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Medicare Advantage plans are best suited for healthy people (1 of 2)

When you enroll in a Medicare Advantage plan, you are making a wager that you’ll remain relatively healthy during the coming year. If you win, by the end of the year you may have saved as much as $2,000.

That’s compared to the premiums you would have paid for a Medigap policy, the other type of supplemental coverage that’s available to you if you don’t have an employer plan.

But if you lose the wager, you could wind up paying much more than you would for a Medigap policy. Even if you lose in one year, however, the odds are that you will save money over the longer term if you remain relatively healthy.

The amount that you will save depends on the medical services you use and how often you use them. And if you are healthy, see only network doctors, do not go to them very often and do not get expensive treatments, you will likely save a substantial sum.

Not everyone in an Advantage plan is healthy, to be sure. Some retirees in poor health may be stuck in Advantage plans either because they cannot afford a Medigap policy or because insurance companies refuse to sell them one.

And in 23 states, disabled Medicare beneficiaries younger than 65 do not have a guaranteed right to buy a Medigap policy. That leaves many of them with no choice but to enroll in an Advantage plan until they turn 65 and can buy a Medigap policy without being screened for pre-existing conditions.

But the vast majority of people in Advantage plans are in good health. According to Medicare’s Current Beneficiary Survey, almost three-fourths of seniors rate their health as excellent, very good, or good. That’s a huge pool of people to draw from. In the last decade millions of them have enrolled in Advantage plans during the last decade, a period in which total plan enrollment has tripled.

Not surprisingly, Advantage plans design their benefits to appeal to people who are healthy. Some plans, for instance, include free health club memberships and wellness classes so as to attract physically fit enrollees.

At least two Medicare Advantage plans, one in Florida and the other in California, now provide their members with a program called Walkadoo that, when linked to popular activity trackers like Fitbit and Jawbone, counts the number of steps that people take and calories they expend.

Another example of how Advantage plans can design their benefits to attract healthy people are zero-premium plans. Because plans receive generous monthly payments from Medicare for each enrollee, they can make a profit without charging premiums.

These capitation payments, as they are called, are adjusted for an enrollee’s age and health as well as for local medical costs. Thus Medicare might pay an Advantage plan $750 a month for a healthy 65-year-old and $975 a month for an older person who has a serious chronic illness.

Zero-premium plans and other low-premium Advantage plans are similar to the high-deductible plans sold to younger people who are not yet eligible for Medicare. Both types of coverage are designed for healthy people, and both types give policyholders an incentive not to use medical services.

The percentage of Advantage enrollees in zero-premium plans has remained relatively stable over the years. This year it is 49% and in 2010 it was 48%. The highest percentages were in 2012 and 2014, when 55% of Advantage plan enrollees were in zero-premium plans, according to a report by the Kaiser Family Foundation.

Even though the percentage of people enrolled in zero-premium Advantage plans has remained fairly consistent, the risk-return tradeoff is increasingly being tilted to favor the plans. So that they can to continue to offer low premium coverage, plans have raised the amounts for co-payments and deductibles. And they have shrunk their provider networks to get rid of doctors who order too many medical services or who have high-cost patients.

Out-of-pocket limits have also jumped. This year the average enrollee’s out-of-pocket limit is jusst over $5,200, with more than one-third of enrollees are in plans that have Medicare’s maximum $6,700 out-of-pocket limit.

To illustrate how Advantage plans have shifted risk to seniors, this year’s average out-of-pocket limit is almost $1,000 higher than it was in 2011, according to the Kaiser Family Foundation. That equates to 3.9% average annual increases in out-of-pocket limits in the last five years. During the same period, though, Medicare’s per-beneficiary costs have increased at a much lower average annual rate of about 1.4%.

While Advantage plans receive higher payments from Medicare for people with health problems, the payments may not cover the cost of care. For that reason, plans often look for ways to discourage unhealthy people from enrolling. A plan may, for instance, have the minimum number of oncologists in its network, making it likely that cancer patients will look elsewhere for coverage. Or it may have only one or two dialysis centers in its large service territory, requiring some patients to travel long distances for treatments.

Last year a study published in the policy journal Health Affairs found that seriously ill people who used long-term care, skilled nursing care, and home care services had dis-enrolled from Advantage plans at very high rates. And two months ago a Kaiser Family Foundation analysis of Advantage plan networks in 20 counties found that, on average, only about one-half of area hospitals were in the plans’ networks. Also, among the plans located in areas that had a National Cancer Institute-designated center, only 41% of them had their area’s designated center in their networks.

If you’re considering enrolling in an Advantage plan, do your homework. Among the things to consider are a plan’s costs for the prescription drugs that you take. If you enroll in a zero-premium or low-premium plan but wind up paying several hundred dollars more for your Rx drugs than you would in a higher-premium plan, you may want to consider other options.

You should also try to find plans whose networks include all your physicians. What if the Advantage plan that you are considering is a PPO and one or two of your doctors are not in the plan’s network? You might decide to enroll anyway if you do not go those doctors often and you don’t get expensive tests and treatments when you see them.

Remember, though, that some Advantage PPO plans require you to pay between 30% and 50% of the cost for out-of-network visits and treatments. And if the plan is an HMO, unless it’s an emergency you will likely have to pay the full cost of any out-of-network doctors’ office visits and treatments.

It’s unwise, then, to focus exclusively on a plan’s low premiums. The average Advantage plan premium this year, including the Rx drug premium, is about $37 a month. A plan with a much higher premium, though, could turn out to be your best deal after you’ve factored in prescription drug costs and whether your doctors are in the plan’s network.

From the perspective of Advantage plan sponsors, zero- and other low-premium plans have been marketing successes. Some of these plans may be good choices if their networks include your doctors and if they have reasonable costs for the prescription drugs that you take. That’s more likely to be the case in urban areas where large numbers of enrollees make it possible for plans to provide stronger benefits. But premiums aren’t the only thing to consider, and choosing an Advantage plan just because it has low or no premiums could turn out to be a costly mistake. ◊◊

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