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The current standard Medicare Part B premium is $202.90 a month. That equals about 25% of the cost of Part B. The average American worker with employer coverage pays about 26% of premium for family coverage.
Remember, Medicare payroll taxes only fund Part A of Medicare. Part D and B are funded via premiums and general tax revenue.
Combined, Connie and I pay $1,925.60 per month for Parts B and D and Plan G Medigap. That is over ten times my monthly employer payroll deduction the day before I retired.
Our Medigap is high, over $300 a month each. That’s because my employer dropped our Medicare supplement coverage and we ended up with age based premiums. Premium-wise having Medicare is not necessarily a bargain.
However, the good news is despite high premiums, our out-of-pocket costs are limited to the Part B deductible which, considering the expenses we are incurring, is a blessing indeed.
Would I like lower premiums? Absolutely. Do I think what we are paying is unfair? No.
Premiums for any health insurance are driven by the cost and use of healthcare by the people in the group be it Medicare, an ACA plan or employer plan (most of whom don’t even use insurance, but are self-funded). Because of this, a non-profit insurance company like a Blue Cross plan can have higher premiums than a for-profit.
The rhetoric about insurance company profits and CEO pay is quite irrelevant in the overall context of premiums. They represent a small percentage (2-5%) of each premium anyone pays. Health insurance company profit margins are no higher, sometimes lower, than those of regulated utilities.
The large corporate profits people refer to are driven by the volume of policies in effect and sometimes include foreign sales and other lines of business. It’s not because of a high premiums on individual policies. Premiums are reviewed for actuarial soundness and if they generate excess revenue after the fact beyond legal thresholds, money must be returned.
Premiums reflect how we use healthcare, the type of care we use and the price of each component of that care. That’s where our focus needs to be, but that is not easy because we all want the best, latest technology, most convenient, fastest care, we don’t want a third party interfering and we want it all to be at that undefined “affordable” price.
That will never exist because in the minds of people there is no amount of money spent on healthcare that is affordable. I just picked up an Rx yesterday and the co-pay was $255, that’s not a financial burden, but I would still rather have spent the same $255 on a new golf club I had my eye on…and that would certainly have been considered affordable. Perhaps like $200 tattoo for some people.
What Americans want will never happen. That is why other countries bury the collective cost in taxes and its citizens are willing to do with a bit less in convenience while not worrying about the cost of each service they receive.
I tell people that if you don’t want to change the system, stop complaining about the one you have.
Dick, could you please comment on Mark Cuban’s effort to lower drug prices with his Cost Plus Drug Company? I see with Part D coverage selecting a pharmacy such as CVS is often less helpful in getting a prescription filled (very expensive that is!) but one can fill it with MCCPDC at a VERY reasonable cost outside the Part D coverage. He talks about pharmacy benefit managers and their control of the system.
Perhaps you would complain for once?
Yesterday I read that Senate Democrats have introduced a bill that will cap out of pocket expenses for traditional Medicare to $5000 annually. To me that sounds like the beginning of the end of the Medigap product but they say it will make Medigap more competitive with Medicare Advantage. What do you think ? I suspect that eventually all of Medicare will be an HMO.
In my opinion ,Advantage works well until it doesn’t .I have two friends much older than I and we live in a state (Mass.) known for excellent healthcare. One of them has a group Advantage plan , which presumably is better than what an individual can buy . When she needed rehab she was sent to a 1 star facility at an unreasonable distance from home. An aide dropped her and they refused to take her to the hospital so she called 911 herself . Her daughter was able to get transferred to a 3 star SNF, the highest in her Advantage network, and closer to home
In contrast , my friend fwith Medigap could choose his SNF (5 star) , within easy driving distance from home so that his elderly wife could visit without difficulty.
Here’s a great example of what’s driving up the government’s costs for Medicare. I have a new medical issue that requires a specialist – all who are difficult to get an appointment with. I booked an appointment with one 3 months out. Later I found one I could see a month earlier. I’m going to keep both appointments, effectively giving me a free 2nd opinion. I wouldn’t do that if I was paying.
Dick,
You are consistently the voice of logic and reason and honesty on this web site, never letting emotion and politics cloud your judgement like so many other commentators. I always look forward to your articles and comments.
I think this actually reinforces your point about utilization driving premiums. If there were a large group of people who all lived healthy lifestyles and therefore needed significantly less medical care, their insurance costs would likely be much lower than the average population. Insurance is really about the expected claims of the group. We spend a lot of time debating insurers, but we probably don’t spend enough time talking about how improving the health of the population could lower costs over time.
Obviously, not all illness is preventable, but healthier populations generally have lower rates of many costly chronic diseases, which should translate into lower average healthcare spending.
I don’t think you understand how profit incentives work. If profits on premiums are capped at 2-5% there are limited ways to increase profits: increase the number of policies sold at a given price point or increase the price of the policy. Since policy price is regulated as a fraction of healthcare cost – the health insurers have an incentive to see health care costs increase so that their premiums increase so that their profits increase.
You are absolutely right.
A medical insurer equivalent to that of wealth advisors earnings rising as the market increases.
A perversion of a market economy.
That 2 to 5 percent profit margin must have skipped over two years that I had an individual policy, where the health insurance medical loss ratio for my insurer was 69% and 74%, less than the 80% set by the ACA,. I received rebates.
Insurers had to meet the ACA’s medical loss ratio (MLR) threshold: in the individual and small-group markets, insurers had to spend at least 80% of premium revenue on clinical care and quality improvement, with the rest going to administration, marketing, and profit. If they fell short, they owed rebates based on a three-year average.
Source: healthcare.gov
Apparently there was a valid basis to set a medical loss ratio for health insurers.
That’s a very nice retirement income level, Dick, with each of you paying ~$385+ in IRMAA as a married filing joint couple.
We currently pay $1465 ($732.50 each) for our Medicare A,B,&D + IRMAA. However, we get a partial reimbursement from my husband’s former employer (which provides our Medicare supplement, too) that is added to his monthly pension check. We’re still out-of-pocket about $500/month, but that’s for excellent coverage. It still seems like a lot, but really, I can’t complain.
2-5% of each premium, you only get a larger aggregate number when there are a lot of policyholders, but it’s not a large portion of the premiums any individual pays.
And larger profits (didn’t say margin) as medical costs rise. (As mentioned above).
You said that profits are 2-5% of premiums paid. AI said we pay 1.6 trillion a year in premiums so that $32 to $80 billion a year in profits every year. That’s a lot. Also you said nothing about how insurance companies drive up costs by negotiating what’s best for their bottom lines vs. the member. There is also the issue of double dipping by insurance companies who own PBMs.
Speaking of PBMs why can’t insurance companies negotiate prices so we don’t have to use Good Rx?
2-5% of each premium, you only get a larger aggregate number when there are a lot of policyholders, but it’s not a large portion of the premiums any individual pays.
$32 to $80 billion here, $32 to $80 billion there, pretty soon it adds to real money. After all when compared to $40 trillion national debt, it’s peanuts. I admit that the two are not related.
We pay approximately $10K/year on Medicare and Plan G premiums, that is by far our largest financial obligation. I’m not complaining because those dollars are buying us the best healthcare we have ever had. Still, I wish there was a magic wand to wave, in order to keep provider costs in line with total inflation.
Dan, the basic problem is not provider costs, that is unit price, that is controlled by fee setting and negotiation. The problem is utilization and overhead costs. The only fair way is to have one risk pool and one set of fees instead of the wide differences we now have in allowable fees and minimize admin costs.
We should have a chip card with all our medical info, all our coverage, all our test results accessible no matter where we go for care anywhere in the country. That would speed care, avoid unnecessary and duplicative care and eliminate paperwork… but that is a dream.
I grew up as an Army brat. We moved PCS (permanent change of station) about 10 time during my dad’s career. One of the mandatory stops that mom had to make while taking care of all the moving from this post to that post, was the post hospital where she picked up all the family’s medical records. One of the first stops at the next post was the hospital to deliver all the family’s medical records.
It worked.
Dick, I totally understand “experience”. Yes, the aging population is reeking havoc on the system. I was thinking of things not covered by Medicare when I mentioned provider fees. Dental services, eye care, hearing aids for example. Luckily, we have Costco to mitigate some of the damage, just avoid the popcorn.
Admin costs would make for an interesting conversation. I got quite the explanation when I asked AI why the fees are a higher % today than they were in the 70s.
Dick,
Buy the club!
What? The co-pay AND the club. I’m a retired senior citizen. I should be complaining about property taxes. 🤑
Dick,
Shouldn’t you also be complaining about your HOA fee? 🤪