The word “change” gets thrown around a lot by politicians during election year speeches and ads run around the country. While some may grow weary of the change mantra our politicians so embrace, it probably makes agents in the Medicare market feel right at home. Because change in the Medicare market is almost certain, and agents who want to thrive selling to seniors must be prepared to learn and adapt when it comes. One only needs to look at the history of Medicare to see that the program’s most dependable characteristic has been change itself.
President Harry Truman first proposed expanding the Social Security system to include health coverage in 1945. Though he was unable to push the proposal through Congress, Truman’s idea of a national health insurance plan kicked off a two-decade debate on the subject, with opponents warning of the dangers of "socialized medicine."
The plan became reality on July 30, 1965 when President Lyndon Johnson signed the Social Security Amendment of 1965 as part of his “Great Society” program. The law established Medicare and Medicaid, which would eventually deliver health care benefits to millions of elderly and poor Americans.
Medicare, or what is now known as Original Medicare, consists of two parts: Part A Hospital Insurance, which covers inpatient hospital services, skilled nursing facilities, home health and hospice care; and Part B Medical Insurance, which covers medically necessary services like physician services, out-patient care, home health care and preventative services. Part A is free to qualified recipients, while Part B requires a monthly premium from those who elect to participate in the program.
Medicare works on a fee-for-service basis, meaning recipients can receive care from any provider that accepts Medicare’s payments according to a fee schedule determined by Medicare. Medicare originally provided health care benefits for people 65 and older and their dependents, regardless of income or medical history. The Social Security Amendment of 1972 expanded the program to include individuals under age 65 with permanent disabilities and people suffering from End-Stage Renal Disease. In 2001, eligibility expanded further to cover people with Lou Gehrig’s disease.
One sign of the change that has occurred in Medicare over the years: Only 17 percent of America’s 44 million Medicare-eligible seniors have Original Medicare as their only coverage, according to a 2006 report by the Center for Medicare and Medicaid Services (CMS). The other 83 percent have some form of supplemental or private insurance in lieu of, or in addition to, their Medicare coverage.
While Medicare covers a great portion of a recipient’s needs, it was never intended to cover the full cost of one’s care. There are various coverage voids, such as deductibles, co-insurance provisions, and other gaps that are the beneficiary’s responsibility. Medicare generally covers 80 percent of expenses, leaving 20 percent to the recipient. In order to fill these voids, private insurance companies designed Medigap, or Medicare Supplement, insurance.
Approximately 25 percent of seniors have a Medigap policy. It has been around for decades, but the government did not create the standardized plans we sell today until 1992. There are currently 12 standardized Medicare Supplements (Plans A through L) authorized for sale by the government. Standardization was done in order to make the plans easier to understand for seniors. Coverage is portable and most plans sold do not have network restrictions.
Medicare Advantage (MA) is a private insurance plan that takes the place of Original Medicare, providing coverage equal to or better than Part A and Part B. These plans were ushered in by the 2003 Medicare Prescription Drug Improvement and Modernization Act (MMA 2003), what many consider the largest overhaul of Medicare in the program’s 40-plus year history.
MA plans most frequently take the form of HMO, PPO and Private Fee-for-Service (PFFS). The PFFS plans have become popular in rural areas where network-based plans are not common. These plans allow a beneficiary to receive care at any willing provider who accepts the insurer’s payment plan terms. PFFS plans will mostly disappear by 2011 due to legislation signed into law in 2008.
Unlike Medicare Supplement, benefit designs in MA plans are not standardized and roughly half the plans sold last year had $0 premiums. There are no underwriting requirements other than the beneficiary must be enrolled in Medicare Parts A and B and cannot have End Stage Renal Disease. Plans may include prescription drug coverage and generally offer benefits above and beyond Original Medicare. Dental, vision and hearing benefits are common and some plans offer no-cost memberships to fitness clubs.
Rather than 20% coinsurance, beneficiaries face co-pays for provider services. MA plans generally limit the Maximum Out-of-Pocket expenses from these co-pays, a feature not provided by Original Medicare. Today, approximately 9.6 million Medicare beneficiaries, or 20% of the total, have chosen to enroll in Medicare Advantage plans.
Medicare Advantage started out as Medicare+Choice, which was established by the Balanced Budget Act of 1997. This program purported to do a number of things, including reduce expense to the federal government, update Medicare’s outdated benefit package and create a competitive marketplace. Because of these virtues, the Congressional Budget Office originally forecast that program enrollment would rise to 34 percent of total Medicare enrollment by 2005. The highest Medicare+Choice enrollment ever reached was 14 percent in 1997 and due to reimbursement cuts, many insurers abandoned the market from 1999-2002.
The introduction of an entitlement benefit for prescription drugs was the most significant change enacted by MMA 2003. In the years since Medicare's creation in 1965, the role of prescription drugs in U.S. patient care has significantly increased. As new drugs have come into use, senior citizens have found prescriptions harder to afford.
Like Medicare Advantage, Part D prescription drug coverage is only available through private insurance carriers that are reimbursed by CMS. Prescription drug coverage can be purchased as a stand-alone policy (PDP) or in conjunction with a Medicare Advantage plan (MA-PD). Plans feature tiered drug co-payments and may vary in the formulary, or list of drugs covered. Common managed care elements include step-therapy, pre-authorization and quantity limits.
There are now more than 32 million seniors and Americans with disabilities enrolled in Part D Plans. This has totally changed the landscape of health insurance for seniors. The introduction of prescription drug benefits signaled a fundamental change in philosophy toward focusing on coverage for preventative treatment, rather than paying for treatment only when it is medically necessary.
The most recent landmark legislation to affect Medicare is H.R. 6331, the Medicare Improvements for Patients and Providers Act (MIPPA) of 2008. This new law avoids a 10.6 percent cut in physicians’ fees and pays for it with cuts in payments to MA insurers. The law also addressed concerns about agents churning business that is not for the benefit of the client. It also limits marketing practices that led to abuse by some agents.
Some of the major changes under MIPPA:
With access to Original Medicare, Medicare Supplement, Medicare Advantage and Part D prescription drug plans, seniors today have more coverage options available to them than at any other time in the program’s history. That’s good news for seniors. With so many plans available, seniors are more likely to find the one that fits their needs and budget. And, with so much variety, they are more likely to need an agent’s help finding the right plan.
But Medicare faces some serious challenges as well. With the 65-and-over population expected to double by 2030, increasing from some 36 million to 72 million people, Medicare’s growth will place significant strain on the federal budget. Medicare's annual costs were 3.2 percent of Gross Domestic Product (GDP) in 2007, or nearly three quarters of Social Security's. They are projected to surpass Social Security expenditures in 2028 and reach 10.8 percent of GDP in 2082. It’s difficult to imagine the program surviving in its current form given these realities.
The program will almost certainly undergo further evolution if it is to be sustained for future generations of retirees. So it is important for agents in this market to remember that change is more than likely; it’s inevitable. Recent regulatory action is likely to lead to a consolidation in plans available. Some carriers will not be able to abide by all the changes required or will find certain practices are unprofitable.
It is also important that agents have a “run with the best” mentality when it comes to choosing which carriers to represent. Agents must not only be versed in product design and the competitive landscape, but recognize that change is to be expected and providing sound advice to clients will help them navigate the myriad of choices. Finally, agents must embrace technology and follow all CMS rules and regulations. Change is in the air and the successful agent selling in the Medicare market must be prepared to learn and adapt when it comes.