Ask The Medicare Specialist

QUESTION:

Question from Jay: Can you explain how premiums go up on both Supplements and Advantage Plans? Are companies allowed to just arbitrarily increase them? What about changes in benefits such as co-pays and MOOP (Maximum Out of Pocket)?

ANSWER:

Both Supplements and Advantage Plans are regulated by state insurance departments and/or the Centers for Medicare and Medicaid (CMS). Premiums cannot be raised arbitrarily. Supplements referred to as “age attained” utilize two types of rate increases. There’s one that’s guaranteed to occur every year once the policy holder turns 68. I consider it mild especially in the first 15 years. They are as follows: from $2 to $4 each year from age 68-72, $4 to $6 from ages 73-77, around $6 to $8 from ages 78-82, and $10-$12 from 83-90. The second type is what we refer to as “across the board” and is in addition to the guaranteed increase. Companies can only request the 2nd type if they’re paying out more than 85 cents in claims for every dollar they’re collecting in premiums, and they literally must prove that to the State Insurance Commission. People on Supplements can’t be singled out for “across the board” rate increases because they needed more care in a year. Those who buy Plan letter N from Aetna Health Insurnace Company, for example, are put into a pool with all others who bought the same letter plan from that company in Pennsylvania or another state the policy was purchased. How that pool performs, how profitable or not it is, determines if there’s going to be an “across the board’ premium increase. Why we recommend N so much more than G is because N has had very few premium increases in the past 7 years. In fact, between the three “age attained” Supplement companies we enroll our clients, there have only been three total “across the board” increases combined. Plan G, with the same companies and others, has had them almost every year in the same time frame. Most of those we speak with who are around 70 years old are paying close to $100 more per month for G than they would be if they moved to N.

There is one Supplement we sell, that’s “community rated” and not allowed to raise rates as one ages. However, this doesn’t mean they’re going to be less expensive down the road. Because they aren’t getting that automatic rate hike each year, they’re almost always going to meet the criteria and be approved for an “across the board” increase. The bottom line is we want to start our clients with one of the companies that have a good reputation for keeping “across the board” increases to a minimum who have the lowest, or close to the lowest premium at the time of application.

With Supplement, when it comes to benefits, there’s a regulation that they can never be changed as long as the policy remains in effect. For example, Plan N has two bills other than the $226 Part B deductible; a $20 co-pay for a primary care or specialist physician visit, and $50 for a trip to the Emergency Room. Those can never be increased and there can never be other services that would be subject to a co-pay in the future. This peace of mind is one of the best benefits of choosing a Supplement. There’s no need for a MOOP on Supplements because there’s no risk of getting any bills for Medicare covered services of more than the $50 once the deductible has been met.

Advantage Plans must get premium increases approved by CMS, not the state insurance commissioner. One regulation for Advantage Plan companies is they must pay out 85 cents in benefits for every dollar they collect in premiums. And remember, the biggest payer of premiums is Medicare. I estimate that for each member an Advantage Plan enrolls, Medicare is giving them as much as $12,000 per year. There may be a small premium paid by the member as well. The HMOs and PPOs we recommend cost $0 to under $40 per month. Companies who don’t spend that 85 cents for the year must refund the difference back to their members or CMS. One company actually mailed out $100 debit cards to their members at the end of last year that could be used to pay for food, fuel, or utilities. It wasn’t a published benefit and completely unexpected. I’m assuming they did that to avoid the refunds. We have seen more plan premiums decrease over the last three or four years than increase and I believe it’s due to the companies getting larger subsidies from Medicare.

As far as benefits are concerned, Advantage Plans must cover the same services as Original Medicare and as good or better. In almost every category of care, excluding a few services such as Part B drugs which include chemotherapy, skilled nursing, and durable medical equipment, they pay much more than the 80% that Part B does. For example, someone who broke their leg and went to the Emergency Room and had Medicare only, would be responsible for 20% of the total bill, in the $1,500 range. The average copay for those with Advantage Plans who have this same Emergency Room experience is $100. And Advantage Plans, unlike Original Medicare, must limit the amount of bills one can pay in a year, which is the MOOP. CMS puts a cap on the MOOP and in 2023 that number was set at $8,300. None of the plans we recommend have a MOOP that high. What someone on Original Medicare would pay out of pocket if they had $150,000 of chemo puts in perspective the importance of having a MOOP. At 20%, his or her responsibility would be $30,000! In addition, and in my opinion, what has driven enrollments in Advantage Plans vs Supplements to 50/50 across the nation are the extra benefits HMOs and PPOs provide that Original Medicare and Supplements don’t such as dental, vision, hearing, OTC, free gym membership, and more.

The concept of Advantage Plans when they began to be widely introduced in 2004 made a ton of sense. It was to provide Medicare beneficiaries with a private health insurance option that would supply better overall benefits while saving the government and the taxpayer money. By paying private insurers slightly more, approximately 10%, than the average annual claims paid by Original

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Medicare per person annually, the savings would come in the form of infrastructure. For every X number of Advantage Plan enrollee there’s one less employee that needs to be hired, one less pension, one less computer. For every X more there’s one less building that needs to be erected or rented, X less supervisors and so on. It continues to make sense today. However, people are starting to ask are Advantage Plans still saving the government and the taxpayer money? Or is it costing more? There are arguments being made by some that the latter is true.

That brings us to how benefits can change with Advantage Plans, which can be very minimal, even becoming better which has been the trend for the last few years, or be significant in terms of higher co-pays and MOOP as well as limited or reduced dental, vision, etc., which we saw happen from 2010 to 2018. If reimbursements are cut back, in other words companies go from getting $12,000 per enrollee annually to $10,000 or $11,000, we can expect to see mild to major changes in benefits that will not be popular. My fear is in three to five years, if there are cutbacks in payments to Advantage Plans, which is possible as Medicare is not currently in a healthy financial position, we could look at plan benefits and premiums and ask, “what happened to my great Advantage Plan? It looks very different than what I originally signed up for.”

I hope this never happens because so many people count on their HMO or PPO as a very good, lower-cost option vs Supplements. However, the possibility exists and it’s one I feel must be disclosed to all Medicare beneficiaries.