InfoStat | 03-26-14

As 10,000 Americans Turn 65 Each Day, Medicare Advantage Is Cheapest Insurance Option for The Typical New Medicare Enrollee

Enrollees Could Save Almost 20% over Original Medicare and 45% Over Medigap

Each day approximately 10,000 Americans turn 65,1 the age at which they are eligible for Medicare insurance.2 These 65 year-olds face a confusing array of Medicare decisions. Assuming they have no insurance coverage from an employer or union, they face 3 main Medicare insurance coverage options:3

  • Enroll in Medicare Part A and Part B and add an additional prescription drug plan
  • Enroll in Medicare Part A and Part B, add a Medigap (i.e. Medicare Supplement) insurance plan for out-of-pocket cost coverage and an additional prescription drug plan
  • Enroll in a Medicare Advantage plan that includes Medicare Part A and B benefits as well as prescription drug coverage

Which option produces the lowest costs when considering both premiums and out-of-pocket costs? Using government data, HealthPocket assembled a representative profile of healthcare and prescription drug use for a Medicare- aged individual.

  • 4 specialist visits
  • 2 primary care visits
  • 3 prescription drugs* (cholesterol reduction, beta blocker, and diuretic for high blood pressure)

*HealthPocket selected a best selling drug within each of the drug categories most commonly used by the elderly.4

Using the above healthcare profile, HealthPocket estimated the total annual premium and out-of-pocket costs for the three Medicare coverage options.

Overview of Medicare Insurance Scenarios

Before reviewing the annualized cost comparisons, it is important to review the salient features of the three Medicare insurance scenarios in order to provide context for their respective cost estimates.

Option #1: Medicare Parts A & B + Medicare Prescription Drug Plan

The most basic Medicare coverage is Part A and Part B. Medicare Part A covers hospitalization services and Part B covers medical services. However, Medicare beneficiaries are also required to obtain prescription drug coverage (which is not included in Medicare Parts A & B). Failure to obtain creditable drug coverage can result in a permanent premium penalty when drug coverage is finally obtained.5

Medicare Parts A and B, sometimes referred to as “Original Medicare,” usually covers 80% of healthcare costs with the remaining 20% paid by the Medicare patient. However, both Part A and Part B have a deductible. The Part B deductible is $147 a year in 2014. The Part A deductible is more complicated. A Medicare beneficiary faces a hospitalization deductible of $1,216 per benefit period. A benefit period begins when a Medicare enrollee is admitted as an inpatient to a hospital or skilled nursing facility. The period ends when this enrollee has not been an inpatient at a hospital or skilled nursing facility for 60 continuous days. Consequently, a Medicare enrollee can face multiple benefit periods, and multiple Part A deductibles, within a single calendar year.

For most Medicare beneficiaries, Medicare Part A is free but Part B comes with a $104.90 monthly premium in 2014. Medicare beneficiaries making more than $85,000 annually pay higher Part B premiums.

The Medicare prescription drug coverage plan HealthPocket used in combination with Medicare Parts A & B was the AARP MedicareRx Preferred plan. This plan has the highest market share of stand-alone Medicare prescription drug plans.6 This plan has a weighted average premium of $43.41 a month in 2014.7

Medicare Part A and B is not tied to a network of healthcare providers. Any doctor who accepts Medicare patients will accept Medicare Part A and B coverage. A Medicare prescription drug plan, on the other hand, normally has a network of pharmacies that must be used for the plan to provide drug coverage and cost-sharing.

Option #2: Medigap Plan F + Medicare Parts A & B + Medicare Prescription Drug Plan

For the Medigap scenario, Medigap Plan F was selected. Plan F is the most popular8 of the 10 standardized plan designs for Medigap insurance (also known as Medicare Supplement insurance). Plan F is also the most comprehensive of the various Medigap plan designs and is intended to cover all the standard out-of-pocket costs for covered Medicare services except those related to prescription drugs. For example, the deductible amounts for Medicare Part A and B services are paid by Plan F as well as various copayments and coinsurance fees for doctor visits, hospice care, or foreign travel emergency care.

Using the lowest possible Plan F premium across eight cities, the average monthly cost for a Medigap Plan F was $126.50.9 In order to enroll in a Medigap Plan F, a person must also be enrolled in Medicare Part A and Part B. Consequently, the $104.90 premium for Medicare Part B must be paid alongside the Medigap premium every month. As was the case for Original Medicare Parts A & B, a separate Medicare prescription drug plan must be purchased alongside a Medigap plan in order to obtain medication coverage. The same Medicare drug plan was assumed for the Medigap scenario as had been assumed for the Medicare Parts A & B scenario. This added an additional drug coverage premium on top of the Plan F premium and Medicare Part B premium that must be paid every month for this coverage option.

As was the case for Medicare Parts A and B, Medigap Plan F is not tied to a network of healthcare providers. Any doctor who accepts Medicare patients will typically accept Plan F coverage. A Medicare prescription drug plan, on the other hand, normally has a network of pharmacies that must be used for the plan to provide drug coverage and cost-sharing.

Option #3: Medicare Advantage

Medicare Advantage is a health insurance plan provided by a private health insurance company. It includes all the normal insurance coverage of Medicare Part A and B but also includes the option of prescription drug coverage within the same health plan. One of the notable aspects of Medicare Advantage plans is that they often have a $0 monthly premium. This $0 premium is possible because of the funding they receive from the federal government. 55% of Medicare Advantage beneficiaries in 2013 were enrolled in plans that had a $0 premium.10 84% of Medicare beneficiaries had access to a zero premium plan in 2014.11 However, enrollees in zero premium Medicare Advantage plans must continue to pay their $104.90 Part B monthly premium.

Medicare Advantage plans also have annual limits on out-of-pocket costs for covered medical services. The maximum limit allowed by the government is $6,700 but the average Medicare Advantage plan in 2014 limited out-of-pocket costs to $4,797 annually.12



Unlike Medigap and Original Medicare Parts A & B, Medicare Advantage plans are most often associated with networks of healthcare providers. 65% of Medicare Advantage plans are HMOs and 22% are PPOs.13

Medicare Advantage Produces Lowest Costs for Typical New Medicare Enrollee

When combining all money spent on insurance premiums as well as out-of- pocket costs, Medicare Advantage was the clear winner. Its annualized cost estimate was 19% less than Original Medicare Parts A & B combined with a prescription drug plan. The comparison with Medigap was more dramatic. Medicare Advantage costs were estimated to be 45% less than the estimate for Medigap Plan F combined with Medicare Parts A & B and a prescription drug plan. While the Plan F option left the Medicare enrollee with no medical out-of-pocket costs, this option still had out-of-pocket costs associated with drug coverage. Additionally, the Plan F option’s lower out-of- pocket costs did not compensate for its higher overall expenses for monthly premiums.

Conclusion

In scenarios where a Medicare enrollee remains in-network for healthcare and no off-formulary medications are taken, it is difficult to imagine a situation where a $0 premium Medicare Advantage plan is not less expensive than Original Medicare with a prescription drug plan. Moreover, unlike Original Medicare, Medicare Advantage includes an annual limit on out-of-pocket costs for covered medical services that protects its enrollees. Additionally, many Medicare Advantage plans include coverage for health benefits not covered by Original Medicare (e.g. vision care or hearing aids). Future decisions on government funding for the Medicare Advantage program may affect enrollee costs in the future but, at present, it is difficult to predict those changes.

In scenarios where a Medicare enrollee remains in-network for healthcare and no off-formulary medications are taken, it is difficult to imagine a situation where a $0 premium Medicare Advantage plan is not less expensive than Original Medicare with a prescription drug plan. Moreover, unlike Original Medicare, Medicare Advantage includes an annual limit on out-of-pocket costs for covered medical services that protects its enrollees. Additionally, many Medicare Advantage plans include coverage for health benefits not covered by Original Medicare (e.g. vision care or hearing aids). Future decisions on government funding for the Medicare Advantage program may affect enrollee costs in the future but, at present, it is difficult to predict those changes.

Original Medicare has an advantage over Medicare Advantage with respect to its relative lack of network restrictions. This gives Original Medicare an advantage in many rural areas as well as for individuals whose medical conditions require a particular doctor or hospital outside the networks of local Medicare Advantage plans. The benefits associated with little network restrictions holds true for Medigap Plan F.14 Additionally, Plan F’s protection against medical (not drug) out-of-pocket costs is superior to Medicare Advantage but that protection comes with a heavy premium burden that may not be sustainable for an elderly person long-term if they live on a fixed income with limited savings. Moreover, for HealthPocket’s profile of a typical Medicare enrollee, Medigap Plan F’s medical out-of-pocket savings were inadequate to offset the premium expenses associated with this option resulting in Medicare Advantage being 45% less expensive annually. The gap between Medicare Advantage and Medigap would have been even larger if HealthPocket had used the average premium weighted by enrollment for Plan F, which was $171 in 2010.15

Medicare decisions are not easy and are closely tied to individual health circumstances as well as local healthcare providers. Before enrolling in a private Medicare insurance plan, whether Medicare Advantage, Medigap, or a prescription drug plan, people should confirm:

  • Their medications are covered
  • Their preferred pharmacy is in-network
  • Their doctor, specialists, and hospital are in-network

Failure to confirm the above items can result in exceedingly high out-of-pocket expenses regardless of the money spent on insurance premiums.

METHODOLOGY

Annual costs for three combinations of Medicare plans were estimated for a 65- year-old making six office visits and purchasing twelve one-month prescriptions of three drugs. 62% of office visits in 2010 by people aged 65 and over were specialist visits and 38% were primary care visits.16 Therefore the cost estimates used four specialist visits and two primary care visits.

Costs at CVS Pharmacy were quoted from goodrx.com on March 21, 2014 for 30 tablets of 20 mg Crestor, 30 tablets of 80 mg Furosemide, and 30 tablets of 100 mg Metoprolol tartrate for the following zip codes: 30377 (Atlanta), 28217 (Charlotte), 60646 (Chicago), 77002 (Houston), 10007 (New York), 85033 (Phoenix), 97201 (Portland), 98122 (Seattle).

Primary care visit costs were estimated using CPT code 99213 (established patient office or other outpatient, visit typically 15 minutes) in the Searchable Medicare Physician Fee Schedule application. Costs for specialist visits used CPT code 99214 (established patient office or other outpatient, visit typically 25 minutes).

The three combinations of Medicare plans examined in each city were:

  1. Medicare Parts A, B, and D
  2. Medicare Parts A, B, and D with a Medigap Plan F
  3. Medicare Advantage with a Drug Component

A monthly premium of $017 was used for the Medicare Part A plan in the cost estimates. A monthly premium of $104.9018 was used for the Medicare Part B plan. This is the amount that individuals with income at most $85,000 and married couples with income at most $170,000 pay for Medicare Part B monthly premiums.19 For the medical office visits the cost estimates used a deductible of $14720 and coinsurance of 20% after deductible.21

According to a brief by the Kaiser Family Foundation, the Medicare Part D plan with the highest market share in 2013 was the AARP MedicareRx Preferred plan. This plan was used in each city to estimate costs for a Part D plan.22 This plan had a deductible of $0 and copayments of $3, $7, and $40 for one-month supplies of Tier 1, Tier 2, and Tier 3 drugs respectively. In this plan Metoprolol Tartrate, Furosemide, and Crestor were in tiers 1, 2, and 3 respectively.23

According to a different brief by the Kaiser Family foundation, UnitedHealthcare had the greatest market share (by firm) in terms of Medicare Advantage plans, and their HMO plans had the greatest enrollment by plan type. The same brief found that 55% of beneficiaries in MA-PD plans were enrolled in a zero-premium MA-PD plan in 2013.24 The cost estimates for MA-PD plans used UnitedHealthcare’s AARP MedicareComplete HMO plans in each city with $0 premiums, $0 deductibles, and no additional coverage during the coverage gap beyond standard cost-sharing.25 Each plan had Metoprolol Tartrate in Tier 1, Furosemide in Tier 2, and Crestor in Tier 3.26

2014 Medigap Plan F premiums are listed as ranges.27 The cost estimates used the minimum possible Medigap Plan F premium in each zip code. Data for the plans in each city is displayed in the table below.28

AUTHORS

This analysis was written by Kev Coleman, Head of Research & Data at HealthPocket, with data analysis performed by Jesse Geneson, data researcher at HealthPocket.

Feedback and questions are welcome but, given the volume of email, personal responses may not be feasible.

Jesse Geneson on Google+
Kev Coleman on Google+

Sources:

1 “Baby Boomers Retire.” Pew Research Center. (December 29, 2010). http://www.pewresearch.org/daily-number/baby-boomers-retire/
2 The Initial Enrollment Period for Medicare begins three months before the month in which a person turns 65 and continues through the third month after the month in which a person turns 65. Coverage typically begins the first day of the month in which a person turns 65 unless the person entered Medicare early due to a qualifying disability or medical condition.
3 See “Medicare & You” 2014. Centers for Medicare & Medicaid Services. (December, 2013). p.59. Less frequently used insurance options include Medicare Savings Programs and Medicare Cost Plans. Medicare Savings Programs have income eligibility requirements.
4 HealthPocket obtained the most commonly used drug categories from table 92 “Selected prescription drug classes used in the past 30 days, by sex and age: United States, selected years 1988–1994 through 2007–2010. Within the study “Health, United States, 2012: With Special Feature on Emergency Care.” Department of Health and Human Services. (May 2013). http://www.cdc.gov/nchs/data/hus/hus12.pdf
5 “The Part D Late Enrollment Penalty.” CMS.gov (January 14, 2014). http://www.cms.gov/Outreach-and-Education/Outreach/Partnerships/downloads/11222-P.pdf
6 Jack Hoadley et al. “Medicare Part D: A First Look at Plan Offerings in 2014.” Kaiser Family Foundation. (October 10, 2013). http://kff.org/medicare/issue-brief/medicare-part-d-a-first-look-at-plan-offerings-in-2014/
7 See Methodology section for premium samples across 8 metro regions.
8 Plan F has 44% of covered lives in the Medicare Supplement market. Steven Sheingold et al. “Variations and Trends in Medigap Premiums.” Department of Health & Human Services. (December 2011). http://aspe.hhs.gov/health/reports/2011/medigappremiums/
9 See Methodology section for premium samples across 8 metro regions.
10 Marsha Gold, Gretchen Jacobson, Anthony Damico, and Tricia Neuman. Medicare Advantage 2013 Spotlight: Enrollment Market Update. http://kaiserfamilyfoundation.files.wordpress.com/2013/06/8448.pdf
11 Gretchen Jacobson et al. “Medicare Advantage 2014 Spotlight: Plan Availability and Premiums.” Kaiser Family Foundation. (November 25, 2013). http://kff.org/medicare/issue-brief/medicare-advantage-2014-spotlight-plan-availability-and-premiums/
12 Ibid.
13 “Medicare Advantage Fact Sheet.” Kaiser Family Foundation. (November 25, 2013). http://kff.org/medicare/fact-sheet/medicare-advantage-fact-sheet/
14 There is a network version of Plan F that is known as Medigap SELECT Plan F.
15 Sheingold “Variations and Trends in Medigap Premiums.”
16 “Health, United States, 2012: With Special Feature on Emergency Care.” Department of Health and Human Services. (May 2013). http://www.cdc.gov/nchs/data/hus/hus12.pdf
17 Enrollees usually do not pay premiums for Medicare Part A if they or their spouse paid Medicare taxes while working, but other people who buy Part A may have to pay up to $426 per month for the premium. Part A Costs. http://www.medicare.gov/your-medicare-costs/part-a-costs/part-a-costs.html
18 Costs for Medicare Part B monthly premiums in terms of income can be found at the Medicare.gov Part B costs page: http://www.medicare.gov/your-medicare-costs/part-b-costs/part-b-costs.html
19 In 2012 the average incomes of 55-64 year olds and 65-74 year olds were $49,615 and $37,667 respectively. These amounts are both within the income range for the minimum Medicare Part B monthly premium of $104.90. Historical Income Tables: Age – People (Both Sexes Combined) by Median and Mean. https://www.census.gov/hhes/www/income/data/historical/people/
20 Medicare 2014 Costs at a Glance. http://www.medicare.gov/your-medicare-costs/costs-at-a-glance/costs-at-glance.html#collapse-4811
21 Doctor & other health care provider services. http://www.medicare.gov/coverage/doctor-and-other-health-care-provider-services.html
22 Hoadley. “Medicare Part D: A First Look at Plan Offerings in 2014.”
23 2014 Comprehensive Formulary: AARP MedicareRx Preferred (PDP). https://www.aarpmedicareplans.com/alphadms/ovdms10g/groups/pc/@pc/@lowrespdf/documents/lowrespdf/3545239.pdf
24 Marsha Gold, Gretchen Jacobson, Anthony Damico, and Tricia Neuman. Medicare Advantage 2013 Spotlight: Enrollment Market Update. http://kaiserfamilyfoundation.files.wordpress.com/2013/06/8448.pdf
25 Costs in the coverage gap. http://www.medicare.gov/part-d/costs/coverage-gap/part-d-coverage-gap.html
26 2014 Comprehensive Formularies were obtained for each MA-PD plan from https://www.aarpmedicareplans.com/
27 Costs for Medigap Plan F monthly premiums were obtained from http://www.medicare.gov/find-a-plan/questions/medigap-home.aspx
28 Costs for UnitedHealthcare AARP MA-PD HMO plans were obtained from https://www.aarpmedicareplans.com

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1 question| 2 answers
my husband is on dialysis, three times a week, medicare is the primary and Cigna is secundary. Why he has to pay for service in the dialysis clinic not cover by both plans?
Q:We both retired and still paying for a mortgage.
Asked by Anonymous 

2 answers

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A: HealthPocket is an source of information and not a health plan or an insurance agent. For your specific benefits inquiry, it is best to speak with a licensed agent to confirm that. The phone number and hours of operation is available when you click on 'Select'.
Answered on 3/30/2014 by davina
A: You may find this link to a CMS doc on "Medicare Coverage of Kidney Dialysis & Kidney Transplant Services" useful: http://www.medicare.gov/Pubs/pdf/10128.pdf
Answered on 6/5/2014 by Anonymous