HEARING - U.S. Senate Special Committee on Aging

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several state insurance departments. In addition to marketing
abuses such as "loading up" (selling multiple overlapping
policies to vulnerable consumers), "twisting" (convincing a
client to switch policies, thereby increasing exclusions for
pre-existing conditions), "clean sheeting" (where agents ignore
applicant's health problems on the application form, but leave
the client vulnerable to having claims rejected later), the
Federal Trade Commission found that medicare supplement policies
very often had very low loss ratios (percentage of premiums
collected that are paid in benefits). Moreover, it was revealed
that people eligible for medicare supplement insurance policies
were understandably confused about how to evaluate the available
policies; and very little information about the worth of the
policies existed.
In response to the documented abuses within the medigap
market, the Congress passed Public Law 96-265, adding section
1882 to the Social Security Act. State insurance departments
have also attempted to regulate this market, though with varying
degrees of enthusiasm. Despite these efforts from federal and
state governments, the problems still persist. The General
Accounting Office recently reported that while the market has
improved somewhat, loss ratios of most commercial policies were
below the section 1882 targets, and averaged 60.2t in 1984.
(Medigap Insurance: Law Has Increased Protection Against
Substandard and Overpriced Policies, General Accounting Office
Report to the Subcommittee on Health, <strong>Committee</strong> on Ways and
Means, October 1986, p. 4J In addition, the report found that