How to navigate the Medicare maze

Oh, what a relief it is, to turn 65 and qualify for Medicare!

As the baby boomers (born after 1945) head toward Medicare, they’ll join a group confronted with bewildering coverage choices they never realized were there. Every fall, starting Nov. 15, Medicare beneficiaries have to make decisions about their coverage for the next year. Of course, it’s happening this year, too.

There are many insurance agents who declare themselves ready to offer advice, but everyone knows they are not earning a living unless they sell insurance, so their advice may be seen as tainted by self-interest. My purpose here is to offer information that is helpful and objective. Whatever you do will put no money in my pocket.

The Starting Point

The basic choice is the so-called “original Medicare.” That’s the coverage you get if you buy no insurance.

Under Part A of the Medicare law, you get free (or prepaid) hospital coverage, worth $423 a month according to the premium charged to people not qualified for Medicare under Social Security rules.

Under Part B, you get medical coverage worth $385.60 a month, for which a person with a moderate income will pay $96.40 (25 percent).

Under Part D, you go find yourself a drug plan from an insurance company, at a price that may range from $16 a month to over $100, with benefits to match.

If you pick no drug plan, you’ll be charged extra later when you decide to join in.

I skipped Part C. Part C is where all the important choices come in.

The Part C Medigap Plans

The first available choice is keeping the original Medicare and buying a supplement called a Medigap policy from an insurance company.

Medicare has deductibles and generally pays only 80 percent of the medical bills. These Medigap policies help pay the rest, offsetting some of the “gaps” in the original coverage.

To reduce confusion and allow price comparisons, the law sets out the plans insurers can offer. There’s a plan A, B, C, etc. up to L. These plans range in price from about $100 to $160 a month.

Unless that kind of plan is bought upon first qualifying for Medicare, an applicant may be required to be in reasonably good health to qualify.

All these premiums are per person. A retired couple may thus pay $2,300 for its Part B coverage plus an extra $2,400 to $3,840 for Medigap coverage.

The Medicare Advantage Plans

Over the last 10 years or so, we’ve seen Congress experiment with Medicare plans provided by insurance companies. As we’ve seen, the underlying cost of the original Medicare benefits is $423 for the hospital part and $385.60 for the medical part. That’s $808.60 per person per month.

The government simply offered to pay an amount close to that to insurance companies who would run programs that provide benefits similar to the original Medicare plan’s, subject to strong government controls. The insurers were also allowed to charge a small extra premium for benefit improvements.

That has given rise to plans which vary all over the country, and from county to county within states. In the more developed urban areas, one can expect to find three types of plans: PPO, HMO, and PFFS.

With the preferred provider organization (PPO) plans, a person is given a list of doctors and hospitals to use.

With the health maintenance organization (HMO) plans, a person is given a kind of managing doctor who controls the care to be given.

With the private fee for service (PFFS) plans, a person can go to any doctor or medical facility which accepts the plan.

These Medicare Advantage plans generally reshuffle the benefits available under original Medicare in a sensible and attractive way.

Virtually all of them do away with the $1,024 deductible imposed by Medicare for each hospital stay, or with the $135 deductible on medical expenses.

The Medicare Part B 20 percent co-insurance payment is replaced with a fixed co-pay amount payable to the medical provider up front, which eliminates any billing hassle later, as the entire balance comes from the insurance company.

In both their design and administration, the Medicare Advantage plans are subject to fairly strong controls by the Medicare administration.

Most adverse decisions can be appealed all the way to federal court. It may take persistence and patience, but insurers can generally be kept in line.

Some Medicare Advantage plans charge no extra premium beyond what is paid to Medicare, but most do. In light of the extra benefits provided by these plans, most often including a prescription drug plan under Part D, the extra premiums that are charged are modest and well below the premiums for the Medigap plans.

Some Disadvantages of Medicare Advantage Plans

The PPO and HMO plans obviously limit their members in their choice of physicians and even hospitals.

The PFFS plans allow the use of any physician who will accept the plans’ terms and conditions, and there’s the rub.

Medicare does not pay medical providers all the money they want. The program has fixed fees it pays for various procedures. The insurers providing Medicare Advantage plans do the same.

Some medical providers would rather avoid Medicare patients and concentrate on patients who pay more. Except for obstetricians and pediatricians, refusing to treat older people could mean having too few patients to support a practice.

Thus in an effort to limit the number of their Medicare patients and provide greater income for their practice, some physician groups in Fayette County simply refuse to accept Medicare Advantage plan members.

They dare not cut off all their Medicare patients, but it is obvious that their strategy forces some people to give up on getting a superior Medicare Advantage plan and to put up with the old original Medicare.

The alternative is to give up on these doctors and to find new ones with more empathy for their older patients.

The Ultimate Choice

If people could only know how sick or healthy they would be in the coming year, they could make their insurance choices accordingly. All insurance comes at a price, and people are right to seek value for price.

Official government publications about Medicare are often wishy-washy about the choices people have. They are so eager to show no partiality that they give no hint of what’s good, better or best and they inundate people with details, for them to sort all out. Having too many choices, and wading through too many details, simply confuses people.

My wish is that this explanation will help local people on Medicare understand their choices better, and thus make better choices for 2008.

[Now retired, Claude Y. Paquin is a local actuary and lawyer with wide experience with Social Security and health insurance.]