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Medigap: Should Private Insurers Pay Public Rates and Who Should Make the Decision?

Published online by Cambridge University Press:  06 January 2021

Edwin Caldie
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Extract

The most complex issues in the field of healthcare policy can often be reduced to the simple question “who is going to pay?” Legislatures, whether at the state or national level, are generally the entity responsible for allocating healthcare costs. When a legislative body acts to allocate healthcare costs, it simultaneously amends a society-wide, interwoven web of regulation and incentives that is steeped in decades of tradition. Further, and perhaps more importantly, healthcare cost allocation affects each individual in our society on an intimate level. Medicare is one of the most controversial elements in this grand scheme of cost allocation policy.

Medicare serves approximately 37 million senior citizens in the United States. Of course, Medicare benefits are limited. With minor exceptions, Medicare fully covers only the first ninety days of hospitalization for an eligible citizen. After such period, a Medicare-eligible citizen may draw upon a non-renewable lifetime reserve, which provides Medicare hospitalization coverage for an additional sixty days.

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Article
Information
American Journal of Law & Medicine , Volume 30 , Issue 1 , March 2004 , pp. 69 - 83
Copyright
Copyright © American Society of Law, Medicine and Ethics and Boston University 2004

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References

1 See generally, Anselm Strauss, A Sociologist's Perspective, in HUMANIZING HEALTH CARE 277-84 (Jan Howard & Anselm Strauss eds., 1975) (finding that people with chronic illnesses are subject to dehumanization and its effects).

2 See Weitzman, S. Mitchell, Legal and Policy Aspects of Home Care Coverage, 1 ANNALS HEALTH L. 1 (1992)Google ScholarPubMed (discussing coverage criteria, qualifying criteria, and benefits for home coverage under Medicare).

3 Phil Kuntz, Golden Rule Insurance Takes Lead in Advocating MSAs as Way of Controlling Health-Care Costs, WALL ST. J., May 15, 1995, at A24.

4 42 U.S.C. § 1395e(a) (2000).

5 Id. § 1395d(a)(1).

6 Id.

7 See id. §§ 1395ss(g)(1), 1395d.

8 Id. § 1395ss(p).

9 See, e.g., BARRY R. FURROW ET AL., HEALTH LAW: CASES, MATERIALS AND PROBLEMS 694-95 (4th ed. 2001).

10 Id.

11 Id.

12 See Kuntz, supra note 3, at A24.

13 Using the term “negotiate” in this context is slightly misleading. Medicare sets its rates and hospitals who wish to be eligible for Medicare reimbursement simply adhere to these rates. Nonetheless, if Medicare sets its rates too low, it will not inspire many hospitals to jump onboard. Thus, Medicare rate setting is like a de facto negotiation in that the rates are ultimately based upon what the market will bear.

14 See e.g., Vencor, Inc. v. Physicians Mut. Ins. Co., 39 F. Supp. 2d 1 (D.D.C. 1999).

15 E.g., Vencor Inc. v. Nat’l States Ins. Co., 303 F.3d 1024 (9th Cir. 2002).

16 See, e.g., id.

17 See, e.g., id.

18 See Vencor, Inc. v. Physicians Mut. Ins. Co., 211 F.3d 1323 (D.C. Cir. 2000).

19 See Gottschalk, Marie, The Missing Millions: Organized Labor, Business, and the Defeat of Clinton's Health Security Act, 24 J. HEALTH POL. POL’Y & L. 489, 519-20 (1999)CrossRefGoogle ScholarPubMed (suggesting that the increase in healthcare costs are to blame for the fact that Americans are working harder just to maintain the “economic foothold” they used to take for granted); Peter J. Troche, Medical Research Sources for Law Librarians, in MANAGING THE PRIVATE LAW LIBRARY 1993: MANAGING A CHANGING ECONOMY 645, 649 (PLI Pat., Copyrights, Trademarks, and Literary Prop. Course Handbook Series No. G-43902, 1993) (citing the “many complex crises” responsible for “stifling the nation's public health system”).

20 Jackie Calmes, States Ask: What Recovery? WALL ST. J., Dec. 10, 2003, at A4.

21 Steven Gray, Students Get Early Start On Postgrad Job Search; Class of 2004 Knows What It's Up Against, WASH. POST, Oct. 2, 2003, at E01.

22 Seniors.com, 75 Million People in U.S. Uninsured for Part of 2001-2002, at http://senrs.com/75_million_people_in_us_unisured_in_2001-2002.htm (stating that the number of uninsured increased by more than two million in 2002, bringing the total number of Americans without healthcare insurance to 43.6 million).

23 Korobkin, Russell, The Failed Jurisprudence of Managed Care, and How to Fix It: Reinterpreting ERISA Preemption, 51 UCLA L. REV. 457, 514 n.264 (citation omitted).Google Scholar

24 See BARRY R. FURROW ET AL., HEALTH LAW CASES, MATERIALS AND PROBLEMS 475, 476 (4th ed. 2001) (giving information for years 1997-98).

25 Epstein, Richard A., Rationing Access to Medical Care: Some Sober Second Thoughts, 3 STAN. L. & POL’Y REV. 81, 83 (1991).Google Scholar

26 Hammer, Peter J. et al., Kenneth Arrow and the Changing Economics of Health Care: “Why Arrow? Why Now?,” 26 J. HEALTH POL. POL’Y & L. 835, 836 (2001).CrossRefGoogle Scholar

27 See Harris, Erica Worth, The Regulation of Managed Care: Conquering Individualism and Cynicism in America, 6 VA. J. SOC. POL’Y & L. 315, 318 (1999).Google Scholar

28 Joseph B. Treaster, Rise in Insurance Forces Hospitals to Shutter Wards, N.Y. TIMES, Aug. 25, 2002, at 1.

29 Id.

30 HEALTH CARE FINANCING ADMINISTRATION, HEALTH CARE FINANCING REVIEW: MEDICARE & MEDICAID SUPPLEMENT 10 (1996).

31 Id. This idea is also a simple statement of basic economic principles: when a given economy hits upon hard times, it tends to enter a feedback loop in which all of its sub-systems experience a crunch.

32 NATIONAL CENTER FOR HEALTH STATISTICS, MEDICARE & MEDICAID (2001).

33 Brickman, Lester, The Market for Contingent Fee Financed Tort Litigation: Is It Price Competitive?, 25 CARDOZO L. REV. 65, 67 n.7 (2003).Google Scholar

34 See Binstock, Robert H., Public Policies on Aging in the Twenty-First Century, 9 STAN. L. & POL’Y REV. 311, 314 (1998).Google Scholar

35 See Alwyn Cassil, Survey Finds Most Employees Have No Choice of Health Plans, at http://www.hschange.org/CONTENT/200/?topic=topic01 (stating that 31% of employers pay the full cost of coverage and 34% pay half of the costs) (Oct. 21, 1998).

36 See Schacht, Laura J., The Health Care Crisis: Improving Access for Employees Covered by Self-Insured Health Plans Under ERISA and the Americans with Disabilities Act, 45 WASH. U. J. URB. & CONTEMP. L. 303, 304 (1994)Google Scholar (explaining the structure and basic incentives underlying employer health plans).

37 Id.

38 See Kerry A. Kearney, Health Care Meets the Year 2000: What Can Lawyers Do To Help?, in A.L.I.-A.B.A. CONTINUING LEGAL EDUCATION 287, 303 (Dec. 10, 1998) (discussing some of the same general economic trends).

39 Id.

40 See Varat, Jonathon D., Federalism and Preemption in October Term 1999, 28 PEPP. L. REV. 757, 765-66 (2001)Google Scholar (citing concept that Congress is better situated than judiciary to consider complex problems involving intricate, competing interests, and applying that concept to issues of federalism).

41 Social Security Act of 1965, ch. 7, 79 Stat. 291 (codified as amended at 42 U.S.C. §§ 1395-1395vv (2000)).

42 See 42 U.S.C. § 1395c.

43 Id. § 1395ww.

44 Id. § 1395ww(d)(5)(F)(vi)(II); see also infra pp. 95-96.

45 § 1395ww(d).

46 Id.

47 Id.

48 Id. § 1395ww(d)(5)(A)(i).

49 Id. § 1395e(a)(1) (2001).

50 Id. § 1395d (2001).

51 See Toby Golick, Medicare: The Basics, in BASIC ELDER LAW 2002 99 (PLI Tax Law and Estate Planning Course, Handbook Series, No. D0-009L 2002).

52 Id.

53 See Belinkie, Diane, Piecing Together Health Care Protection, 16 FAM. ADVOC. 42, 42-45 (1993)Google Scholar (explaining Medigap).

54 Id.

55 See, e.g., 42 U.S.C. § 1395ss(f)(1) (2000).

56 Omnibus Budget Reconciliation Act of 1990, Pub. L. No. 101-508, § 4351 (Nov. 5, 1990) (codified as amended at 42 U.S.C. § 1395ss(p)). For a discussion of history and legal analysis of these amendments, see Cabrera, Anthony Sebastian, The Medigap Reforms of the Omnibus Budget Reconciliation Act of 1990: Are the Protections Adequate?, 6 ADMIN. L.J. AM. U. 321 (1992).Google Scholar

57 42 U.S.C. § 1395ss (2000).

58 Health Care Financing Administration, 57 Fed. Reg. 37,980, 37,990-91 (Aug. 21, 1992).

59 42 U.S.C. §§ 1395ss(a),(p).

60 Social Security Act, 42 U.S.C. § 1395ss(a) (2001).

61 Id.

62 Id.

63 Id.

64 Id.

65 29 U.S.C. § 1133 (1998).

66 Benefit Standards for Policies or Certificates Issued or Delivered, 57 Fed.Reg. 37980, 37,990-991 (Aug. 21, 1992).

67 Id.

68 Id.

69 Id. § 5(G).

70 Id.

71 Vencor Inc. v. Nat’l States Ins. Co., 303 F.3d 1024 (9th Cir. 2002).

72 Id. at 1039.

73 Id. at 1028-29.

74 Id.

75 Id. at 1026.

76 Id.

77 Id.

78 Id.

79 Id. at 1030.

80 Id.

81 Id. at 1026.

82 Id. at 1031.

83 Id.

84 The specific language of clause (c) read as follows: “Upon exhaustion of the Medicare hospital inpatient coverage including the lifetime reserve days, coverage of the Medicare Part A eligible expenses for hospital confinement to the same extent as would have been covered by Medicare, subject to a lifetime maximum benefit of an additional 365 days.” See id.

85 Id.

86 Id.

87 Health Care Financing Administration, 57 Fed.Reg. 37,980, 37,988 (Aug. 21, 1992); AZ. ADMIN. CODE § R20-6-1103(A)(7) (2003), available at Westlaw AZ ADC R20-6-1103.

88 Nat’l States Ins. Co., 303 F.3d at 1031-32.

89 Id.

90 Id.

91 Vencor, Inc. v. Standard Life and Accident Ins. Co., 65 F.3d 573 (W.D.Ky. 1999).

92 Id. at 579-80.

93 Vencor Hospitals v. Blue Cross Blue Shield of R.I., 284 F.3d 1174 (11th Cir. 2002) (per curiam).

94 See, e.g., id.

95 211 F.3d 1323 (D.C. Cir. 2000).

96 Id. at 1330.

97 Id. at 1324.

98 Id.

99 Id. at 1325-30.

100 Id. at 1326-30.

101 Id. at 1325.

102 42 U.S.C. § 1395cc(a)(1)(A) (2001).

103 See Vencor v. Physicians Mut. Ins. Co., 211 F.3d 1323, 1325 (D.C. Cir. 2000).

104 Id.

105 See id.

106 See, e.g., Vencor Inc. v. Nat’l States Ins. Co., 303 F.3d 1024, 1032 (9th Cir. 2002).

107 Physicians Mut. Ins. Co., 211 F.3d at 1328.

108 Health Care Financing Administration, 57 Fed. Reg. 37,980, 37,990-91 (Aug. 21, 1992).

109 Id. at 37,988.

110 Physicians Mut. Ins. Co., 211 F.3d at 1327 (discussing 42 U.S.C. § 1395ss(p) 2001).

111 Id. (emphasis in original).

112 Id.

113 Id. (citing to 42 U.S.C. § 1395ss(p)(1)(A) (2001)).

114 Id. (citing 42 U.S.C. §§ 1395ss(p)(2)-(3) (2001)).

115 Id.

116 Id. (citing Model Regulation to Implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act, 57 Fed. Reg. 37,980, 37,990-91 (Aug. 21, 1992).

117 Id. at 1328 (citing Model Regulation to Implement the NAIC Medicare Supplement Insurance Minimum Standards Model Act, 57 Fed. Reg. 37,980, 37,988 (Aug. 21, 1992)).

118 Id. at 1329.

119 Id.

120 See FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 157 (2000) (applying familiar constitutional rule, under Article I, that agencies have no authority to act beyond the scope of their authorizing congressional statutes).

121 See 42 U.S.C. § 1395ss(p)(2)-(3) (2001).

122 See Brown & Williamson, 529 U.S. at 157 (applying rule that agencies have no authority to act beyond scope of authorizing congressional statutes).

123 See Physicians Mut. Ins. Co., 211 F.3d 1323 (discussing 42 U.S.C. §§ 1395ss(p)(2)-(3)(2001)).

124 Medicare Program; HHS Recognition of NAIC Model Standards for Regulation of Medigap Policies, 57 Fed. Reg. 37980, 37988 (Aug. 21, 1992); ARIZ. ADMIN. CODE § R20-6-1103(A)(7) (2003), available at Westlaw AZ ADC R20-6-1103.

125 Vencor Inc. v. Nat’l States Ins. Co., 303 F.3d 1024, 1032 (9th Cir. 2002)

126 See, e.g., 42 U.S.C. § 1395ww(d)(5)(A)(i) (2001).

127 U.S. Const., Art. III.

128 See Kuntz, supra note 3.

129 42 U.S.C. § 1395ww(d)(5)(F)(vi)(II).

130 Id. § 1395ww (2000).

131 Rosenberg v. Richardson, 538 F.2d 487, 490 (2d Cir. 1976).

132 42 U.S.C. § 1395e(a) (2000).

133 Id. § 1395d (2000).

134 Thus, the need for Medigap policies arose. See supra notes 5-6 and accompanying text.

135 See SEN. REP. NO. 404 (1965), reprinted in 1965 U.S.C.C.A.N. 1943.

136 See, e.g., H.R. REP. NO. 92-231, at 39 (1971).

137 See, e.g., Donahue v. Shughart, Thomson & Kilroy, P.C., 900 S.W.2d 624, 629 (Mo. 1995) (en banc) (applying a six-factor “modified balancing test” to determine legal duties of attorneys to non-clients); Mark Twain Kansas City Bank v. Jackson, Brouillette, Pohl & Kirley, P.C., 912 S.W.2d 536, 539 (Mo. Ct. App. 1995) (applying Donahue's six-factor test).

138 Healthcare providers and private insurance companies, of course, do not operate exclusively within particular federal circuits; rather, most conduct business within several jurisdictions at the same time. As a result, if federal circuit courts are making complicated policy decisions, the rules could be different, for identical players, depending merely upon the jurisdiction in which they are operating.

139 See generally, Scalia, Antonin, The Rule of Law as a Law of Rules, 56 U. CHI. L. REV. 1175 (1989).CrossRefGoogle Scholar

140 See generally id.

141 See Vencor, Inc. v. Physicians Mut. Ins. Co., 211 F.3d 1323 (D.C. Cir. 2000).

142 As stated earlier, using the term “negotiate” in this context is slightly misleading. See supra note 13.

143 Black, Kevin, Note, Lewis v. West American Insurance Co.: Public Policy or Insurance Policy?, 24 N. KY. L. REV. 333, 353 (1997)Google Scholar (citing the complications foist upon insurance companies by unpredictable judicial rulings).

144 See generally id. (discussing the general bases for insurance companies’ actuarial calculations and the adjustment thereof).

145 Id. (explaining further complications that insurance companies might face under the circumstances described by the text).

146 Id.