Ask The Health Insurance Specialist
QUESTION:
Question from Mark: You mentioned in a recent column that prior to 2018 almost none of the ancillary benefits that are provided by Advantage Plans today such as dental, Over the Counter (OTC) allowances, among others existed. Why? Is it possible they could go away in the future?
ANSWER:
Yes. They indeed could go away. Will they? I sure hope not because they’re the number one reason many people choose Advantage Plans over Supplements, which don’t provide them.
Ancillary benefits are voluntary and Advantage Plan companies aren’t required to include them as I mentioned last week. If you haven’t read that column, I suggest you go to our website and check it out. It’s very intertwined with today’s topic.
Not every plan provides all or even many, but here are all the ancillary benefits that are offered listed in terms of what I consider to be most valued and used: Up to $3,000 in comprehensive dental coverage for services such as cleanings, X-rays, fillings, extractions, periodontal, crowns, root canals, and dentures; A free eye exam and up to $400 per year allowance for eyeglasses or contacts; Up to $110 per quarter to spend on OTC products; $100 per quarter allowance to pay certain co-pays; a free gym membership known as Silver Sneakers; Up to $2,500 per year for hearing aids; $75 per quarter that can be used to buy “healthy foods”; 28 frozen meals after an inpatient hospital or Skilled Nursing stay; Rides to and from doctor’s appointments; and bathroom safety equipment. To answer why weren’t many of these offered prior to 2018, the answer is simple. Advantage Plan companies started to receive much higher subsidies in 2018 and they’ve been increasing since. Don’t forget how Medicare Advantage Plans work. Instead of Medicare paying all but $1,550 for an inpatient hospital stay (Part A) and 80% of all outpatient services (Part B), what Medicare does is pay a private insurance company what I estimate to be now around $12,000 or more per year for each Medicare recipient who chooses an Advantage Plan vs around $9,500 prior to 2018. It then becomes the insurance company’s responsibility to take on the burden of providing a health insurance benefit package and paying all claims minus the insured’s co-pays or coinsurance. They also must provide customer services to their members. Medicare no longer does that for those on Advantage Plans. By law, Advantage Plan companies must spend at least 85 cents of every dollar they receive in government subsidy and premiums on benefits for their members. They literally had to start offering all these ancillary services to reach that threshold. More companies will be offering almost every single benefit I listed in 2023. However, that alone does not make a plan competitive.
Ancillary benefits going away has always been a fear of mine. I have a couple of scenarios where I can see it possibly happening. #1) I consider this to be the most likely. The amount of subsidies to the insurance companies doesn’t keep up with the rising costs of health care. If that happens and the insurance companies are paying out more than 85 cents in claims for every dollar they’re getting from Medicare and premiums, they will have to either cut ancillary benefits, raise premiums, increase copays, or a combination of the three. This happened from 2009 through 2014. Comprehensive dental went away in 2010 and never came back in earnest until 2020. Many of the most popular plans went from a per stay co-pay of around $200 for an inpatient hospitalization to a per day co-pay of over $200 per day for five to seven days ($1,000 to $1,400). And premiums went up almost every year. #2) The original concept of Advantage Plans was to do provide Medicare recipients with better coverage than Original Medicare A and B, which it did, while also saving taxpayers money. In other words, even though the Fed was giving insurance companies around 10% more per year than the amount of claims they were paying out for those on Original Medicare, the government saved a ton of money on infrastructure. For example, for every 1,000 or so people on Advantage Plans it might be one less employee the government has to hire. One less desk, phone, and computer they need to buy, one less person to supply a pension and insurance. For every 50,000 people it might be one less building they need to house employees, saving all those related costs. However, it appears these savings might not be there today. There are pundits who are claiming it’s more expensive for the government and taxpayers to foot the bill for Advantage Plans than it is Original Medicare. I can’t say for sure myself, but there seems to be quite a bit of press coverage on the subject. It could get politicized as well. There could be politicians who don’t like the fact private insurance companies are “getting rich” off the taxpayer dollar. President Obama was not a fan and I distinctly remember an interview during his first term where he made that very clear. You could have politicians on the other side of the isle possibly say it’s not a wise use of taxpayer dollars to spend billions more a year on Advantage Plans. If there’s a consensus in Congress that too much is being paid to private insurance companies and the subsidies get cut, ancillary benefits could be as well.
That being said, reducing the funding for Advantage Plans would not be a very wise thing to campaign on in my opinion. No matter if Republican or Democrat, the other side would start with, “you’re trying to throw grandma off the cliff” that we’ve heard both parties accuse each other of. There are now right around 30 million Americans on Advantage Plans and counting. It would be a hard sell to take benefits away from senior citizens who are already struggling with the effects of inflation. I really don’t see the #2 scenario being likely unless there is a more drastic fiscal crisis.