The best hospital in my area ran a full-page newspaper advertisement last Sunday stating clearly which Medicare Advantage (Part C) plans that they will accept during 2022 and which they will not. It is no secret that I am not a fan of Medicare Advantage, but even I was shocked to see how few plans that they do accept. Most of my television’s incessant “Free stuff!” Medicare commercials tout plans that are not covered there, but I suspect most of the people sucked into these plans in my area do not subscribe to the Sunday newspaper.
This post is an update of a widely read 2019 post. My approach to the consumer selection of the most appropriate Medicare Part B (Medigap), Part C (Advantage), or Part D (prescription drug) plans is to view them as a literal gambling bet, where you are posting your money against some well-quantified actuarial health risks, the “betting odds.” In many ways, this is a true “Your money or your life!” bet for American seniors, and the actuaries are better at math than you are.
So, please, do your homework during this open enrollment period. An update on Part B Medigap plan bets will be coming as soon as the Centers for Medicare and Medicaid Services (CMS) publishes final 2022 cost limits, although my “seven Medigap bets” remain pretty much the same. However, did you know that even if you have opted into a different Medicare Advantage program this fall, you likely still have the option to back out of a bad decision through February 14 of next year?
The Part B (Medigap) versus Part C (Advantage) bet
Dozens of Medicare Advantage options are heavily advertised this time of year, with celebrity endorsements and promises of lower payments and free services. Part B Medigap plans, on the other hand, are much scarcer on your screen, and usually have a more “Just the facts, ma’am” approach.
To jump to the punch line, there is simply a lot of profit to be made somewhere in convincing you to jump to a Medicare Advantage plan, while Medigap plans work on a much thinner profit margin requiring very careful control over costs. If you are easily conned on all things medical, the Medigap plans would probably prefer you to stay away. However, when many millions of dollars are going into advertising Advantage plans, my accountant brain gets twitchy.
With Medicare Advantage (Part C), the government contracts with private insurance companies to package together the Part A (mostly hospital) and Part B (mostly outpatient) services, plus some Part D prescription benefits. In return the plans provide certain additional benefits, perhaps a health club membership or some basic dental procedures. Alternatively, the plan may offer to reduce your monthly Medicare cost. Be skeptical there, however. This is often a “Not available in your area” come-on.
In addition to receiving guaranteed per-subscriber fees from the Centers for Medicare and Medicaid Services, the Medicare Advantage plan providers maximize their cashflow by restricting the network of available providers to their own limited “quasi-cartel” of contracted hospitals, doctors, and other healthcare providers. They also have some flexibility to deny or ration care beyond what would often otherwise be covered under conventional Medicare rules and providers.
Part B Medigap plans, on the other hand, allow you to get services from any doctor or healthcare facility that services Medicare patients. CMS efficiently evaluates the claims, and passes any uncovered costs first over to your Part B insurer, who pays the original provider based on the level of insurance protection that you have chosen. The computation of payment is typically determined without haggling or delays as providers usually know in advance what standard Medicare will or will not cover. And you will eventually get billed for the rest, which could be very little if you choose from the best plans. Procedure coverage rules for the many Advantage plans are all over the map, however, and your doctor may not know them until it is too late.
And so, the primary Medicare Advantage “bet” is whether you want to save some money now, and perhaps take advantage of some of those promised additional services, in return for having a private insurance carrier determine which doctors you can see and which treatments they will pay for. You can pretty much guarantee that the less you pay monthly for your Advantage policy, the more healthcare restrictions you will have to live under.
I will likely not see you at my favorite hospital, or my cardiologist based there, should we both need care. I spent too many working years having private insurers restrict my medical options and “slow paying” my healthcare providers. Medicare Advantage plans put you back into that world.
Betting you will stay healthy
If you have hit the age of 65 in good physical shape with few medical costs, congratulations! If you stay healthy and your selected plan doesn’t mess with your preferred medical providers, Medicare Advantage often looks financially attractive. The good news is that you likely have more years left on this Earth than is commonly thought. Here are the base numbers that insurance actuaries “bet” with when they cost out your plan:
The flip side of this chart is that this is the median for your age group, so flip a coin to see which side of the number that you are on. I’ll wait…
My preferred way to visualize health risks is similar to how you might look at many climate-related probabilities. I have written in the past about the “sand pile effect,” technically called self-organized criticality. When you sprinkle sand down from above, it will form a nice conical pile, but depending on the rate of sand flow and the characteristics of that sand, at some point the cone will collapse into a disorganized heap.
There is nothing special about that last grain of sand that causes the pile to collapse. In weather terms, think about a localized, freak five-inch rain. The unknown here is exactly when that sand pile collapse will occur. That is an easy statistic to figure out in the long run (the pile will eventually collapse) but very difficult to predict in the short run.
Our good health is like that sand pile. It is natural to think that we will live forever. However, at some point this “sand pile collapse” will likely hit. But predicting when is really tough. Insurance company actuaries spend a lot of time analyzing these sand piles. Assume that they know the math better than you do when you place your bet.
Your own sand pile collapse may be a slow ooze out from the bottom. Every time you go to the doctor, you find you need another expensive test, or a new, more expensive drug. By some estimates, the average senior is taking five prescription medications. Or it may be “the big collapse,” with a heart attack or cancer striking you. Will you be ready or able at that point to be looking for providers acceptable to your insurance plan? Are you ready to haggle coverage?
A 2018 resolution by the American Medical Association complained that seniors “are lured to these Advantage plans by misinformation and confusing sales techniques” (p. 183). The AMA also expressed concern about the treatment of chronically ill seniors by Medicare Advantage providers, such as restrictions and higher costs in nursing facility and other rehabilitation care benefits that the same seniors would not have experienced under conventional Medicare. In addition, allowed administrative costs are much higher in Advantage plans as compared to traditional Medicare (10% vs. 3%).
The employer-provided Medicare Advantage bet
It is important to note that many of the Medicare Advantage plans that seniors actually like are not the ones advertised on television or through the mail. Instead, they are extensions to high-quality employer-sponsored healthcare plans. Retiring long-term employees in good companies or unions often slide seamlessly into a Medicare-compatible version of their existing healthcare coverage.
If your employer offers a generous Medicare Advantage plan as part of your retirement, that can be a great benefit to you. However, you do remain a “captive” of that insurance company, its coverage whims, and any decision of the sponsoring company or union to switch or alter plans. The costs of employer-sponsored plans are increasing rapidly while benefits to employees are often slipping to compensate for the higher costs. Are you willing to bet your healthcare on your former employer or union?
The “switch plans later” bet
Getting out of a Medicare Advantage plan is often much harder than getting in. The cost of switching to a Medigap plan from a Medicare Advantage plan can be very high, especially if you do it after the onset of medical problems. Medigap plans can usually require “underwriting” before giving you a price quote if you join late, which is the evaluation of your medical history and potential care liabilities. In many cases this price difference can be prohibitive. The earlier you make the change, the cheaper the cost of transfer.
And it is not just medical conditions that can jack up your costs. For instance, if you have a very inexpensive, location-specific plan in a Midwestern state and then decide to move to Florida, you will be in for a cost shock, not just because of the more expensive location, but also because you are a new customer coming late into a risk pool. Actuarially, you are a suspected drain on the pool, and you will pay for that.
“You pays your money and you takes your choice!”
So wrote Mark Twain in Huckleberry Finn in 1884. The math of insurance says that you get what you pay for. If it seems like you are getting this insurance “for free,” be very suspicious. Better yet, shell out for a safer bet.
A friend died of cancer this year after several years of huge bills from her treatments. These bills would likely have been capped in a traditional Part B Medigap plan, but coverage was severely limited by her Advantage plan. The stress weighed heavily on the family in her final days.
The sad part about Medicare Advantage and Medigap coverage is that the “bets” in practice are not so much rational trade-offs as they are the desperation of financially stretched seniors trying to get through the month on limited incomes. Financially desperate gamblers are at the same time the least rational and the most profitable customers of the casino.
If you disagree with my analysis, see an error, or simply have some words of wisdom, feel free to comment below. Click on the Facebook or Twitter icons to be notified of new posts, or enter your email address in the “Subscribe” box on the left of your screen (or scroll down on your phone to the “Subscribe” box).
Here’s one minor clarification: If (like me) one happens to be on an employer-sponsored Medicare Advantage program for retirees, subscribers can switch into another plan of their choice (like traditional Medicare with a Medigap plan and Part D) at any time and with no underwriting. (Just that one time, of course.) Of course, this does not protect against an adverse event (like a large, mysteriously uncovered cost) that has already occurred; but it does provide a degree of flexibility that is lacking in plans that are widely advertised on TV. It may also be necessary to deal with typical managed care pickiness from time to time. (Emergency out-of-network costs are supposed to be covered, for example, but they may make subscribers work for it.)
Thanks for the clarification!
FWIW, I just read something direct from the Social Security Administration which described various parts of the “whole” that is Medicare. They mentioned Part A, Part B, Part D, and “Advantage.” Supplement or “Medigap” plans aren’t even mentioned. As you know, this will leave millions of under-informed Old Fogies to sign up for Advantage, not having a clue of what you and I know.
If only so many of us Americans didn’t interpret “Freedom” and “Liberty” to include the liberty to remain determinedly ignorant—of so many things that are integral to our “pursuit of happiness.”
Medigap has been getting very little coverage this year. The hype of the Advantage plans is worse than ever.
NPR just broadcast and published a takedown of Medicare Advantage overspending that is worth reading.
Pingback: Betting that you are going to die…or not – When God Plays Dice