Final answer:
When a medical service provider bills Medicare for a service provided to a Medigap policyholder, Medicare pays its share and Medigap covers additional costs like deductibles and copayments. The process is influenced by the fee-for-service system and insurance market dynamics such as adverse selection and moral hazard.
Step-by-step explanation:
When a provider bills Medicare for services provided to a Medigap holder, Medicare first pays its approved portion for the eligible service provided to the beneficiary. The Medigap policy, which is a supplemental insurance purchased by the individual, typically covers the remaining costs to some extent, including deductibles, copayments, and coinsurance that Medicare does not cover. Because Medicare coverage has parts that recipients are responsible for, such as deductibles and copayments, and has no limits on total costs, Medigap policies are essential for mitigating the potential financial burden on beneficiaries.
The entire process is influenced by several factors, including the fee-for-service health financing system in which providers are reimbursed according to the costs of services they deliver. This can lead to higher healthcare costs, as the providers' incentives might not align with cost-effective care. Also, factors like adverse selection and moral hazard play pivotal roles in the insurance markets, affecting Medicare and Medigap interactions.