FREE NEWSLETTER
THE GAMBLING TRUISM says you can’t beat the house. That brings me to a recent HumbleDollar article that discussed choosing either a Medicare Advantage plan or traditional Medicare with an accompanying Medigap policy. Almost two dozen readers weighed in with comments.
My two cents: Never forget that the managed-care companies offering Advantage plans are mostly for-profit companies that are publicly traded. The government’s purpose is to transfer its insurance risk to those companies. These managed-care companies must then manage that risk through rationing, limiting choice and negotiating provider payments, as well as encouraging healthy behavior among their customers. To the extent they’re allowed, they deny coverage or charge higher rates to those with preexisting conditions.
Although Medicare Advantage was first offered in the late 1990s, enrollment really took off about 10 years ago. That was when Congress made the program more palatable to insurance companies. Advantage plans became their growth driver and industry marketing got more aggressive. Enrollment has doubled over the past decade.
I looked at the major national managed-care companies in the Medicare Advantage market over that time period. Here are their stock returns for the past 10 years, without dividends reinvested, as of Oct. 18:
Over the long haul, the stock market recognizes value. Don’t imagine that managed-care companies are charitable ventures. This factors into how they “manage” your care. Rather than choosing one of their Advantage plans, your best bet might be to become a stockholder. That way, you can smile at your brokerage statement because you’ll be betting with the house.
I spent years in hospital administration sitting across the table from insurance companies. When it came time to decide, I opted for traditional Medicare plus a Medigap policy. It may cost more. But choice is a valuable commodity—and you see its true value at the most critical times in your life.
I agree with Mr. Quinn that “rationing” is both inaccurate and unfair. I’d also question the author’s bizarre thesis that one should avoid MA plans because they’re offered by for-profit insurers rather than “charitable ventures.” Does he apply this standard to non-insurance-related purchases?
The author notes that “the government’s purpose is to transfer its insurance risk to those companies.” True, but he fails to distinguish between degrees of risk and how this affects the risk transfer. What’s actually happening is that relatively low-risk (i.e., healthy) seniors are self-selecting into MA plans that offer attractive benefits not available through traditional Medicare. In exchange, they give up some features of traditional Medicare that they don’t need. The MA insurers end up with a risk pool that generates lower claim costs than the pool that remains in traditional Medicare. This allows them to offer the aforementioned benefits while also remaining profitable.
MA has been the ideal choice for me. I’m in excellent health, rarely need to see a doctor, and take just one inexpensive generic prescription medication. Despite paying $0 premium for my MA plan, I get dental, vision, and hearing coverage. Best of all, the plan’s Silver Sneakers program means that I no longer have to pay for my gym memberships.
For some of us, Medicare Advantage is a godsend.
Just to be clear, I am not suggesting that one should avoid MA plans because they come from for-profit insurance companies. Medigap insurance also comes from for profit companies. I am suggesting that there is no free lunch and the companies are balancing their profits while managing your care. Zero premiums and extra benefits come at a cost and that cost manifests itself in limited choice. I agree that “rationing” is a provocative word… that is why I chose it. All health care is rationed: sometimes on price, sometimes on access and sometimes on hassles and denials. In the same sense insuring your care through Medicare + Medigap is rationed because it costs more and may be unaffordable to some. You must choose your poison. The key is to do it with your eyes open… that is the thesis of the article.
As you suggest, MA plans are a great choice if you are healthy and those people tend to self select into MA. The problem is we all get older and with age often comes morbidity. When you are older and need the choice the most, you cannot switch back to Medicare + Medigap, unless the insurance company accepts you after reviewing your health history.
Rationing was a provocative word against Obamacare too and many people believed it. If one accepts for profit insurance leads to attempts to limit care then for profit in the health care business likely leads to increasing the care provided. The last estimate I saw from a physician group was that as much as 25% of care is unnecessary. An unmanaged system is more dangerous than a managed one- but you will find few people will agree. More is better, right?
I am thinking and writing from a personal point of view. If I was thinking about society, I would agree that Medicare + Medigap is not the best system. Unlimited choice at a low marginal cost certainly will lead to over utilization. But, If the government is willing to sell me such a plan and I can afford it, then I don’t want to deal with insurance companies that will limit my choice based on their values rather than mine. I would rather decide for myself when and where to control my utilization.
The day you signed up for original Medicare and Medigap, did you wake up feeling dangerous?
Interesting article, and if you do have ongoing medical claims, traditional Medicare and a supplement are actually lower costs and fewer hassles than a Medicare Advantage plan.
The out of pocket expenses on Medicare Advantage plans can be quite high, and as you get older your health expenses do not go down, they go up making your conclusion easy to agree with.
Fewer hassles no doubt, but I’m not sure about lower OOP costs. My Medigap premium is $233 plus Part D $43.00 plus Part B deductible. Most MA plans would be less even zero premium.
The zero premium MA plans are usually HMO plans with limited medical networks, especially for specialists. Cannot question the math, though Advantage plans work fine as long as you barely use them. I’ve checked this out for myself, and settled on supplemental and Rx plans with traditional Medicare as my medical bills are on the high side, and on a net cost basis with keeping my medical providers this works considerably better than an Advantage plan.
I too chose Medigap and negotiated with insurance companies and HMOs for decades. In fact, I was on the boards of several HMOs many years ago.
As you may know, MA plans are very popular and growing. Your choice is limited, your care managed and scrutinized, but I think your use of “rationing” is not accurate or fair, but is inflammatory in the minds of many people.
The fact is MA plans do no more in care management than employer plans have been doing for many years trying to deal with costs. I’m thinking a $2,000 to $3,000 deductible could be rationing for a middle class family.
On the other hand Medicare has been cited by audits for its virtual lack of claim and care review, rarely question necessity.
The question about the financial viability of MA plans is the amount of funding they receive from Medicare and the method of calculating that money. Some accuse them of gaming the system. Should that funding change, the MA plans may look quite different.
Thanks for a valuable perspective. What I get from this is that from an individual’s pov, Medicare plus medigap makes a lot more sense if you have or anticipate health issues, and if you can afford it. If premiums are an issue, then MA comes into play, if you are in solid health.
At a societal level, I think different considerations come into play, but to take the example of lack of audits w/r/t medicare: perhaps this ends up being cheaper overall? Review and enforcement not only cost money, they can be financially counterproductive (and in the case of healthcare, may be harmful to patients.) I’m not sure I’ve ever seen an effort to determine if this is the case with respect to healthcare management?