Enrollment Trends in Medicare Options
Most retirees manage to get by on less than they earned as workers. Yet they devote a much larger percentage of their income to medical care than working people.
To limit their annual spending on care, retirees usually buy some type of insurance policy to help pay the bills Medicare does not cover. But a big shift is under way: the Medigap and employer plans that once dominated are now in decline. Only about a third of retirees have one of these two supplementary arrangements, down from two-thirds in 2002.
Retirees are instead swarming into Medicare Advantage plans – HMOs run by insurance companies – which doubled enrollment in the past decade to become the most popular form of coverage. A small minority of retirees go without any policy at all, so the only premium they pay is for Medicare Part B’s physician coverage. (The Part A hospital coverage has no premium.) At the same time, the vast majority of retirees today enjoy prescription drug coverage, either through a stand-alone Part D plan or as part of an employer or Advantage plan.
Helen Levy at the University of Michigan digs into what the market changes mean for retirees’ bottom line in recent research funded by the U.S. Social Security Administration.
With fewer employers offering retiree health insurance, new Medicare beneficiaries focus on the tradeoffs between Medigap and Advantage policies. A big reason the Advantage plans have taken off is lower premiums, which are, on average, substantially below the premiums on Medigap plans. Advantage plans’ other appeal is that they frequently cover extra services like dentists and eyeglasses.
Both Advantage and Medigap plans can still leave beneficiaries with high out-of-pocket spending. The federal limit on Advantage plans’ deductibles and copays increased this year to $7,550 per year, though insurers are permitted to reduce this cap. Many Medigap plans do not have out-of-pocket maximums at all. However, these plans tend to give more protection from large medical bills overall.
Just as important to retirees as paying the bills is the risk of being socked with inordinately high spending on hospital and physician care in a bad year. Levy defines this unpredictability as retirees having to shell out more than 10 percent of income out of their pockets, excluding all premiums.
Under this standard, about 23 percent of the retirees in the study with Advantage plans spent more than 10 percent of their income for care – versus 17 percent of Medigap buyers. About 28 percent of those without any coverage outside of Medicare exceeded the 10-percent threshold.
More certainty in the Medigap plans is only part of their appeal – at least, for the people who can afford the premiums. The other benefit to retirees is the ability to choose their own doctors, who are required to take Medigap if the practice accepts Medicare patients.
Retirees have to decide on the tradeoffs they’re willing to make. “That is, after all, how insurance works,” she said.
To read this study, authored by Helen Levy, see “The Risk of High Out-of-Pocket Health Spending Among Older Americans.”
The research reported herein was derived in whole or in part from research activities performed pursuant to a grant from the U.S. Social Security Administration (SSA) funded as part of the Retirement and Disability Research Consortium. The opinions and conclusions expressed are solely those of the author and do not represent the opinions or policy of SSA, any agency of the federal government, or Boston College. Neither the United States Government nor any agency thereof, nor any of their employees, make any warranty, express or implied, or assumes any legal liability or responsibility for the accuracy, completeness, or usefulness of the contents of this report. Reference herein to any specific commercial product, process or service by trade name, trademark, manufacturer, or otherwise does not necessarily constitute or imply endorsement, recommendation or favoring by the United States Government or any agency thereof.