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Life Health > Health Insurance > Medicare Planning

Displaced... and Hurting

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Hundreds of thousands of older Americans are opening their mailboxes this fall and finding Dear John and Dear Jane letters from their Medicare plans.

A majority of the displaced enrollees will be members of Medicare Advantage private fee-for-service (PFFS) plans – privately run Medicare plans that cover care provided by any physicians and hospitals that take Medicare.

Many of the displaced enrollees will turn to Medicare supplement insurance products.

“There’s huge interest in Medicare supplement insurance,” according to Jim Yocum, executive vice president at DestinationRx Inc., Los Angeles, a company that sells Medicare product comparison systems. “Medigap is back.” His firm recently added Medigap tools because of the surge in interest.

Dwane McFerrin, director of Medicare solutions at Senior Market Sales Inc., Omaha, Neb., also is expecting to see more interest in Medigap plans, but he said some Medicare enrollees may rely solely on the basic Medicare Part A hospitalization plan and the basic Medicare Part B physician and outpatient services plan, even though basic Medicare puts no limits on a patient’s out-of-pocket costs.

“It’s a changing market,” McFerrin said. “Wherever there’s change, there’s opportunity for producers.”

When Congress created the Original Medicare Plan in 1965, it left holes in the coverage on purpose, to hold down costs and discourage overuse of benefits. Private insurers began selling supplemental plans in 1966, and they began forming the first Medicare health maintenance organization (HMO) plans in the 1970s.

Congress tried to accelerate the shift to private Medicare HMOs and other private Medicare plans in 1997, by setting up the Medicare+Choice program, but budget constraints in the bill that created the program soon led to rapid decline in the number of private Medicare managed care providers, rather than an increase.

Congress formed the current version of the program, Medicare Advantage, in 2003.

Now the Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) is causing carriers to rush toward the exits. The law requires PFFS plans to offer enrollees provider networks in any community with at least two network-based Medicare Advantage plans. MIPPA also requires PFFS plans to report quality data.

MIPPA supporters say the changes will improve the quality of the plans; critics say the changes make offering PFFS plans too difficult and expensive, especially in rural communities.

Some carriers responded to MIPPA by dropping out of the PFFS program a year ago, and several players – including CIGNA Corp., Philadelphia, and the Secure Horizons unit of UnitedHealth Group Inc., Minnetonka, Minn. – are dropping out in 2011.

The 2011 Medicare open enrollment period is set to start Oct. 15 and last until Dec. 7.

Carriers that are dropping Medicare Advantage plans are supposed by to notify the enrollees by Oct. 2.

The shift will hurt people in rural areas especially hard, McFerrin said.

The PFFS plans have been especially popular in rural areas, because they can operate well even in communities with too few doctors to set up a good provider network, and they tend to be inexpensive.

The typical monthly premium has been about $30 per month at Medicare Advantage HMOs and about $60 per month at Medicare Advantage PFFS plans, according to Gorman Health Group L.L.C., Washington.

Monthly premiums for Plan N, a new type of Medigap plan billed as an alternative to Medicare Advantage coverage, start at about $90 for a 65-year-old in Texas and could cost more than $250 for 75-year-olds. In Connecticut, monthly premiums for Plan N products start at about $157 per month.

“The pendulum has swung in favor of the Medicare supplement companies,” but some displaced PFFS plan enrollees who might like to buy coverage may not be able to afford it, McFerrin said.

In 2012, Medicare Advantage cost-cutting provisions in the Affordable Care Act could start to shake up the Medicare managed care plans.


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