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Healthy people pay 16% too much for their Medigap policies and unhealthy people pay twice as much as they should. That’s what an economist from the University of Pennsylvania found in a recent analysis of the difficulties people encounter in buying Medigap policies. People usually have to answer health-related questions before being told how much the premium will be. And health problems will usually result in higher premiums. There are only two exceptions: 1) during the 6-month period after someone first enrolls in Medicare, insurance companies cannot medically underwrite Medigap policies, and 2) a few states have community-rating laws prohibiting health-dependent premiums. This paper found that after the initial six month period has passed, people typically do not buy Medigap policies from the lowest-premium insurer because each company has its own underwriting standards and it is time-consuming to get multiple quotes

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Medicare beneficiaries spend 14% of their incomes for health care, according to an analysis by the Kaiser Family Foundation. That’s nearly three times the percentage that people younger than 65 pay. Even though the overall average is 14%, there’s substantial variation among age groups. The youngest seniors ages 65-69 spend only 11.5% of their budgets on health care, while those ages 75-79 spend more than 16% of theirs. The higher percentage for older seniors is because as a group they use more medical services and have lower incomes than younger seniors. Research also found that almost two-thirds of costs are for health insurance premiums. The second largest component is cost-sharing for medical services, which represents 18% of seniors’ health care costs. The findings were based on 2012 data.

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The AARP Public Policy Institute issued a report indicating that healthcare costs are consuming ever-larger portions of middle-class household budgets. The report noted that one-half of people ages 65-69 spend more than 11% of their incomes on health care, and that more than one-half of those ages 80-84 spend 23%. The report was written by Harriet Komisar of Georgetown University. Link to the report.

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Medicare Advantage plans’ quality ratings may be having a positive effect on seniors’ enrollment choices, according to a study published in JAMA, the journal of the American Medical Association. The study’s authors examined the choices of more than 950,000 first-time Advantage plan enrollees and another 320,000 people who switched plans. They found that a one-star higher rating translated to a 9.5% greater likelihood that someone would choose a plan. Thus people were 19% more likely to enroll in plan with a five-star rating than a plan with a three-star rating. Link to abstract of the study.

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A March 2013 article in the Yale Journal of Health Policy, Law, and Ethics examines the reasons for the continuing decline in employer retirement healthcare coverage. The authors point out that employers often trim health benefits for retirees rather than for current workers because younger workers might leave for jobs with better health coverage. Moreover, many large industries (think manufacturing) have downsized to the point that retirees heavily outnumber current workers, incentivizing firms to cut health benefits for retirees. Link to the article.

Not counting premiums, five percent of Medicare enrollees paid more than $5,000 in 2009, according to Congressional testimony by Glenn Hackbarth, Chairman of the Medicare Payment Advisory Commission (MedPAC). Hackbarth recommended re-designing Medicare’s benefits. Most seniors would have less out-of-pocket risk but would pay more for some services in the MedPAC proposal. Hackbarth said the proposed redesign is actuarially equivalent to today’s design. Link to the testimony.

Managing Medicare’s Costs

  • Using your computer to find the right Medicare Advantage plan

    Sometime later this year, Medicare Advantage plans will pass employer retiree plans as the most widely held type of Medicare insurance. Currently there are 20 million people in Advantage plans, more than twice the number ten years ago.

    While total Medicare enrollment has grown at slightly more than 3% a year during the last decade, Advantage plan enrollment has increased twice as fast.

    To keep pace with the influx of new enrollees, insurance companies have been rolling out additional Advantage plans. There are 283 more this year than last year, or a total of 2,317 plans, according to a report by the Kaiser Family Foundation.

    That’s the most since 2009, when generous government subsidies encouraged insurers to flood the market with plans.

    This year’s expansion has a potential upside. As the newer Advantage plans vie for market share, they need to offer attractive benefit packages. And that might put pressure on older plans to follow suit.

    The downside is that even before this year’s additions, in most parts of the country there were already too many Advantage plans. Retirees often complain in surveys that they are overwhelmed by having so many choices. This year, for instance, the average Medicare beneficiary can choose among 21 Advantage plans, according to Kaiser Family Foundation data.

    How do you sort through so many plans to identify the one that’s best for you? If you live in an urban area, your chances of finding an excellent plan are good. But if you live in the country, that may not be the case. This year there are 149 counties that do not have any Advantage plans and another 45 counties with only one plan. And more than one-fourth of U. S. counties have five or fewer plans.

    Even if you live in a remote outpost where there’s only one Advantage plan, you need to do some homework to avoid unpleasant surprises later. If you are computer savvy, you can easily find out quite a bit about a plan online. Or if you don’t want to do the research yourself, you can contact your nearest Medicare counseling agency for assistance.

    To do your own research, you’ll use the Medicare web site’s Plan Finder. There you can rank your area’s Advantage plans in various ways – by monthly premiums, costs for the prescription drugs you take, quality ratings, and so on. And by clicking on a plan’s name, you can see its benefits in greater detail. Here are the steps to follow:

    First, rank the plans by their costs for the Rx drugs you take

    Using Medicare’s Plan Finder and these step-by-step instructions, enter the names, dosages, and monthly quantities of the drugs that you take. If you do not take any prescription drugs, skip the drug entry and go directly to a list of the Advantage plans in your area. Then you can begin the sorting process.

    Let’s say you live in Atlanta, Georgia, and do not take any prescription drugs. When you sort the list of the 21 Advantage plans in the Atlanta area by their drug premiums, you see that 8 of them have annual premiums exceeding $400. That is too much to pay if you do not take any Rx drugs, and so you disregard these 8 plans and concentrate on the remaining 13.

    Within a couple of minutes, you can probably trim the remaining list down to 2 or 3 plans based on what you want in a plan. Possibly one of your doctors told you she is not in any Advantage plan networks. That leaves as your only choice an Advantage PPO plan. And among the 13 remaining Atlanta-area Advantage plans on your list, only two are PPO’s.

    Or maybe you want to consider only the plans that have at least a four-star quality rating from Medicare. In that case, only 4 of the 13 plans meet that standard. Perhaps you want a plan that has an out-of-pocket under $5,000, which will eliminate all but 3 plans.

    Examining the networks

    After you’ve weeded out most of the plans, the next step is to find out if your doctors are in the networks of the plans that are still on your list. Because the online provider directories for Advantage plans are often out of date, the most accurate way is to call your doctors’ offices. And if your doctors are in the network of only one of your finalists, it is likely to be your best option.

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