beneficiaries. In contrast, fewer insurers offer Medigap plans with prescription drug benefits. Although in most states several insurers offer these plans, state consumer guides indicate that only one insurer offers plan J in New York and plans H, I, and J in Rhode Island. In addition, no insurers market plan H in Delaware or plans F, G, or I in Vermont.Appendix II includes a summary of the number of insurers estimated to offer Medigap plans in each state. While beneficiaries in most states have access to multiple insurers for most Medigap plans, a few insurers represent most Medigap enrollment. In all but one state, United HealthCare Insurance Company or a Blue Cross/Blue Shield plan represents the largest Medigap insurer. Nationally, about 64 percent of Medigap policies in 1999 were sold by either United HealthCare or a Blue Cross/Blue Shield plan. United HealthCare offers all 10 Medigap policies to AARP members during their initial 6-month open- enrollment period in nearly all states and charges applicants in a geographic area the same premium regardless of their health status (a rating practice known as community rating). Outside of beneficiaries’ 6- month open-enrollment period, United HealthCare also offers applicants without end-stage renal disease (i.e., permanent kidney failure) plans A through G without medically underwriting—that is, screening beneficiaries for health status—in states where it sells these policies. In an effort to minimize adverse selection and to remain competitive, United HealthCare medically underwrites applicants for the three plans with prescription drug coverage who are outside their initial open-enrollment period.