Medicare Moves

by Lesley Politi on November 17, 2008

Medicare Moves

It’s open-enrollment time. Here’s a guide for the confused. (In other words, just about everybody.)

With his 65th birthday — the age of Medicare eligibility — fast approaching, Bill Sturm is discovering the downside of this federal health-insurance program: its wide array of choices.

“Even after spending hours researching the options for a retirement-issues group I lead, I still find it really complicated and frustrating,” says Mr. Sturm, a lawyer who is winding down his Lexington, Ky., law practice.

Related Article

  • Health Matters: If you haven’t yet tumbled into Medicare’s much-maligned doughnut hole, you might be getting closer than you think. (Oct. 18, 2008)



The Journal Report

Guide to Retirement Planning]
  • See the complete Encore report.

Today marks the start of Medicare’s six-week annual election period. That’s when individuals already in the program can add, drop or switch prescription-drug plans and make a wide range of other changes to their coverage.

In Medicare, individuals must choose one of two paths: the original fee-for-service Medicare plan, or a federally subsidized Medicare Advantage plan, which typically operates like a health-maintenance or preferred-provider organization. Many who opt for traditional Medicare also purchase a “Medigap” policy, as well as a separate prescription-drug policy, to patch holes in their coverage. Those new to the program face the same choices upon qualifying, an event that, for most, occurs upon turning 65.

As simple as this decision might sound, it means weighing dozens of options. While some plans simply charge a monthly premium, others impose a range of fees, including co-payments and deductibles. As a result, it’s not always easy to project what your out-of-pocket costs will be. With Medicare Advantage for instance, your costs will depend on the services you use. Is it better to buy a $70-a-month plan that fully covers hospitalization or a zero-premium plan that charges $150 a day for hospital stays?

“It’s like comparing apples to oranges to kiwis,” says Judith Stein, executive director of the Center for Medicare Advocacy, based in Mansfield, Conn.

It’s no wonder that many people — when they reach age 65, or when jumping between plans during the annual election period — simply opt for the coverage with the lowest premium. But there are smarter ways to shop. Here are some issues to consider:


About three-quarters of Medicare’s 44 million beneficiaries are enrolled in what is now known as “original” Medicare. (As opposed to Medicare Advantage, with about 9.4 million beneficiaries.) Original Medicare consists of Part A, which covers services including hospitalization, and Part B, which pays for doctor visits and other types of outpatient care. There’s no charge for Part A, as long as you or a spouse has paid into Medicare, via a payroll deduction, for 10 or more years. The premium for Part B, currently $96.40 a month, will remain at that level in 2009. The figure is higher for singles earning more than $85,000 a year in 2009 and couples with incomes above $170,000.

Like most health-insurance plans, Medicare doesn’t pick up the tab for everything. Patients are required to pay a portion of some of their bills, via deductibles and other cost-sharing arrangements. That’s where Medigap (officially known as Medicare Supplement Insurance) comes in.

Such policies, sold by private insurers, help plug the holes in original Medicare. These standardized plans — labeled “A” through “L” — each offer a different set of basic and extra benefits. The more benefits, the higher the premium. With Plan F, for instance, you can be virtually assured that in return for a relatively high monthly premium, you’ll never have to pay a dime for the services Medicare covers (except for prescription drugs). A 65-year-old woman would pay $103 to $358 a month for Plan F, depending in part on where she lives.

In a sense, shopping for a Medigap policy is easy. Because the federal government requires insurers to offer a standardized menu of benefits, all you have to do is figure out which package you prefer — and look for the insurer that charges the lowest premiums. That said, in some situations it may make sense to go with a slightly higher-cost alternative.

For example, some insurers attempt to “buy premium” — by enticing people with bargain rates only to raise premiums above the competition in later years, says Paul Precht, director for Policy and Communications of the nonprofit Medicare Rights Center. While you can always try to switch out of a plan that imposes a big rate hike, because of the way Medigap plans work, there may be no guarantee that another plan will take you.

To try to get a sense of where a plan’s premiums might be headed, Bonnie Burns, training and policy specialist for California Health Advocates, a nonprofit education and advocacy organization, recommends asking a company for its past record of rate increases. Be wary of small players because “one large claim could affect their prices dramatically,” she says.

Another way to anticipate rate increases is to find out how the company calculates its premiums. There are three different methods, although some states only permit the use of one or two. Those close to 65 may be able to find a cheaper deal with a plan that uses an “attained age” formula. Here, you’ll pay less if you sign up at 65, versus age 75. But the insurer is free to increase your premium every year — both to keep up with rising health-care costs and to reflect the risks associated with advancing age. As a result, “prices can go up more quickly with these plans,” says Ms. Burns.

In contrast, those in a “community rated” plan may see their rates rise more slowly over time. Under these plans everyone, regardless of age, pays the same premium. Those who sign on at 65 may pay slightly more than they would under an attained-age plan. But as they age, they’re likely to pay slightly less. “Community rating is an advantage the older you are because the rating is subsidized across all the age groups,” Ms. Burns says. “Rates tend to be more stable over time because of that cross-fertilization.”

For the most part, the premiums on a Medigap policy will be more expensive than those for a Medicare Advantage plan. And since Medigap policies today don’t cover prescription drugs, you will probably want to purchase Medicare Part D prescription-drug coverage, which introduces a new set of choices. (We looked at Medicare drug coverage in the October issue of Encore.)

Those who sign on with Medigap within six months of enrolling in Medicare — or who lose their previous coverage for reasons including employer cutbacks — can’t be denied a Medigap policy or be charged more if in poor health. Otherwise, with a few exceptions, once the six-month window is closed, you may be forced to pay a higher premium or, in extreme cases, even be denied coverage.


Previously known during the late 1990s as “Medicare+Choice,” Medicare Advantage gives you the option of receiving Medicare benefits through a private health plan. Overall, such plans, when compared with a Medigap policy, generally cover a wider array of benefits that often include prescription drugs and dental care. But while most of these plans charge lower premiums — some go as low as zero — they can also expose participants to risks they wouldn’t generally face with Medigap.

For example, some substantially change their benefits or fees from year to year. Typically structured as managed-care plans, some also restrict where policyholders can seek care. Moreover, because these plans routinely require patients to pay deductibles, co-payments and the like, some fail to fully protect policyholders from high medical bills. In extreme cases, several studies have found that patients with serious health problems can wind up paying more out of pocket with certain Medicare Advantage plans than they would with Medicare alone.

“Some plans have extremely high out-of-pocket costs if you’re a big user of health care,” says Stuart Guterman, assistant vice president at the Commonwealth Fund, a private foundation that does research on the health-care system and published one of those reports.

Comparing Medicare Advantage plans isn’t easy. They have to cover the same services as Medicare. (If you join a Medicare Advantage plan, you are still considered to be in Medicare.) But while they are required to keep overall costs at or below the average for Medicare, each plan is allowed flexibility to structure its benefits and cost-sharing arrangements. As a result, these plans can require patients to pay a greater or smaller share of the expense for individual services than they would under original Medicare.

When shopping for a plan, the first step is to look for those that include your doctors. While virtually all these plans provide managed care, the degree to which they permit the use of doctors and hospitals outside their networks varies. Typically, HMOs offer less flexibility than PPOs and the fast-growing private fee-for-service plans that allow policyholders to see any provider willing to accept the prices they pay.

The next step is to compare prices. But don’t simply examine premiums. Calculators available at will estimate how much you’re likely to spend on premiums, co-payments, deductibles, and the rest for plans in your area.

Once you’ve narrowed your options, check the fine print. To guard against unexpected medical bills, look at how much you’d have to contribute toward services such as hospital stays and skilled nursing care.

Chris Merrill, an independent insurance agent in Salt Lake City, won’t enroll his clients in a plan unless it caps their potential annual expenditures. Half of all Medicare Advantage beneficiaries are in plans with such spending caps. But in the fine print, some exempt certain charges, such as chemotherapy and other drugs covered under Medicare Part B, says Mr. Precht of the Medicare Rights Center. For this information, you may have to look beyond the summary of benefits many consumers rely upon and dig instead into the detailed disclosure documents.

Because Medicare Advantage plans can change frequently, you’ll need to re-examine your options every year. These plans can’t generally deny you coverage (unless you have kidney failure) or charge you more if you have health problems. But if you pick a plan you aren’t satisfied with, you may have to wait several months for the next enrollment period — from Nov. 15 to March 31 — to switch into a new one.


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