Individuals approaching age 65 have some very important decisions to make, however, they may not be aware of the potential long-term consequences of these decisions. One of the most important decisions is which Medicare programs to enroll in. Among the choices are Medicare Advantage plans (also known as Medicare Part C, and previously referred to as Medicare+Choice), in which a Medicare-approved private company offers Medicare beneficiaries with a variety of options for their Medicare benefits.[1] Medicare Advantage plans tend to have two significant benefits over traditional Medicare. First, they often provide additional benefits geared towards the beneficiaries’ routine medical needs (such as eyeglasses, hearing aids, and dental care), and second, they simplify much of the paperwork and administrative headache associated with traditional Medicare coverage. Because of these reasons, they have become increasingly popular among Medicare beneficiaries. However, a recent article published by National Public Radio indicates that many individuals that choose a Medicare Advantage plan feel trapped in later years, when they either no longer qualify for Medigap coverage (discussed below), or such coverage would be prohibitively expensive.[2]
Traditional Medicare
The Medicare program was established to provide basic protection for retired or disabled persons who have paid into the Social Security program against certain healthcare costs.[3] Medicare consists of three major programs: Part A, which covers hospitalization, short-term nursing home care, and some health services; Part B, which primarily covers physician fees and outpatient therapies; and Part D, for prescription drug coverage. Enrollment in these programs directly is typically referred to as “traditional Medicare.” Any individual age 65 or older that is eligible for Social Security or Railroad Retirement benefits is entitled to Part A without charge.[4] Additionally, individuals who are at least 65 and are otherwise not eligible for Part A (such as those who do not meet the 40 quarters requirement under Social Security) may voluntarily enroll in the program, but they must pay a monthly premium ($278 or $505 as of 2024, dependent on the number of years the individual or their spouse worked and paid Medicare taxes).[5] If an individual buys Part A coverage, they must also buy Part B coverage (costs discussed below).
An application for Social Security or Railroad Retirement benefits upon an individual turning 65 will trigger automatic enrollment in Part A, although such individuals may decline automatic enrollment by sending a signed statement to their local Social Security Administration office. Even an individual who is still working at 65 (and therefore has decided to defer receipt of Social Security benefits) is eligible for Part A provided they file a separate Medicare application. Indeed, this is generally advised, since there is no financial incentive to deferral as there is with Social Security since Part A has no monthly premiums. Additionally, for those that are not eligible for free Part A coverage, enrollment in Part A is generally advisable as soon as an individual becomes eligible, since there is a 10% premium surcharge for a period of two years for each full 12-month period the individual deferred enrollment.[6] As an example, assume David turns 65 in June of 2024, but he is not eligible for free Part A coverage. If he waits until September of 2026 to purchase Part A coverage, he will be subject to an additional 10% premium surcharge for the first four years of his enrollment.
Generally, an individual who qualifies for Part A also qualifies for Part B, and the same automatic enrollment procedure applies to Part B as it does to Part A. However, Part B requires the beneficiary to pay monthly premiums, which are adjusted annually ($174.70, increased for high income enrollees, as of 2024).[7] An individual can buy Part B coverage without buying Part A coverage, although as previously mentioned, the converse is not true. As with Part A, when an individual chooses to defer enrollment in Part B, a late enrollment penalty applies. For Part B, this results in a permanent premium increase of 10% for each 12-month period during which they could have, but did not, enroll in part B.[8] Consider the same example above, except in this case David qualifies for free Part A coverage when he turns 65. David would similarly be eligible to enroll in Part B when he turns 65 in June of 2024, but he waits until September of 2026 to enroll. David’s Part B monthly premiums will be 20% higher for as long as he is enrolled in Part B, including any annual adjustments.
Traditional Medicare Costs and Medigap
Both Part A and Part B include substantial cost sharing requirements, with no out-of-pocket limits. For example, Medicare requires a Part A deductible for hospitalizations ($1,632 in 2024), a separate deductible for most Part B services ($240 in 2024), 20 percent coinsurance for many Part B (physician and outpatient) services, daily copayments for hospital stays that are longer than 60 days, and daily copays for extended stays in skilled nursing facilities.[9] The calculations of how much a Medicare beneficiary will have to pay out-of-pocket is complicated by a number of factors, including whether the physician participates in Medicare and if the amounts in question fall within Medicare’s “reasonable charges” standards. Additionally, other medical costs are not covered by traditional Medicare at all. The non-covered costs Medicare beneficiaries are typically most concerned about are related to routine care and prevention such as pharmaceuticals, dental costs, vision and hearing care, wellness, and nutrition.
Because of the potential lack of coverage and uncertainty related to out-of-pocket maximums, many traditional Medicare beneficiaries began seeking a way to limit these exposures. To satisfy this demand, private insurance companies developed supplemental insurance policies, known as Medigap policies. Medicare beneficiaries may also be enticed to purchase Medigap policies to make health care costs more predictable by spreading costs over the course of the year through monthly premium payments, and to reduce the paperwork burden associated with medical bills. Medigap policies through the Omnibus Budget Reconciliation Act of 1990 into ten different packages, A through N, with A being the least comprehensive. While the contents of the packages themselves are fixed regardless of which insurance company an individual purchases Medigap coverage through, the terms of the policies themselves may be different. This means that the Medigap policies are similar to traditional health insurance in the fact that insurance companies have the ability to charge differing premium amounts from their competitors, adjust premiums annually, only offer certain packages, restrict the availability of the packages to certain applicants based on age, or to apply tougher underwriting criteria and investigation when deciding whether to issue one policy versus another.
In addition to state regulation of insurance policies, there are certain federal restrictions upon Medigap policies. For example, insurance companies are prohibited from selling more than one Medigap policy to any one buyer, and Federal law provides for both civil and criminal penalties for anyone who knowingly sells a Medicap policy to a beneficiary who already has a policy with any of the same benefits.[10] Similalrly, Medigap policies must be guaranteed renewable, meaning that they are only cancellable by the insurer in the event the insured material misrepresented something on the application or otherwise fails to make their premium payments.[11] Finally, insurance companies cannot deny a Medigap policy, or discriminate in the pricing of the policy, because of a pre-existing condition if the beneficiary is applying within the first six months of enrollment in Part B.[12]
Outside of this six-month enrollment window, insurance companies are generally permitted to either deny the application or charge exorbitant premiums, except in the case of limited circumstances in which additional protection is provided. These include when a beneficiary involuntarily loses supplemental coverage, such as when their Medicare Advantage plan discontinues coverage in their area, when they move to a new area and can no longer access coverage from their Medicare Advantage plan, when their employer cancels their retiree coverage, or when the beneficiary is within a specified “trial” period for a Medicare Advantage plan.[13] One of the aforementioned trial periods is during the first year the beneficiary over 65 becomes eligible for Medicare. Another trial period applies to Medicare beneficiaries who cancel their Medigap policy to enroll in a Medicare Advantage plan, assuming this was their first time enrolling in a Medicare Advantage plan and they leave one year after enrolling in the Medicare Advantage plan. In each of these cases, in order to receive the guaranteed issue protection, the beneficiary generally only has 63 days after their prior coverage ceases to apply for a supplemental Medigap policy.
Medicare Advantage
The Balanced Budget Act of 1997 established a new Part C of the Medicare program, known then as the Medicare+Choice program, effective January 1999. The Medicare+Choice program authorized Medicare managed care organizations to offer a variety of health plan options for beneficiaries, including coordinated care plans (such as health maintenance organizations (“HMOs”), preferred provider organizations (“PPOs”), and provider sponsored associations), Medicare Medical Savings Account plans, private-fee-for-service plans, and Religious Fraternal Benefit plans. These health plans provide all Part A and Part B benefits, and most offer additional benefits beyond those covered under traditional Medicare (similar to several of the Medigap policies).
The M+C program was renamed the Medicare Advantage Program under the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (“MMA”), which was enacted in December 2003. The MMA updated and improved the choice of Medicare Advantage plans available for beneficiaries and changed the way benefits are established and payments are made. The MMA further established the Medicare Part D program (Medicare prescription drug benefits), and included changes that now allow (or require, in the case of organizations offering coordinated care plans) most Medicare Advantage plans to offer prescription drug coverage.
The Problem
Sarah Jane Tribble’s recent article published by National Public Radio tells the story of Richard Timminis, a 76-year-old retired veteran, who listened to an insurance agent’s recommendation that he sign up for a Medicare Advantage plan when he was originally eligible to enroll in Medicare.[14] Things apparently went swimmingly for several years. However, after developing a malignant melanoma, he realized that his Medicare Advantage plan meant he was limited to a specific network of doctors and would potentially need preapproval or prior authorization, from the insurer before getting care. The experience, shared by many aging Medicare beneficiaries, made getting care more difficult, such that Timminis now wants to switch back to traditional Medicare.
While he is free to switch back to traditional Medicare during certain enrollment windows, he needs a Medigap policy to limit the otherwise unlimited potential for out-of-pocket expenses under traditional Medicare. Unfortunately for Timminis, he is well outside of the six-month enrollment window, and none of the other exceptions apply to grant him the aforementioned guaranteed issue protection. Given his recent completion of immunotherapy, he does not believe that he would be approved for a Medigap policy, or that the cost of acquiring the policy would be too steep.
Summarizing the issue, Medicare Advantage plans work best for healthy seniors. However, once an individual’s window to enroll in Medigap with guaranteed issue protection closes, odds are they will not be able to realistically swap to traditional Medicare. The article states “Enrollment in Medicare Advantage plans has grown substantially in the past few decades, enticing more than half of eligible people, primarily those 65 or older, with low premium costs and perks like dental and vision insurance. And as the private plans’ share of the Medicare patient pie has ballooned to 30.8 million people, so too have concerns about the insurers’ aggressive sales tactics and misleading coverage claims.” This growth in individuals choosing Medicare Advantage plans over traditional Medicare is concerning, because so few of them will be able to swap back to traditional Medicare when they really need it.
Individuals turning 65 should be aware of the options available when it comes to Medicare. When in doubt, consult with a disinterested expert (i.e. not the person trying to sell you a policy) such as an attorney familiar with elder law and special needs, so that the pros and cons can be adequately explained and considered. While the benefits of a Medicare Advantage plan might be very appealing at age 65, individuals should be wary and consider what the consequences of selecting the Medicare Advantage plan could look like in another ten or fifteen years.
[1] 42 U.S.C. § 1395w-21.
[2] Sarah Jane Tribble, “Older Americans say they feel trapped in Medicare Advantage plans” (January 4, 2024), https://www.npr.org/sections/health-shots/2024/01/03/1222561870/older-americans-say-they-feel-trapped-in-medicare-advantage-plans.
[3] 42 U.S.C. § 1395c.
[4] Other individuals also qualify for Part A, such as those that have received Social Security disability payments for at least 24 months, and certain state, federal, and local government employees who are not eligible for social security benefits.
[5] https://www.medicare.gov/basics/costs/medicare-costs.
[6] Note there are some exceptions to the penalty rule.
[7] Id.
[8] Again, exceptions apply. The most notable in this case is the exception for those individuals that are still working and covered under an employer health plan.
[9] Id.
[10] 42 U.S.C. § 1395ss(d)(3).
[11] 42 U.S.C. § 1395ss(q)(1).
[12] 42 U.S.C. § 1395ss(s)(2)(A).
[13] Othe exceptions also potentially apply.
[14] Sarah Jane Tribble, “Older Americans say they feel trapped in Medicare Advantage plans” (January 4, 2024), https://www.npr.org/sections/health-shots/2024/01/03/1222561870/older-americans-say-they-feel-trapped-in-medicare-advantage-plans.
