Tue, 10 Nov 2015
Contributor Mark Miller explains how Medicare beneficiaries can effectively reshop their coverage.
Christine Benz: Hi, I'm Christine Benz for Morningstar.com. Open enrollment for Medicare runs from Oct. 15 through Dec. 7. Joining me to share some tips for the Medicare open-enrollment process is Morningstar contributor Mark Miller.
Mark, thank you so much for being here.
Mark Miller: Great to be here, Christine.
Benz: Medicare open-enrollment season is upon us. What percentage of Medicare beneficiaries reshop their coverage every year?
Miller: It's an unfortunately low percentage. It's well under 10% that actually bother to go and check and reshop every year, which is too bad because there can be some savings to be had by taking a look at what you've got and evaluating--if not annually then at least every couple of years.
Benz: Let's talk about the potential savings there. Can you quantify the extent to which people may be able to save some money?
Miller: Well, one study that came out this past month said that people who stay with what they have will pay, on average, 15% more than they did last year, which is well above the average that the plans are going up. Right now, there are 10 plans that basically dominate the market--they have an 80%-plus market share. You'll see numbers coming out of the government saying that average-plan prices are holding steady next year, but that's because they are averaging in so many different plans, a lot of which are very marginal. The big ones are seeing these increases go through on the order of 8% or 9%, on average, across the country. And you can also see if you look at the top 10 plans, that there are some really big increases going on--in the double-digit range. In fact, in my last Morningstar column, we have a chart showing the top 10 plans and what the average increases will be in those plans around the country. And you can see it's all over the map; some are going up by very substantial amounts, and a couple are even dropping or staying flat. So, there is a lot of volatility in these numbers.
Benz: Can you generalize about the "why" behind some of these large increases?
Miller: It all has to do with the enrollment trends that a plan sees and what they anticipate coming for the next year. In some cases, you have plans that will have low rates to try to grow market share in one year, and then they say, "Well, it's in our best interest to slow that down next year," so it will go up. But it's based on their anticipation of what's going to be going on.
A big trend lately has been, even though a lot of the most commonly used drugs have gone generic in recent years--statins would be a great example or blood-pressure medications--there's this whole new class of sophisticated, very expensive drugs that are used to treat serious illnesses. For instance, there are the biologic classes and so on, which are very expensive. Sometimes, these plans are looking at trying to protect themselves from this trend of rising costs.
The rising cost of prescription medication is a big, big deal. We see that playing out even in the political season with discussion about huge increases being put through on certain kinds of drugs; there is a debate about whether we should be allowing Medicare to negotiate directly with the pharmaceutical companies on their prices. That's forbidden under the law that created the Part D program around 2006, I think it was. They are not allowed to negotiate. I think it's time to revisit that as well.
Benz: One of the key things I should be focusing on if I'm reshopping my coverage is my prescription-drug coverage--my Part D coverage. Is that the main, or even only, thing I should be focused on?
Miller: It's the big one, but with a caveat. So, it's open-enrollment season for the drug plans and also for Medicare Advantage plans--which, as you know, are sort of the main managed-care options to traditional Medicare. So, instead of having a traditional Medicare with your separate parts for outpatient and drug and the rest, Medicare Advantage rolls that all together usually into an HMO-type of approach--sometimes in a PPO as well (preferred provider organization). And very often, the drug benefit in a Medicare Advantage program is rolled right into the program. So, if you are in Medicare Advantage, you are reshopping both at once, and it's worth taking a look because, again, the drug component could be changing in your Medicare Advantage program.
The other thing that changes in Medicare Advantage is the provider network. There is no guarantee that the doctors and hospitals that are in your plan one year will necessarily be there the next. So, if you care about keeping your doctors--and I think most people do--you want to take a look at it for that reason, too. So, those are the factors to consider thinking about when you are shopping.
Benz: Say I'm sitting down to reshop my coverage--or maybe I'm helping a parent reshop his or her coverage--what are the key pieces of information that I should come armed with? What forms should I have on hand? What websites should I be referring to?
Miller: I think a really great starting point is what's called the Annual Notice of Change. This is a notice that comes in the mail from Medicare. Everybody should have received it by the end of September. It says, "Here's the plan you've been in this past year, and here is a notice of what's changing." And it has to be specific. So, for drugs that you are taking, if the nature of the coverage is changing, they have to tell you that--just as an example. So, it's the starting point for understanding if anything is changing.
Benz: And that can help you decide whether you want to go further or if you're seeing some big increases--that's maybe an added impetus to take another look.
Miller: Right. It's a way to decide whether or not I have an issue here that I need to deal with.
Benz: Right. In terms of websites, which ones am I referring to if I'm trying to do some compare-and-contrast?
Miller: The Medical Plan Finder is the basic tool. It's on the Medicare website. You go there, you plug in your Medicare number; you plug in the drugs you are taking, and it shows you a list of plans that might be a good fit for you. That's a great start. There also are various nonprofit and free services that can help provide assistance for these things as well as some paid services where you pay a fee and, in return, you'll get some guidance on plans to sign up for--maybe for $100, which could well pay for itself.
Benz: There is also a "formulary" that you say I need to look out for. What is that and what am I looking for?
Miller: So, if you're looking at a plan, say, on the Medicare website and it says that your drug is covered, you need to go one level deeper into what's called the formulary, or the rules under which that drug is covered and to what extent it's covered. For example, there might be a provision that says that the plan has the right, in the case of an expensive medication, to come back to you and say, "You have to first try something else that's cheaper," a so-called "step therapy," which you may not want and your doctor may not want. So, that's just one example. But you really need to dig into the detail of not just whether the drug is covered but the terms under which it's covered. That can be an important thing.
Benz: And there are two types of premiums that I want to be on the lookout for--basic and enhanced. What's the difference?
Miller: When you look at the premiums, you'll see that the less-expensive premiums are for basic plans; they might be in the neighborhood of $15 a month. You'll find some so-called enhanced ones that will be $50 or $60 a month, and the big difference there is that the enhanced plans generally are providing what's called "gap coverage" to what a lot of people will know as the "donut hole." [Essentially, this is] the extent of coverage that's provided when you get to the level where the so-called "catastrophic number" is hit. This number is hit when you and your insurance company have spent up to a certain amount; after that, coverage stops and then it resumes again at the so-called "catastrophic level." So, you're responsible for paying everything inside the gap. The enhanced plans provide some level of gap coverage--hence they cost more.
Benz: Do you have any other parting tips for people who want to make sure that they are really doing their homework here and saving the maximum number of dollars on coverage?
Miller: I would just urge everybody to do the shopping. This is something I nag people about every year; I probably won't stop doing it because this is a sensible thing. Unfortunately, we have a system that has some complexity built in to it. Nobody likes it, but this is what we've got. And when you have these marketplace-based systems, as Morningstar readers are going to know from their familiarity with markets, there's just some complexity to it. It requires some attention and maintenance, and this is the time of the year to do it.
Benz: Mark, thanks so much for sharing your insights.
Miller: My pleasure.
Benz: Thanks for watching. I'm Christine Benz for Morningstar.com.