Increased death rates hit users of low-premium plans

With healthcare expenses in retirement often rising faster than Social Security cost of living increases, and the first generation of 401(k) savers now challenged to make their savings last, it is entirely understandable that many retirees are opting for Medicare Advantage plans.

The upfront monthly premium cost of Medicare Advantage (MA) plans is typically lower than what enrollees in traditional Medicare with a Medigap policy pay. In fact, many MA plans don’t charge a premium at all, which is financially feasible because they receive a per-enrollee fee from Medicare, they strictly control access to care — like an HMO — and they tend to collect co-pays and deductibles once you actually start using the plan.

But a study published by the National Bureau of Economic Research suggests there can be a daunting additional price to pay for MA enrollees who choose the lowest-cost plans: increased odds of an earlier death.

A team of economists from the Yale School of Management, Brown University, University of Chicago and Northwestern University pored over data for more than 15 million MA enrollees in more than 75,000 plans. Enrollees typically have about 25 MA plans to choose from within their county. The researchers ranked each plan by its mortality rate, which is the academic term for how many people die in a given year.

The researchers estimate that if people using the 5% of MA plans that have the highest mortality rates moved to a different (lower mortality) plan, there would be around 10,000 fewer deaths a year. If everyone were to move into the county plan with the lowest mortality rate, annual deaths would fall an average of 26%.

The research specifically finds a connection between what consumers pay and what they get: Higher premium plans have lower death rates. Same goes for plans that have more generous prescription drug coverage. They also

found that plans that spend more of their premiums on actual clinical care of enrollees (rather than for overhead, marketing or just plain old profit) had lower mortality ratios.

Alas, the Medicare Star Rating system — the only tool consumers have to assess plan quality — is not predictive of mortality rates. (For the record, the five-star rating system doesn’t factor in mortality rates.)

For consumers, the takeaway isn’t to somehow become a mortality-rate sleuth for your county’s plans. Research like this is designed to (hopefully) influence policy discussions among stakeholders who have control in mandating MA features.

But it does more than hint at something that Medicare enrollees who are either in an MA plan or considering one can do: Don’t shop solely on upfront price, or skimp on features, such as the mechanics of how prescription drugs are covered.

Maybe it’s worth considering paying up, even just a little, to move yourself out of the lowest-cost provider in your county.

Saving with a low premium might be a mirage — until you get sick, when deductibles and co-pays become real.

Need to be hospitalized? In 2020, someone with MA would have a daily co-pay, while someone in the traditional Medicare plan would have a flat $1,408 deductible for a single stay. An analysis by the nonpartisan Kaiser Family Foundation estimates that in the event a person must be hospitalized for five days, half of MA plans will impose out-ofpocket expenses that exceed the traditional Medicare deductible. Hospitalized a week? More than six in 10 MA plan enrollees will face higher costs than if they were enrolled in traditional Medicare.

If you’ve yet to near the turn into age 65, when it’s time to initially enroll, it’s vitally important to understand potential trade-offs for choosing a lower-cost MA plan over traditional Medicare. While you can always change your mind (during specific annual windows) and move to traditional Medicare, the catch is that you may find it hard or cost-prohibitive to add a Medigap policy to your traditional policy. It is only during your initial enrollment in Medicare that you and all your pre-existing conditions must be accepted by any Medigap policy that you apply to, at no extra cost. After that initial window, if you ever want to switch into traditional Medicare, your age, and pre-existing conditions can be used to determine your premium for a Medigap policy.

If you feel strongly about continuing to work with doctors you already have a relationship with, be sure to check if they accept MA. It bears repeating: MA networks tend to confine enrollees to narrow networks. And be prepared that either you or your care providers will need to get pre-authorization for anything beyond basic preventative care. Not a dealbreaker, but an added hassle.

If you do enroll in MA, don’t take no for an answer if you are denied coverage (payment) for a specific procedure. A government oversight audit a few years ago found that on average, when a denial was appealed, it was overturned 75% of the time. The report found that 70 MA plans overruled their own initial denial more than 90% of the time. Such high overturn rates suggest an initial denial might just be part of the business plan. Because it turns out that just 1% of initial denials are in fact appealed.