Medicare MAPD: Loved by Seniors But Will It Last?

Harry Truman initiated the establishment of a national health program by asking Congress for legislation to be enacted in 1945. He was the first to sign up under the Lyndon Johnson law, twenty years later. Two decades ago, the dangers of socialized medicine were being debated. Now, the United States has opened Medicare to all seniors over 65 and disabled. Medicaid is the companion plan for the poor.

Medicare was designed around two levels of care. Medicare Part A covers skilled nursing, home health, and hospitals. Part A is not subject to premium, but most people who are eligible will have paid Medicare taxes during their working years.

Medicare Part B covers doctor services, outpatient care, durable medical equipment and home health, as well as other medical services. Part B requires a monthly premium. It was $3 in 1965, and is now close to $100 each month.

Original Medicare pays 70% of all claims. The general rule is that Medicare will approve at least 80% of all charges. Medicare will pay a portion of the remaining 80%. This amount is approximately 65% for the Medicare member. The member is responsible for the payment of the remaining 35%. There is no upper limit on the amount that can be owed.

A potential liability of multiple thousands of dollars for a Medicare enrollee, the first Medigap and Medicare Supplement policies were offered by Bankers Life in early 1970’s. These plans covered excess charges that Medicare A and B wouldn’t pay. The Medigap idea was widely accepted by the public, and soon hundreds were offering their own Medicare supplement plans.

Agents were constantly “replacing their own coverage” on the basis that they had an improved plan, or selling seniors multiple plans to earn a commission. This led to Federal standardization in Medigap policies in 1992. It was illegal to sell multiple policies, and all policies were standardized. For example, if a senior was looking at a Plan F from company A, it would be identical to a Plan F from company B. This allowed the buyer to only consider the cost and the quality of the service, without having to worry about differences in benefits. This change solved the problem of having so many plan options to choose from.

Cost shifting, or additional charges that are not covered by Medicare, increased the price of Medigap plans. Medicare began to reduce the amount it reimbursed hospitals, doctors, and other healthcare providers over time. The Medigap policy was forced to pay these additional charges, resulting in higher premiums to cover these shifting costs. As seniors grew older, their plans became more expensive. Many retired people on fixed incomes felt the economic pinch and decided to drop their insurance coverage. Ironically, insurance was not available at a time when they were more likely to need it.

The Balanced Budget Act (1997) made it possible to offer a Medicare Supplement alternative. These plans were known as Medicare+choice plans and allowed seniors to receive benefits from a private company. The Medicare Prescription Drug Improvement and Modernization Act 2003 made these plans known as Medicare Advantage.

Medicare Advantage plans do not replace Original Medicare. Private companies contract with the government in order to provide benefits that are equal or higher than original Medicare. They are usually low-cost and/or free of premium. Seniors pay the co-pays for the service they receive. For example, a visit to a doctor would cost $20 and hospitalization would cost $150. The co-pays of different companies vary. There is usually a cap on the amount of out-of-pocket expenses per year. These can range from $2500 up to $6700 depending on which company offers the coverage. These plans often include Part D prescription drug coverage in addition to the medical benefits.

The popularity of Medicare Advantage plans has increased dramatically, but the future of Medicare Advantage is uncertain. In April 2012, the GAO released a report calling to end Medicare Advantage. It stated that the program is financially unsustainable for the government. MA plans should have a safe harbor in elections, but it is up to the public to decide how they will survive beyond that. They are loved and will continue to be so as the baby boomers retire.

Retirees have to make a choice between their own health and the government’s penchant for funding aid. A good place to communicate is the voting booth.