Key things to keep in mind when choosing Medigap plans, and the role that private insurance brokers play in Medicare decisions.
Key things to keep in mind when choosing Medigap plans, and the role that private insurance brokers play in Medicare decisions.
Jessica BebelOct 27, 2024
On this episode of The Long View, Phil Moeller, primary author of the Get What’s Yours series of consumer guidebooks, including the Get What’s Yours for Medicare, breaks down traditional Medicare, Medicare Advantage plans, and Medigap plans. Plus, how it works to get Medicare if you work past 65, and how consumers can make the most of their healthcare choices.
Here are a few excerpts from Moeller’s conversation with Morningstar’s Christine Benz and Amy Arnott.
Traditional Medicare Plus Medigap Vs. Medicare Advantage
Amy Arnott: You mentioned earlier that Medicare Advantage is often popular among people with lower asset levels. Are there any other common characteristics of people for whom traditional Medicare plus Medigap would make the most sense versus Medicare Advantage?
Phil Moeller: I don’t know that it changes the decision, but there is a really good program of low-income supports that Medicare has that tend to be available for people with basic Medicare. They include most prominently what’s called the help program that subsidizes Part D drug expenses. More than 10 million people use this program, and there are millions more that are eligible and for various reasons don’t know about it or don’t apply. That can be a really good supplement that makes basic Medicare a little bit more appealing than it otherwise would be for folks. Some of the other support programs can help you with your Part B expenses and others. Again, in some cases, this could say to a person, especially a person who has substantial health needs, I better go with original Medicare and not use Medicare Advantage. However, I still think at the end of the day, Medicare Advantage remains much cheaper than original Medicare. The big decision then is that if you have a health event and you decide you don’t like your Medicare coverage, and you want to use the open enrollment period to switch back to original Medicare. The odds are you might not be able to afford a Medigap plan, which is the big cost increment that gets added on. I would just say to people, you’re going to have to do some homework and decide what you can afford, and do it before you have to make this decision so that you can be informed.
How Private Insurance Brokers Influence Medicare
Christine Benz: I wanted to ask about the role of private insurance brokers in all of this, which is the topic you cover in the book. Can you discuss how their incentives might influence what insurance products they pitch and how those might be in conflict with what’s good for consumers? You mentioned that these brokers are a big component of the growing popularity of Medicare Advantage.
Moeller: First of all, let me just say I love insurance brokers. They’re some of the finest people on the planet and they’re very knowledgeable. About a third of Medicare enrollees use the services of a broker. Brokers are free to the enrollees, so what’s the problem with free advice? Well, I use the analogy of buying a car. If you go into a Toyota dealership, I don’t think you really expect your sales guy to talk about how good Fords are or Chryslers or any other brand’s automobiles. But when you go into a Medicare insurance broker’s office or talk to them on the phone, I think people assume that person is going to tell you about all the cars on the market. You’ll be able to look at all the choices you could make in insurance plans like automobiles, and you would be able to see the entire field of what’s available and you could make an informed decision. Well, that’s not the case. First of all, no human being can keep track of all the private insurance plans out there, even the best broker. Secondly, brokers tend to migrate toward insurance plans that pay them the best commission. So the commission structure has a big determinant on which companies your broker is going to recommend when you are on the phone with him or her.
The book includes extensive extracts from some really useful focus group discussions that a private foundation had with Medicare insurance brokers. I was struck with, A, the brokers are really knowledgeable, B, they tend to want to do the right things, but C, they have to make a living, which means they have to pay attention to their commission structure. So I think the issue is, does this commission structure ever bias the recommendations they make? Yes, it does. How often? I don’t know. In some cases, the brokers will still do what’s in your best interest, even if they leave some money on the table, but I don’t know that that happens that often. I don’t have the frequency of that at all. All I want people to be aware of is that understand that your broker may not be telling you about all the products on the market that you might want to consider. So I would take their advice, ask them questions, and get comfortable with the choices they presented you. But then I would go the next step, and I would go online to do research about how to find other products on the market. And I can explain that research at some point, but it takes a little bit of time. So I’ll stop here.
Are Consumers Better Off With Medicare Plus a Medigap Plan?
Arnott: We’ve heard from some consumer advocates who look at Medicare, and they’ve been pretty forthright in saying that most consumers who can afford it would be better off with traditional Medicare plus a Medigap plan. Do you agree with that recommendation? And are there any exceptions to that?
Moeller: I do agree. Let me just give you a personal example. My family has substantial health expenses. We have, both my spouse and I have, letter G plans. We’ve had billed medical expenses in a recent year that exceeded $600,000. We paid zero additional money. Our total healthcare expense was our premiums for Part B and D, our Medigap premium, and our out-of-pocket drug expenses. We had literally no out-of-pocket expenses for Part A and Part B procedures, and they were just enormous. We take an infusion drug that bills at $60,000 a month. We paid zero. It bills out under Part B, not Part D, because it’s infused in a remote facility. So if you have the means, and especially if you have high medical needs, I think it’s a no-brainer to go with that combination. I would also argue that for me, I think that’s been the cheapest route to take, because the Medigap does such a good job of filling the holes in basic Medicare.
What to Keep in Mind When Choosing a Medigap Plan
Benz: I wanted to ask about choosing a Medigap plan, and I think you kind of answered it, but I think the tendency might be to reach for that gold-plated plan. And I will share an anecdote from my mom and dad, which is that they had a great plan that covered their expenses wall to wall as well. And in addition to it being a cost saving, it was also just a tremendous administrative saving in our household as someone who was in charge of paying their bills that literally we never had to pay a bill, which was pretty nice. But maybe you can talk about key things to keep in mind when choosing one of those Medigap plans.
Moeller: Sure. The other thing I’m sure your parents benefited from is what I called the head-on-the-pillow test. When you’re protected, it just really is a de-stressor, and medical expenses become the wild card in later life finances. And if you feel like you’re protected, it just makes a lot of other things easier. The key thing about Medicare supplement plans is that I said there are 10 different letter plans. So, say you have a letter G plan. Every insurer that offers a letter G plan must cover the same thing. They can do a couple of bells and whistles like maybe a health club, but that’s really a minor component of why you’re getting a Medigap plan. The fact that they all cover the same thing means that the only variable to really shop on is their premium. And there’s a wide variation in premiums. Why? Because people don’t aid or regulate the state level, and the details of state regulation are, shall we say, opaque. You can’t get access to these things. You don’t know the rate of return. You don’t know anything about their claims history for your plan. You don’t know what kind of profit they make on your plan. So bottom line is I urge people to shop based on premium, and you can see a big variation in premiums. Again, there’s a way to shop for these that I can explain to folks based on your interest in time.
*NOTE FROM ANDY ORLIKOFF, OWNER/BROKER AMERICAN INSURANCE BENEFITS*
As an independent broker, I am frequently approached by insurers to promote Advantage plans. These plans are enticed with high commission levels that are significantly more lucrative than compensation for Medigap plans. However, I have consistently declined to offer Advantage plans due to their potential negative impact on consumers.
I regularly receive calls from individuals who have purchased Advantage plans and subsequently expressed a desire to switch to Medigap because they have encountered various drawbacks. Regrettably, in many cases, I am unable to accommodate their requests because they no longer qualify for coverage due to medical conditions.
It is important to note that Open Enrollment is exclusively for Advantage plans. Medigap coverage is guaranteed for six months before and after an individual’s 65th birthday. After this period, individuals must qualify for coverage based on their health status. There are specific circumstances that may qualify for a special enrollment, such as when the Advantage plan is no longer offered in the individual’s service area.
To avoid being misled by agents and brokers who prioritize their income over your interests, I encourage you to educate yourself about Medigap plans. Please do not hesitate to contact us for further information. Our conversations are completely free of charge.
Andy Orlikoff
American Insurance Benefits
Surprise, Arizona
623-742-3878
www.azhealth.us
