HEARING - U.S. Senate Special Committee on Aging

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3. Deceptive marketinq practices. Throughout California
(and probably in other states as well), senior
citizens have been sent mailings that appear to be
official government notices of cuts in Medicare
benefits and the need to buy medigap insurance. In
fact, the mailings are from an insurance company and
firms which develop and sell sales leads to insurance
agents.
4. Hihco low value. Finally, Medicare supplement
insurance polices tend to be relatively high-cost,
low-value policies. Premiums range from $150 to
$1,500 per year. Loss ratios, the percentage of
premiums collected that are paid in benefits, average
60% for commercial medicare supplement policies,
according to a recent GAO report. This means that on
average the costs of marketing, administration, and
profits consume 40% of premiuma collected from
consumers. Mutual of Omaha, the company that Mr.
Shapland represents, had a loss ratio of 51.0%. This
is not a record to be particularly proud of,
especially in light of the target minimum loss ratio
of 60% that Mr. Shapland mentions. By way of
comparison, Medicare's administrative costs are 3% of
revenues. Displacing all or part of the private
market by an expanded Medicare promises to increase
consumers' value-for-money.
Consumers Union strongly endorses expanding Medicare to
cover the costs of catastrophic illness, and believes that
sponsorship by the federal government is warranted. We urge you
to remember the poor performance of the medigap market in
considering options for long-term care.
Thank you for the opportunity to present these additional
views.
Sincerely,
Gail Shearer
Manager, Policy Analysis