Confessions of a Medicare Supplement Salesman
Every day in the U.S., 10,000 people turn 65 and become eligible for Medicare. Due to the simple passage of time, these people now become eligible for federally-subsidized hospital and physician services delivered by any licensed medical professional or hospital in the U.S.
By receiving Medicare Parts A (hospital) and B (medical), seniors, as well as disabled people receiving Social Security, see their medical expenses reduced significantly due to co-pays of 20% for services rendered.
For those who can afford it and can meet medical underwriting standards, seniors can also buy Medicare supplements, (aka, Medigap policies), or a competing product called Advantage plans.
To the average senior, the two plans are often juxtaposed and commingled as being almost identical. But this is a common and serious misconception since the plans are fundamentally different in a number of key areas. They also present large potential expenses to unsuspecting consumers.
To make things more complicated, Advantage Plans are known as Part C of Medicare and came into existence in 1997.
While advertising claims intentionally try to paint these two competing programs as similar, they are vastly different in terms of their coverage, costs, structures, potential quality of care provided, and organizational structures.
The problem is that the vast majority of seniors do not know the differences, what they are buying or how the programs work for or against them over time. This is perfectly understandable since the topic is complicated and founded on the reality that no one likes to buy insurance. To millions, it is a necessary evil that should be delayed for as long as possible.
And given the misconceptions about getting a quote online for a premium, many people mistakenly think they can plug in a few bits of information, such as age and whether they are a smoker, and receive a valid, binding quote. That is not done by more reputable insurers which need more specific information, such as height, weight, and even zip code since actuarial information is now available to a specific geographic area.
Based on my experience selling supplement plans for a single nationally-known insurance company in about a dozen states and speaking with hundreds of potential purchasers, my observation is that seniors are woefully unprepared to make these important medical insurance decisions. Worse, most people do not know the critical differences between advantage and supplement plans and, as a result, are routinely victimized by firms which intentionally misrepresent how advantage plans work.
The problem is that making poorly informed decisions about purchasing advantage plan puts purchasers into expensive and often irreversible situations. Advantage plans are annual contracts in which buyers give up their access to original Medicare Part B, yet they still have to pay for it.
How Advantage Plans Are Structured
Advantage plans replace Part B with their own government-subsidized medical network. Advantage plans are modeled on HMOs and PPO where policyholders have to stay inside their advantage plan’s network and work through the insurance company’s managed care system. In practice, this means patients do not pick their own doctors or specialists or even have any input into the type or extent of their treatments.
Instead, advantage plans use managed caseworkers, including in some cases, the primary care doctor, to determine if a person will receive extended or specialist treatment, or no treatment at all. In advantage plans, primary care doctors act as gatekeepers and they desire to refer to specialists depends on how they are compensated. For instance, a doctor can be paid by an advantage plan insurer based on the size of the group they service, on an individual patient basis, or by the number of patient visits. In some cases, if a primary care physician refers a patient to a specialist, the primary care doctor has to pay the specialist out of their own pocket. In these instances, primary physicians may tell a patient they can be treated with a specialist’s care, so the doctor avoids paying out-of-pocket.
So when Republicans talked about “death panels” to describe the doctor consultation on the role of hospice professionals with end-stage patients, it was an intentional effort to mislead and demonize the Affordable Care Act. The real “death panels” occur every day in advantage plans and other managed care situations when doctors and insurance professionals decide when to terminate or prevent further treatments which could extend a person’s life or provide treatment for a treatable condition. These “death panels” are often nothing more than a decision made by a mid-level bureaucrat sitting in a cubicle who decides to approve or deny coverage purely based on what the treatment costs and if another cheaper treatment is available, regardless of its effectiveness.
Advantage Plan Drawbacks
The common misperception among seniors is that advantage plans are a “replacement” for Medicare. Definitely not true. Instead, they are an alternative to Medicare and are administered by private, for-profit insurance companies.
This is a critical distinction between supplemental and advantage plans. Advantage plans exist because insurance companies are paid by Medicare to administer their plans in a certain geographic area, often as specific as a certain zip code which is heavily populated by an over-65 population. These private insurers take federal Medicare money to drive people into their proprietary preferred provider organization (PPO) and health maintenance organization (HMO) networks. As a result, advantage plans are probably the best example of a federally-subsidized private health system in the U.S. So much for the stigma of government intervention into the health care industry since advantage plan providers (insurance companies) readily take Federal money to subsidize their for-profit operations. The government intervention is welcome as long as the payments keep flowing and federal investigators do not look too closely at the services being delivered or denied.
Things To Watch For When Shopping For Advantage vs Supplement Plans
So what should senior keep in mind when shopping for supplement vs. advantage plans? Here are some tips:
–Advantage plans are enticing since they often are “free.” But there is always a catch. While there may not be a monthly premium or the policy may be accompanied by extras, such as the “silver sneakers” health club membership, some dental and vision services, these services are all often offered inside the advantage plan or HMO’s network. If you do not travel, are on a limited budget and do not need to see a specialist, these may be good reasons to consider an advantage plan. But remember: when you leave the network, you are on your own and will be the prevailing cost when seeing any doctor, emergency room or specialist. You will definitely incur high out-of-pocket charges.
–Supplement plans offer fully portable services. If you can pay the monthly premium, you have the freedom to book your own appointments with any doctor or specialist in the US who accepts Medicare. The same holds true for hospitals, ranging from Mayo clinic to the local community hospital.
–When looking at supplemental plans, consider the G plan if you can pass the health questionnaire. G plans are cheaper since they have a small pool of healthier individuals in them who have passed the medical questionnaire. G plans are identical to the F plan, the so-called “Cadillac Plan” of Medicare, but they do have one out-of-pocket for individuals: the annual Part B contribution of $148 per year. Aside from making this single annual contribution, healthier individuals should consider the G plan since it can present some significant savings over the year.
–Individuals shopping for supplement plans should know that premiums differ by sex, age, whether the individual is a smoker, and their height and weight. They also differ by zip code, which reflects the number of individuals over 65 who make Medicare claims. Underwriting today is a sophisticated business, so when underwriting information about height and weight, for example, are entered into the system, premiums are returned based on morbidity table for over-weight people who smoke, for instance. These premiums can be 10% higher based on weight alone if they are outside of the common range. People who do not think their weight has any bearing on underwriting and premiums are grossly mistaken. They certainly do.
–When going through the supplement application process, many individuals have the bad habit of offering too much information. People should never lie on an insurance application (it is a criminal offense), but they do not have to divulge their entire medical histories. When I wrote applications, the questionnaire simply requires a “yes” or “no” answer. This is all the underwriters need. yet many people disqualified themselves by saying too much about their recent medical histories which were not part of the questionnaire. Since these phone calls are all recorded, this information has a life of its own and can be used to medically disqualify an individual who otherwise would have been approved had they just answered the questions with a “yes” or “no.”
–As a rule, underwriters do not readily approve individuals who have been treated for an illness or taken medications for less than two years. Two years seems to be the cut-off point for treating illnesses, so if you had any malady or disease, including cancer or a heart attack, and it was over two years ago, do not make it part of the conversation. The reason is that more serious illnesses may also require some additional therapies or treatment that are within the two year window, but may not be part of the medical questions. These are the instances when the individual disqualifies themselves by injecting unneeded medical information into the recorded conversation. As a salesman, I silently wanted to tell these people to shut up, but too many people want to share their own medical histories. While this may be therapeutic for the applicant, it does not garner any extra points with the insurance company.
–Similarly, underwriters do not like combinations of diseases, especially high blood pressure, diabetes and heart medications or conditions. By itself, insurance companies accept people with diabetes, provided it is under control. But diabetes and a heart condition are a red flag combination, especially if the number of prescriptions being taken is large (usually more than five). It is also important to note that many people are being prescribed similar medicines for the same conditions. This becomes evident when I asked for the medications people were currently taking, its frequency and dose.
When I asked people why they were taking a certain medicine, most did not know. Other people said they went to see a new doctor and he prescribed a new medicine for the same condition that was diagnosed a few years ago. In these instances, the person was taking different drugs for the same condition. It seems that when people see a new doctor, they get a prescription as a souvenir of their office visit, yet the doctor does not check to see if they are inadvertently over-dosing the patient with medicine for the same existing condition. In theory, this practice should be caught by the pharmacist. But when people switch pharmacies, this safety check is disrupted. As a result, many people are taking to o much unneeded medicine and paying dearly for it in the process.
Be A Smart Buyer
The takeaway to all this is that applying for supplemental insurance is a serious and potentially expensive business and should not be taken lightly. Supplemental insurance, or Medigap policies, mean limited or no out-of-pocket expenses for seniors on fixed or limited incomes. People who own these policies are practicing a very high form of financial risk management. By owning a supplemental policy, people know their annual medical expenses on January 1 for the entire year (the sum of their monthly Medigap policies, plus any deductibles.) This is a great way to manage financial risk, provided people buy the most appropriate supplemental policy for their specific situation and budget.
Medical expenses are the largest cause of bankruptcies in the U.S. and 70% of individuals who go bankrupt have medical insurance. The problem was that the insurance was inadequate or if the individual was in an HMO, some expensive services may have been denied. This meant the individual had to cover those significant out-of-pocket expenses themselves and in the process, they eliminated their savings accounts.
So if you enter the supplemental vs. advantage marketplace, take the time to know the differences between these two very different approaches. Supplemental plans offers better financial risk management than the advantage plans and greater personal control over your medical treatment, portability and access. The key thing is that a person who is 65 or older faces health situations that are often random, regardless of how well they take care of themselves. In these random instances, they often face very high financial obligations, so choosing the right plan can minimize or eliminate those very emotionally stressful financial concerns.