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Understanding the risks in an Advantage PPO plan

In the unlikely event you’re ever asked to name the riskiest kind of Medicare coverage, your answer should be “Advantage PPO plans.” Not only do these plans have the highest out-of-pocket limits, but their premiums are pricier and they have the lowest ratings of any type of Advantage plan, albeit by a diminishing margin.

Roughly one-third of the 16.5 million people currently enrolled in Medicare Advantage plans are in either local or regional PPO’s, according to a recent report from the Medicare Payment Advisory Commission (MedPAC). It’s safe to say that many of those enrollees do not understand how much risk they are taking.

A sizable number of PPO plans have $6,700 out-of-pocket limits even when you stay within the plan’s network of doctors and hospitals. And should you venture outside the network to see a doctor, you will likely pay from 30% to 40% of the cost. What’s more, those out-of-network expenses count only toward a different out-of-pocket limit that can go as high as $10,000. Nor do the limits include plan premiums or prescription drug costs.

Despite their large coverage gaps, PPO plans have seen their enrollment grow quickly, climbing from 8% of total Advantage plan enrollment in 2007 to almost 33% today. The reason for this steady rise is that seniors like the flexibility that PPO’s provide.

Also, many retirees feel comfortable in PPO plans because they had PPO coverage when they were working. Some 58% of today’s workers who have health insurance are in PPO plans, according to a Kaiser Family Foundation’s 2014 survey and another 20% have high-deductible plans that in many cases are PPO’s.

What retirees may not realize, though, is that the PPO plan they had when they were working was probably better than most of today’s Advantage PPO plans. The employer plans’ out-of-pocket limits were usually lower and the networks were often larger.

And because when they were working they were younger and perhaps in better health, retirees probably saw few specialists back then, making it easy to remain in their plans’ networks. As they age, however, people see more specialists, increasing the likelihood that they may need to go to out-of-network doctors and incur greater costs.

Still, there are good Advantage PPO plans here and there. In identifying them, it helps to understand how they work and why their out-of-pocket limits are so important. Whereas an employer retiree PPO plan supplements Medicare, a Medicare Advantage PPO plan does not. The only exception is an employer-sponsored Advantage PPO plan, which is not a supplement.

When an employer PPO plan is supplemental, Medicare continues to pay 80% of the medical bills and the PPO plan covers some or all of the 20% balance. Since Medicare is the primary or first payer, this type of health insurance is more stable than an Advantage plan’s in which the insurance company can make major benefit changes from one year to the next. And Medicare is desirable primary coverage partly because it is more lenient in approving treatments than are Advantage plans.

But if you enroll in an Advantage plan, Medicare assigns or transfers all of your benefits to the plan, so that it replaces Medicare. Even though Advantage plans are required to have benefits that are actuarially equivalent to Medicare’s, they can charge much higher costs for some services while providing others for free.

Without Medicare’s primary coverage there to help absorb some of the cost, an Advantage plan’s out-of-pocket limit is the only protection against a catastrophic loss. And it’s here that many Advantage PPO plans are found wanting. According to the Kaiser Family Foundation’s most recent Advantage plan data spotlight, the average out-of-pocket limit for regional PPO’s in 2015 is almost $6,400 and for local PPO’s it’s more than $5,000.

If those numbers seem high, it’s because they are. Medicare’s recommended limit for Advantage plans is $3,400, although only 9% of plans adhere to that limit today. By any definition, seniors in many Advantage PPO plans are exposed to potentially substantial losses. Moreover, the amount of those potential losses increases each year, with this year’s out-of-pocket limits being five percent higher on average than they were in 2014.

Another area of concern for PPO plans is their shrinking networks. Two years ago, for instance, UnitedHealthcare terminated the contracts of 2,250 physicians in its Advantage Regional PPO plan in Connecticut. That left thousands of patients, some of whom were seriously ill, having to pay out-of-network charges if they wanted to continue to see their doctors. Insurers argue that by having narrower networks they can better contain costs, but when physicians are dropped from plan networks, people are often left in the lurch.

In the past, another issue has been the overall quality of Advantage PPO plans, including their responsiveness to patients and their compliance with clinical standards. But in the last two years PPO plans have almost closed the gap between them and the higher-rated HMO plans. MedPAC reported in March that HMO plans still have the highest rating among the types of Advantage plans, but their average quality score of 3.97 stars is not much better than the 3.88 stars for local PPO’s. Regional PPO’s are further behind at 3.53 stars, reflecting the challenges of coordinating care across large geographic areas.

Their faults notwithstanding, Advantage PPO plans may be the best options in some areas where there may not be any Advantage HMO plans that have all your doctors in their networks. When you go out-of-network in an HMO plan, you will pay the entire cost unless it’s an emergency. And Medigap policies are too expensive for many seniors’ budgets.

To see whether there are suitable Advantage PPO plans in your area, first try to find a plan that has all of your doctors in its network. If there is one, you’ll be able to avoid the higher out-of-network charges while retaining the flexibility to see physicians who are not in the network. And unlike an HMO, you can also go to a specialist without a referral. If you cannot find a plan that has all of your doctors in its network, at least make sure that your primary care physician and any other doctors you see frequently are in the network.

Next, look for a plan with a minimum quality rating of 4 stars and a network out-of-pocket limit under $5,000. There are a number of Advantage PPO plans that meet these criteria. In Kansas and Oklahoma, for example, the Humana Choice Regional PPO plan (ID # R5826-013) has a 4-star quality rating, a $3,400 out-of-pocket limit for network services, and a $5,100 out-of-pocket limit if you include out-of-network providers.

This plan also has zero premiums for health care coverage and more than 9,000 providers in Kansas and Oklahoma. It does not include prescription drug coverage, so people choosing this plan will need to enroll in a stand-alone drug plan. ◊◊

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