Paying for the Health Care Changes

The first major effects of last spring’s health care reform, we’ve said for some months, will be seen in Medicare Advantage plans. Other parts of Medicare also will feel early effects from the new law. The first changes are here, and it’s time to review them and consider the likely future changes.

The Medicare Advantage plans for 2011 are set. The new law froze 2011 reimbursements from Medicare to the insurers at 2010 levels and scheduled reduced reimbursements in the future. We anticipated reduced benefits, higher participant costs, and higher premiums. The results are about what was expected and indicate the plans will become less attractive each year.

Medicare announced that of the 2,100 Medicare Advantage plan bids, it denied premium increases or benefit reductions in 298 cases. The average Advantage care premium across the country will be about 1% lower per member than in 2010. But most plans increase co-payments and deductibles, so the premium changes don’t reveal the full financial impact. After factoring all the changes, Advantage members on average will pay $13 per month more than in 2010.

There’s more. Many plans also reduced extra benefits such as gym memberships, dental care, vision coverage, and prescription drugs. Advantage plan members will have to pay for these items themselves or do without them.

Only a small number of insurers withdrew from the Advantage plan this year, largely because the denial of proposals came too late in the process for them to withdraw. The previous year no Advantage plan bids were denied. Some insurers are believed to be running their Advantage plans at losses in 2011, because their proposals were denied too late for them to withdraw from the program. More insurers are likely to withdraw from Medicare Advantage in the next few years if the law stays the same.

The changes in Medicare Advantage programs are part of a shift in federal benefits policy. For decades a criticism of government programs was they benefited the current older generation at the expense of following generations. Social Security and Medicare promised benefits that weren’t pre-funded. Younger generations pay for current benefits of the older generations while trying to save for their own silver years.

The health care law reverses the situation. In addition to the Medicare Advantage changes, reimbursements to hospitals and doctors by Medicare are scheduled to decline. Estimates are that about half the funding for the new benefits under the health care law is from reductions in various Medicare payments.

The first concern of anyone in retirement or near retirement should be ensuring the care they’ll need in the future will be available. More doctors are likely to stop taking new Medicare patients or even stop accepting Medicare from current patients. Hospitals are likely to close or limit their services, because they lose money on Medicare patients now and will lose more in the future.

The second concern is to incorporate in your planning the potential for adverse changes in government programs. Readers of all ages need a cushion in their plans in case their out-of-pocket medical costs rise. Shifts in government programs mean your retirement plan must have some flexibility and be updated regularly.

Third, stay informed on the alternatives to your current medical care financing. No one’s insurance or other coverage will be stable. Being informed will make it easier to review the options when your plan changes and make you more likely to choose a good alternative.

RW November 2010