Medicare Part II

By Peter Galvin, MD

Not long ago, this column was about Medicare advantage (MA) plans. Today I am expanding on that discussion. The MA program has grown rapidly, Today, 54% of new Medicare beneficiaries select a MA plan. There are a number of reasons for their selection of an MA plan, including the distinct possibility they may not understand the consequences of their selection. New and current Medicare beneficiaries find MA plans attractive because they typically offer low or zero premium options, prescription drug coverage, limits on out-of-pocket spending, and supplemental benefits such as vision and dental care. In exchange, beneficiaries are limited to clinicians and hospitals within their plan’s network – and their care may be subject to prior authorization, delays, and denials. Many beneficiaries view these trade-offs as worthwhile, at least while they are healthy.

When they become eligible for Medicare, beneficiaries must choose to enroll in MA (Part C) or traditional Medicare (MT [Part A and B]). Those who choose MT usually also select a Medigap plan and a Part D prescription drug plan, both of which, like MA plans, are offered by private insurers and help cover out-of-pocket costs. Many beneficiaries are unaware of two key features of MA enrollment that may steer them into the program and keep them there for life. First, health insurers give agents and brokers, from whom many beneficiaries seek assistance, strong incentives to steer beneficiaries to MA. Second, it is very difficult for most beneficiaries, once enrolled in MA, to switch to MT.

Agents are employed by individual health insurers; brokers work independently. MA plans tend to be much more profitable for insurers than Medigap and Part D plans, so they give brokers significantly higher commissions for enrolling beneficiaries in MA. The maximum commissions that CMS (Centers for Medicare and Medicaid Services) permits insurers to pay are $626 per initial beneficiary enrollment and $313 for each subsequent year that the beneficiary remains in MA. Assuming an 18-year life expectancy, this generates $5947 in commissions. Commissions for enrollment in a Medigap plan (which are not regulated by CMS) plus a Part D plan are likely to sum to 50% to 70% of this total. Insurers can also pay brokers for “administrative costs” for steering beneficiaries toward more profitable MA plans, and for meeting enrollment targets. Some insurers also pay brokers $100 to conduct beneficiary “health risk assessments,” through which brokers record diagnoses that can contribute to higher beneficiary risk scores and generate higher payments from Medicare to the MA plan. Medicare pays an estimated 22% ($83 billion) per year more for MA enrollees than it would spend if those beneficiaries were enrolled in MT.

The second key feature that beneficiaries often do not understand is that by enrolling in MA, they are making what is likely to be an irreversible, lifelong decision. That is because no state plan (Medigap) will take them due to less profit, especially if they are in poor health. Also, often beneficiaries are shown clinician network directories before enrolling in MA that are both inaccurate (they show clinicians as accepting the MA plan when, in fact, they do not) and tend to change and narrow over time. If you or someone you know is approaching Medicare eligibility, I strongly suggest you discuss it with someone knowledgeable in these plans, for example your family practitioner.

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