by Lance D. Reedy
For those of you that have received a non-renewal notice from your Medicare advantage company, we encourage you to review our companion article, I Received a Disenrollment Letter: What Now? It will explain your choices.
Note: In the discussion that follows, I have simplified some concepts for brevity.
The concept of Medicare Advantage (MA) plans began with the 1982 Tax Equity and Fiscal Responsibility Act (TEFRA). This act allowed privatized Health Maintenance Organization (HMO) plans to contract with Medicare to deliver a form of privatized Medicare. Health insurance companies later exited this privatized Medicare marketplace because the funding from Medicare wasn’t keeping up with rising costs.
The Balanced Budget Act of 1997 established the Medicare+Choice program. This was renamed Medicare Advantage by one of the provisions of the 2003 Medicare Modernization Act (MMA). It was this act that also stepped up the controversial capitation rate for the MA plans.
Medicare Advantage Funding
MA plans are privatized in that Medicare sends a certain amount of money per person per month to the sponsor, usually a large health insurance company, of the MA plan. This is called the capitation rate. This means that, for example, the base rate that the MA plan sponsor receives from Medicare is about $700 per month for every member enrolled in the sponsor’s plan. Simply put, they get so much per head per month. That’s the capitation rate.
Example: Betty Smith enrolls in the Medicare Deluxe plan from Acme Insurance Co. Her premium is $65 per month. Her plan also includes prescription coverage. Here is the revenue that Acme receives for enrolling Betty as a member:
Medicare Funding for the MA health plan: $700 per month (Note: this can be much higher for people with more health issues.), Medicare Funding for a prescription plan: $53 per month, Betty’s Premium: $65 per month. The breakdown is as follows: $30 is her contribution to the health plan, and $35 is for her prescription part of the plan.
Total: $818 per month
Remember, These Plans are Privatized
Let’s say that Betty has a knee replacement surgery with a total bill of $30,000. Her hospital stay is for three days. Her plan has a hospital copay of $300 per day with a five-day cap. Acme pays for all days that exceed five.
Here’s how it looks:
Total bill: $30,000
Betty pays $300 per day x 3 days or $900 to the hospital. The hospital bills the balance of $29,100 to Acme, not Medicare. Remember, as far as claims go, Medicare is out of the picture.
Let’s say the Betty had physical therapy after her surgery, some labs, doctor visits and other miscellaneous medical events that cost Acme an additional $4,000 during the course of the year.
Annual Revenue that Acme Received
- Funding from Medicare = $8,400 ($700/month x 12 months.)
- Of Jane’s $65 monthly premium, $30 is for her health plan. $30/month x 12 months = $360
- Total revenue = $8,400 + $360 = $8,760
Claims paid out for Betty Smith
- Knee surgery: $29,100
- Miscellaneous other medical services: $4,000
- Total claims (losses) for covering Betty: $29,100 + $4,000 = $33,100. (Note: To keep this example simpler, we’re ignoring any prescription costs.)
A Losing Proposition
In this example, we can see that Acme losses were almost four times more on Betty’s behalf compared to the revenue they received from Medicare and Betty. Just to break even, Acme Insurance needs three other members’ (Alice #1, Alice #2 and Alice #3) revenue and little or no claims from those members.
As long as Acme only has a few Bettys and lots of Alices, they will be okay. They can maintain their $65 per month premium for 2018, keep their copays about the same, and maintain their extras such as a vision, dental, or health club benefit.
How Acme Insurance Gets in Trouble
In this example, we have the fictitious state of West Mountain. West Mountain has forty counties, and Acme has their MA plans in twenty of them. Acme’s bean counters have observed that they are consistently losing money in Wolf, Grizzly, Coyote, Rattlesnake, and Scorpion counties. These are low population, rural counties. To aggravate this problem, Medicare’s capitation rate in these counties is lower compared to the more urban ones. Worse yet, Acme is having difficulty finding enough specialists to serve on an “in network” basis in those counties.
To stem these losses and maintain the integrity of their Medicare Deluxe plan, Acme has decided to cut loose those five losing counties. They file their plan with Medicare, and they send non-renewal letters to their members in those five counties in early October. Simply put, they had too many Bettys and not enough Alices.
This is exactly what the now defunct New West Medicare did in Montana a few years ago. They had substantial losses in ten counties, so they non-renewed their members in those counties. Medicare advantage plan sponsors cannot drop an individual high claims member, but they can drop a high claims county.
In one rural county that New West dropped, I had one client that had a hip replacement surgery and another that was in the hospital in Billings for two and a half months. There couldn’t have been enough Alices to make up for those two Bettys. Also, there could have been more Bettys that I didn’t know about.
It Gets Worse
Exiting some counties can be a stop gap measure that buys time for a year or two. What happens if the losses begin to mount statewide? That’s what happened to New West in 2016. The decision makers looked at the numbers, and they weren’t good. In October of 2016, all New West MA members received their non-renewal notices.* While there were other factors in New West’s demise, the bottom line is that they lost enough money that they pulled their plans and exited the market. *Important. Be sure to keep your non-renewal notice. You may need it!
The Insurance Company has Another Option
Let’s say that Acme has lost money in most of West Mountain, but they want to stay in the game. Here’s their strategy.
- Drop their high loss counties.
- Drop their plans in the counties they wish to remain in, but come out with new plans. These new plans will have a combination of higher premiums and/or higher
- They also could trim some of their extras such as their vision or dental benefit. Your higher premiums and higher copays will generate more revenue for Acme. If it all works, they will continue to offer their plans.
Things to Remember About Medicare Advantage plans.
- Medicare advantage plans are privatized.
- The providers bill the plan sponsor (generally insurance companies) and not Medicare.
- The insurance company can’t operate at a loss, or it will go out of business.
- The company can decide which counties it desires to sponsor MA plans in any given state.
- Low population counties may not have any MA plans.
- MA plans are subject to premium and copay increases. (In a few instances these have slightly decreased.)
Receiving non-renewal notices for most people is an unsettling hassle. It involves change, and many people, including me, don’t like it. Now your Medicare plan needs to be redone.
I believe that having a basic understanding of how Medicare advantage funding works, can be a useful tool in your decision-making process.
Please click here to consult our companion article, I Received a Disenrollment Letter: What Now?
By Lance D. Reedy and Isaac Reedy
A little history first, Medicare advantage (MA) plans were ramped up in 2006 as authorized by the 2003 Medicare Modernization Act passed during the Bush administration. Several insurance companies jumped into the fray offering their own version of MA plans.
In 2010 we began to see a “shaking out” with companies withdrawing their plans from certain markets. There was also some Congressional legislation that helped prompt this. The question is, what are my choices if I receive a non-renewal/disenrollment notice this fall from my MA company?
Obviously, the subject at hand does not affect Medicare supplement (Medsupp) policyholders. It also does not affect all MA plan members, it only affects some, and it certainly will affect many people in Montana. The states of Idaho, Oregon, and Washington have already gone through much of their “shaking out” and adjustments, so things have generally settled down in those states for the time being. Wyoming has already gone through this process with most counties no longer having any MA plans available.
For Those Receiving a Non-Renewal notice
The first part of your non-renewal notice states that your MA company is non-renewing your plan for 2018. It will have the usual verbiage about “changes in the marketplace, etc., etc.” The bottom line is that the insurance company is losing money in a given market and has to make some changes. Again, the causes for this are explored in our companion article, Medicare Advantage Funding and the Causes of Non-Renewal Notices. Important! Be sure to save your notice. You may need it!
Your non-renewal notice further on down will get into the nitty-gritty and lay out your options. Let’s say you have Company Green, and they have sent you your non-renewal notice.
- If Company Green is offering a new MA plan that is substantially different from your current plan with them, you can enroll in that new plan. This will require a new The premium and/or copays likely will be higher compared to your current plan.
- Your non-renewal notice also will list other MA plans that may be available in your county of residence. What adds to the confusion of these multi-page notices is that at least based on previous years, they also list some of the stand-along prescription drug plans (PDPs) that are available in your state. Put another way, those notices can throw too much information at you.If Company Red offers their MA plan in your county, that is another choice. To add to the mix, a new company may have decided to enter the marketplace. For example, Company Purple is coming to Yellowstone County (Billings, Montana) in 2018.
- Your non-renewal notice will also explain your guarantee issue rights for Medsupp plans A, B, C, F, K, and L. Be sure to save your non-renewal notice as we must attach a copy (the first page) with your Medsupp application as proof that you qualify for a guarantee issue Medsupp if you opt for this choice.
What is meant by Guarantee Issue?
Guarantee issue (GI) means just that; your acceptance is guaranteed and you cannot be declined. Even if you have a health condition that the Medsupp company would normally decline, your issue is guaranteed. Medicare has established these rules to ensure that no one gets dumped without the opportunity to get a Medsupp plan.
Example #1: John Doe had a stroke six months ago. Most Medsupp companies ask if you have had a stroke or TIA’s (mini-strokes) in the last two years and will decline your application if you have had one. With the GI rules, the health questions are waived, and John Doe can sign up for one of the six lettered plans as described above. As long as we attach a copy of the first page of his non-renewal notice to his application, the Medsupp company has to issue his policy.
Example #2: Jane Doe is on kidney dialysis. She has run up considerable copays on her MA plan and would have thousands more out-of-pocket with another MA plan. She uses the guarantee issue rules and signs up for Medsupp Plan F. Depending on her age, her premium might run anywhere from $150 to $235 per month. Again, the company cannot decline her application as long as we attach a copy of her non-renewal notice to her application.
Why would I want to pay for a higher Medsupp premium if I can get a lower priced MA plan?
As mentioned in Example #2, there are occasions when a more expensive Medsupp plan can cost you less than an MA plan. All MA plans have what’s called the Maximum-Out-Of-Pocket limit or MOOP. The legal maximum set by Medicare is $6,700. An MA company, at its discretion, may offer a lower MOOP.
Let’s say that Jane Doe has Company Black’s MA plan. Their MOOP is $5,500 and their premium is $70 per month. With her dialysis treatments, she pays 20% of the dialysis costs until she hits her MOOP. Then the insurance company pays 100% after that for the remainder of the year. Let’s say she hit her MOOP in September.
Here are Jane’s projected annual costs.
Her $70/month premium times 12 months = $840
$5,500 + $840 = $6,340
Compare the above with a Medsupp Plan F for $235 per month.
$235 x 12 months = $2,820 (Remember, she doesn’t have all the copays with her Plan F as she does with her MA plan.)
She needs to pick up a stand-alone Prescription Drug Plan (PDP), so let’s say she gets a $32 per month plan.
$32 x 12 months = $384.
$2,820 + $384 = $3,204. This is much less than the $6,240 figure for her MA plan.
If you have medical issues that can cause a lot of copays with your MA plan, then going with a Medsupp, as in Jane’s case, could cost you much less in the long run, despite the higher Medsupp premium.
Reviewing your three choices if you receive a non-renewal notice from your MA plan
- Sign up with a new MA plan from your same company, if available.
- Sign up for a plan with another MA company.
- Take advantage of your guarantee issue (GI) right and sign up for a Medsupp Plan A, B, C, F, K, or L. Note: Most people will choose Plan F because it is the most complete plan of the six choices. If you are on a budget or don’t have many medical issues, Plans K and L are worth a good look. Plan K has the lowest premium and also the most out-of-pocket costs. Plan L may be a very worthwhile solution for some people. Also note that Plans G and N are NOT eligible for GI. Exception: There is one company that offers their Plans G and N for guarantee issue.
Here are some criteria that may assist people in deciding which way they want to go.
Choose another Medicare advantage plan
- You are in good to excellent health and do little or no doctoring. Therefore, your copays will likely be minimal.
- The lower premium for an MA plan fits your budget.
- Your MA plan has a unique feature or benefit such as a health club membership, a vision or dental benefit, or an unusually low copay for a particular prescription. Remember, most of these MA plans also include a prescription plan.
Taking advantage of a guarantee issue Medicare supplement
- The Medsupp’s higher premium is worth it so you won’t have to deal with the MA copays.
- Your prescription costs will be less by shopping for a stand-alone PDP. (Remember, no Medsupp plan includes prescriptions, so you’ll likely want to sign up for a stand-alone PDP.
- This is the second or third time you have received an MA non-renewal notice and are tired of the merry-go-round. You want peace of mind.
- Your needs have changed. For example, you are traveling more and more out-of-state and would prefer not to be in a networked MA plan.
- Despite the copay responsibility that goes along with Plan K and L, you realize that these two plans may have lower out-of-pocket expense compared to an MA plan. This is especially true with the MA premiums taking some substantial increases.
Sign up for Medsupp Plans G or N, which are NOT guarantee issue.
- Your health is stable, and you want to sign up for the lower premium Plan G or N. You will have to have all “NO’s” to the health questions on the application. In general, if your health has been stable for the past two years, you likely will meet the underwriting requirements of most companies and medically qualify for either Plan G or N. Please keep in mind that the health requirements will vary from company to company.
- Let’s say that you would like to apply for a Plan G or N, but you have a health condition that will cause your application to be declined. Earlier we referenced one company that DOES offer Plan G and N on a guarantee issue basis. Their premiums are somewhat higher compared to other companies, but at least they will accept your application on a GI basis. This could be a good strategy to sign up for a GI Medicare supplement but at a lower premium compared to Plan F.
Choosing the right prescription drug plan.
Remember, no Medsupp plan covers your meds, so we’ll shop on Medicare.gov for a cost-effective PDP for your situation.
Two Time Periods
You can make your change during the October 15 through December 7 Annual Election Period (AEP). In addition, Medicare gives you a Special Election Period (SEP) that runs December 8 through February 14, 2018.
We offer almost all of the available Medicare advantage or Medicare supplement plans in our market, so we’ll definitely appreciate you staying with us. You won’t have to deal with seminars, calling other companies, shopping for a new agent, sifting through countless offers in the mail, or being overly stressed from confusing TV advertising.
For those receiving a non-renewal notice from their Medicare advantage company, we’ll be calling you. (Note: If you have recently changed your phone number, please call us.) We can’t get to everyone at once, so we thank you in advance for your patience. We will walk you through your options to arrive at the most suitable choice for your situation. We have worked hard to earn your business, and we will continue to do so.
To help give you a better understanding of why MA companies withdraw their plans from the market place, please refer to our companion article, Medicare Advantage Funding and the Causes of Non-Renewal Notices.
Final note: Please feel free to call us with any questions or concerns. Thank you. End