I turned 65 and retired this year. This life change is accompanied by many transitions; one of which is shifting from private employer-sponsored health insurance to Medicare. I had not given this much thought as I knew the program still had a fee-for-service option (original Medicare) and I believed there would be a great deal of choice at modest costs. I presumed the coverage under original Medicare would be similar to my employer-subsidized plan. In addition, I thought I was a knowledge consumer as I had done research projects on Medicare in the past, as part of my job (albeit it was more than 15 years ago). I also served on my company’s healthcare committee that reviewed our healthcare plan offerings each year. As it turns out, I really did not know much about Medicare and was about to be greatly surprised.
The program beginnings
Medicare began as part of the Great Society initiative in the mid-1960s. The Medicare and Medicaid Act of 1965 established these programs to provide healthcare coverage for seniors and poor people. Although landmark legislation, within a decade of passage healthcare reform became an ongoing political issue stemming from the large numbers of uninsured people, the trend in limiting choice to save money, and the need to manage cost. Finally, in 2012, after much compromise, the Affordable Care Act (ACA) was passed. The main changes the ACA made was to add prescription drug coverage to Medicare, expand who is eligible for Medicaid, and offer those who do not have insurance through their employer a way to obtain lower price coverage, which is often subsidized by the government. By many metrics the ACA has been highly successful- it expanded healthcare and prescription drug coverage to millions of Americans- but it also created complexity.
Drowning in the illusion of choice
The post-ACA Medicare program is highly complicated and provides less coverage than I had realized. Much of the program’s complexity stems from tacking on additional components rather than starting with a clean slate and rebuilding a logical program. Beneficiaries are given many choices which sounds appealing but I think actually mask the critical decsisions. Although there are special cases, in general, Medicare can be summarized as follows:
Medicare Part A: covers inpatient care at about 75% of the cost. This component of Medicare is free and virtually everyone over 65 is eligible.
Medicare Part B: covers outpatient care at about 75% of the cost. Beneficiaries must sign up for this component and pay a premium that is scaled to their income level. Given virtually all of those eligible take Part B (it is financially a very good deal) it makes no sense to keep these components separate.
Because Parts A and B do not cover all the costs of care, beneficiaries can purchase additional (supplemental) insurance to cover healthcare co-pays (the 25% not covered by Medicare) and drugs. These are separate additional, private-sector insurance plans.
Supplemental insurance: covers healthcare costs (mostly the 25% co-pays) not covered by Parts A and B. There are many plans ranging in richness of coverage and cost.
Part D insurance: covers outpatient drugs. Medicare does not pay any share of outpatient drug costs. There are many plans and they range in richness of coverage and cost.
Finally, an individual can sign up for a Medicare Part C plan that is a managed care plan (of some form) that typically covers all the above areas of healthcare costs but limits where one can get care.
As it turns out, in my part of the country there are 24 Part C, 12 Supplemental, and 31 Part D plans being offered. It is an overwhelming number of plans. Medicare has a website that helps you calculate costs across plans based on the services you use and the drugs you are on. Many other organizations and the insurers have similar websites and tools available. In fact, choosing your Medicare Plans is now its own little industry with tools and advisors. As none of these estimates are binding, they advise that you also call the plan(s) you intend on selecting to verify what your costs are likely to be.
The fix
Medicare should be simplified. We have created an unnecessarily complex program and I doubt most people are making good choices despite spending hours trying to understand their options. Clearly, simplifying the program is not the top Medicare issue (containing cost trumps all) but it is “low hanging fruit”. Simplifying Medicare is an issue that should be relatively easy (and politically feasible) to address. To simplify the Medicare from a beneficiary’s perspective:
- Eliminate the components and make it just Medicare and everyone gets Parts A and B and the premium is deducted from one’s social security.
- Make all additional plans supplemental plans. These plans may or may not include drug coverage. Rate them in terms coverage richness to help consumers identify like-plans.
These two changes would reduce a beneficiary’s decisions to deciding whether they want original Medicare and, if so, if they want a supplemental plan versus selecting a Part C plan. This would focus consumers on the most critical decision that they need to make which is choosing between a fee-for-service or managed care plan. Once a beneficiary has chosen their basic path, they can then consider the specific plans and add-on insurance options, which are secondary decisions.