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What’s Wrong with Medicare? [1]

['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.']

Date: 2023-11-16

[Note: I am writing this as a Medicare recipient based on my own experience over the past seven years, supplemented by my own research on this topic from available public sources. I am not a medical expert nor public health professional. My Ph.D. is in Education and my experience is in Human Resources and Talent Development. You should consult trusted medical professionals and your State Health Insurance Assistance Program (SHIP) to get personalized and accurate information based on your specific circumstances.]

We tend to think of Medicare as the gold standard of health care in the United States. Originally created by Congress in 1965, it was meant to provide the medical care that seniors need as they age and approach their final destination. However, original federal government Medicare had a built-in flaw that has bedeviled the program ever since. The flaw was the restriction of paying only 80% of the cost, leaving seniors to cover the remaining 20% on their own.

For expensive hospital care, the 20% share often wiped out seniors lacking generous retirement savings. Spotting an opportunity, U.S. health insurance companies leaped into the breach and began to offer Medigap insurance plans to cover the 20% cost.

Later, a new supplemental insurance plan called Medicare Advantage was created by our federal government, offering a second option for covering the 20% gap in traditional Medicare.

How was Medicare Advantage Created?

Medicare Advantage (MA) was created as part of the Balanced Budget Act of 1997 and signed into law by President Clinton. The goal was to provide Medicare beneficiaries with additional choices in how they receive their healthcare coverage. Before the creation of Medicare Advantage, beneficiaries had only two options: they could either enroll in the traditional fee-for-service Medicare program (Parts A and B) or purchase a private Medigap policy to supplement their coverage.

The Balanced Budget Act of 1997 introduced the Medicare+Choice program, which later evolved into the Medicare Advantage program. This legislation aimed to expand the options available to Medicare beneficiaries by allowing private insurance companies to offer managed care plans, such as Health Maintenance Organizations (HMOs), Preferred Provider Organizations (PPOs), and other types of health plans, as an alternative to the traditional Medicare program. The impetus was to provide greater choice while stemming the growth of Medicare costs.

Over time, the program underwent further changes and improvements. The Medicare Prescription Drug, Improvement, and Modernization Act of 2003, signed into law by President George Bush, expanded the Medicare Advantage program by adding prescription drug coverage (Medicare Part D) as an option within these plans. It also expanded the role of private insurers in the Medicare marketplace, allowing for more variety and flexibility in the types of plans that could be offered. Private insurers have rushed into the Medicare Advantage market since then and their market share has grown to 42% as of 2021.

How do Advantage and Medigap Insurance Plans Differ?

Medicare Advantage (MA) and Medigap (Medicare Supplement Insurance) are two different types of supplemental coverage options available to Medicare beneficiaries in the United States. There are key differences between them that must be considered when choosing your option.

Medigap (Medicare Supplement Insurance):

Plan Structure: Medigap policies are standardized supplemental insurance plans offered by private insurance companies. These policies are designed to fill the "gaps" in coverage left by original Medicare (Part A and Part B). That is, they cover the 20% of doctor and hospital bills that traditional Medicare does not cover.

They generally don’t cover Prescriptions (Part D), which is a requirement that must be purchased and paid for separately. They also don’t offer any additional benefits.

Medigap premiums are separate from the Medicare Part B premium, which the federal government charges all enrollees to cover its costs to administer Medicare. The cost of Medigap plans can vary, but they are often higher than the premiums for Medicare Advantage plans. With higher cost, comes more complete coverage and freedom of choice. Medigap plans have no co-pays or deductibles and generally cover 100% of medical costs. They also allow you to choose any doctor or hospital for service.

The biggest drawback of Medigap insurance is the higher premium which discourages many from selecting it. However, a hidden drawback is that if you first select an Advantage plan, you may not be able to switch back to a Medigap plan if you have a serious health condition. That’s because Medigap insurers are allowed to subject you to medical underwriting unless you select these plans when you first enroll in Medicare at age 65. That means they can turn you down for a prior medical condition or charge you more because of your heightened health risk. Patients with chronic conditions such as heart disease or cancer may be banned altogether, forcing them to keep the Advantage plan they have or switch to another Advantage plan.

Medicare Advantage (Parts C & D):

Plan Structure: Medicare Advantage plans are private health insurance plans offered by approved private insurance companies. These plans bundle coverage for hospital services (Part A), medical services (Part B), and often prescription drug coverage (Part D) into a single plan. Although these plans must be approved by Medicare and follow its rules regarding allowable coverage, they are run as separate private insurance plans subject to rules that each insurer may create.

The biggest advantages of Advantage plans are their lower premiums and additional benefits such as dental, vision, hearing and wellness. Because of the lower up-front cost and relentless marketing, Advantage plans are rapidly becoming the most popular form of Medicare. Experts predict that Advantage will dominate Medicare coverage by the end of this decade.

These plans have drawbacks that are rarely mentioned in their promotions. The biggest is their out-of-pocket costs. To keep premiums low, they charge patients when they use their benefits in the form of copayments, coinsurance, and deductibles. There is an annual limit on out-of-pocket expenses to protect beneficiaries from catastrophic medical costs, but those limits typically range from $5,000 to $10,000 a year, which is far more than the difference in premiums between Advantage and Medigap plans.

The other drawback is that Advantage uses a restricted network of providers to control costs. They offer HMO and PPO plans and contract with a select network of doctors who agree to accept their lower reimbursement rates in return for access to the network’s patients. If you go outside these networks, your costs escalate rapidly and some medical expenses may not be covered at all. Advantage plans also require advanced authorization for expensive medical procedures, which can lead to delays or even outright rejection of a doctor’s medical request. In that case, the patient would have to bear the entire cost.

Bottom-Line of Medicare

With all the options now available to seniors on Medicare, it is more important than ever to carefully weigh the total costs and benefits of any plan against your current and future health needs. For a young, healthy senior who only sees a doctor for an annual physical, Advantage plans offer the lowest cost option. However, a study by AARP found that as seniors age into their 70s and 80s and encounter more health problems, Advantage plans can saddle them with thousands of dollars in unexpected expenses. AARP noted a trend of seniors in their 80s switching back to traditional Medicare with Medigap as their health expenses mount. Unfortunately, some of them find themselves trapped, unable to escape Advantage plans.

According to the Centers for Medicare and Medicaid Services (CMS), out-of-pocket spending grew 10.4% to $433.2 billion in 2021, or 10 percent of total health expenditures. This means Medicare and the private Advantage insurers together are only covering about 90% of total health expenditures, leaving seniors to cover the other 10% on their own. As medical expenses are growing faster than inflation in general, 17% of seniors with health care debt had to declare bankruptcy in 2022 to avoid losing their homes. 250,000 Americans turn to GoFundMe to raise funds from strangers to cover their medical debts.

America has the most expensive health care system in the world by far. And yet, 26 million Americans have no health coverage and another 100 million are drastically underinsured, unable to afford a hospital visit. The reasons for this are myriad: private, for-profit insurers and hospitals dominant our health care system, Americans live unhealthy lifestyles in a degraded environment and politicians who could actually fix our problems are bought off with campaign donations from those wishing to maintain the status quo.

Fundamentally, our health care system is torn between two competing imperatives: provide quality medical care and make a profit. These are not always compatible, because profit in the health care industry means keeping costs low, typically at the expense of patients. When the two clash, we see private insurers place their profit margins over quality medical care time and again. If we insist on having a private health care system, the government needs to be the cop on the beat that ensures our system actually produces quality health care outcomes. After all, what’s the use of a health care system that leaves people sick and broke?

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