The word “change” has recently been thrown around a lot by politicians. But while some may be growing weary of 2008′s biggest buzzword, agents in the Medicare market probably feel right at home with the message of change. That’s because change in the Medicare market is almost certain, and agents who want to thrive selling to seniors must be prepared to learn and adapt when that change comes. A producer only needs to look at the history of Medicare to see that the program’s best characteristic has been change itself.
President Harry Truman first proposed expanding the Social Security system to include health coverage in 1945. Though he was unable to push the proposal through Congress, Truman’s idea of a national health insurance plan kicked off a two-decade debate on the subject, with opponents warning of the dangers of “socialized medicine.”
The plan became a reality on July 30, 1965, when President Lyndon Johnson signed the Social Security Amendment of 1965 as part of his Great Society program. The law established Medicare and Medicaid, which would eventually deliver health care benefits to millions of elderly and poor Americans.
Medicare, or what is known today as original Medicare, consists of two parts: Part A Hospital Insurance, which covers inpatient hospital services, skilled nursing facilities, home health, and hospice care; and Part B Medical Insurance, which covers medically necessary services such as physician services, outpatient care, home health care, and preventive services. Part A is free to qualified recipients, while Part B requires a monthly premium from those who elect to participate in the program.
Medicare works on a fee-for-service basis, meaning recipients can receive care from any provider that accepts Medicare’s payments according to a fee schedule determined by Medicare. Medicare originally provided health care benefits for people 65 and older and their dependents, regardless of income or medical history. The Social Security Amendment of 1972 expanded the program to include individuals under age 65 with permanent disabilities and people suffering from end-stage renal disease. In 2001, eligibility expanded further to cover people with Lou Gehrig’s disease.
One sign of the change that has occurred in Medicare over the years: Only 17 percent of America’s 44 million Medicare-eligible seniors have original Medicare as their only coverage, according to a 2006 report by the Centers for Medicare and Medicaid Services (CMS). The other 83 percent have some form of supplemental or private insurance in lieu of, or in addition to, their Medicare coverage.
While Medicare covers a great portion of a recipient’s needs, it was never intended to cover the full cost of care. There are various coverage voids, such as deductibles, co-insurance provisions, and other gaps that are the beneficiary’s responsibility. Medicare generally covers 80 percent of expenses, leaving 20 percent to the recipient. In order to fill these voids, private insurance companies designed Medigap, or Medicare supplement, insurance.
Approximately 25 percent of seniors have a Medigap policy. It has been around for decades, but the government did not create the standardized plans we sell today until 1992. There are currently 12 standardized Medicare supplements (Plans A through L) authorized for sale by the government. Standardization was done in order to make the plans easier for seniors to understand. Coverage is portable, and most of the plans sold do not have network restrictions.
Medicare Advantage (MA) is a private insurance plan that takes the place of original Medicare, providing coverage equal to or better than Part A and Part B. These plans were ushered in by the 2003 Medicare Prescription Drug Improvement and Modernization Act (MMA 2003), which many consider to be the largest overhaul of Medicare in the program’s 40-plus year history.
MA plans most frequently take the form of HMO, PPO, or private fee-for-service (PFFS) plan types. The PFFS plans have become popular in rural areas where network-based plans are not common. These plans allow a beneficiary to receive care from any willing provider that accepts the insurer’s payment plan terms. PFFS plans will most likely disappear by 2011 due to legislation signed into law in 2008.
Unlike Medicare supplement, benefit designs in MA plans are not standardized, and roughly half the plans sold last year had $0 premiums. There are no underwriting requirements other than that the beneficiary must be enrolled in Medicare Parts A and B and cannot have end-stage renal disease. Plans may include prescription drug coverage and generally offer benefits above and beyond original Medicare. Dental, vision, and hearing benefits are common, and some plans offer no-cost memberships to fitness clubs.
Rather than 20 percent co-insurance, beneficiaries face co-pays for provider services. MA plans generally limit the maximum out-of-pocket expenses from these copays, a feature not provided by original Medicare. Today, approximately 9.6 million Medicare beneficiaries, or 20 percent of the total, have chosen to enroll in Medicare Advantage plans.