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Some in the benefits industry believe the Center for Medicare Services’ (CMS) elimination of Medicare Supplement Plan F signals the beginning of the end for those plans. In particular, they believe, that Medicare Advantage (MA) plans, and an increase in group retirement plans offered by employers, will eliminate the need for them. We not only disagree with that notion, but believe that the growth in individuals turning 65 every day presents an opportunity for regional insurers and health plans to build a profitable Medicare Supplement portfolio.
The U.S. Congress’ prohibition, beginning January 1, 2020, on offering Plan F for newly eligible Medicare recipients is based on the premise that seniors with coverage that is too comprehensive will consume more healthcare services. CMS, the thinking goes, will save money from not paying for “additive” claims if more costs are put back on seniors. [Note: a person currently enrolled in a Plan F may buy another Plan F if they wish to move from their current carrier.]
“Are you buying coverage for when you are healthy or when you are sick?”
It is not uncommon for an insurance agent to discuss their client’s expected use of health care dollars, if not as bluntly as the above query. An effective “needs analysis” can reveal an opportunity to save money on total costs (premiums plus co-payments, coinsurance). For example, when the total out-of-pocket costs a senior would have to pay if they get sick under a Medicare Advantage (MA) plan are summed, they would be more than if a Medicare Supplement (MedSupp) plan was purchased. Conversely, for seniors with minimal or no expected hospitalization needs, a zero-dollar MA plan would be the choice for premium savings. [See comparison in Appendix figure].
Another issue with MA plans is what happens for a member when their doctor leaves the network. The member must remain with the MA plan, unless the plan exits the business. Moving to a MedSupp plan at this juncture would require underwriting, which is an issue if the member is not healthy. This requirement is not always made clear to newly eligible members who buy an MA plan.
Group Retiree plans, including Employer Group Waiver Plans (EGWP), will be adopted by employers currently committed to covering retiree medical benefits, however, in an era where employers face a continued struggle to reduce or even maintain healthcare cost levels, it’s unlikely employers will be adding retiree medical benefits.
The growth in Americans aging into Medicare is significant: 10,000 people per day will turn 65 through 2030. They are likely to be more educated purchasers, and will look carefully at the pros and cons of a Medicare Supplement Vs. a Medicare Advantage plan, and be less likely to buy a zero-dollar premium plan. In particular, if the math above is considered, a MedSupp plan is the logical decision. A December 11, 2019 A.M. Best Company Special Report for subscribers only, US Medicare Supplement – A Growth Segment ,highlights the steady growth of the $30 billion MedSupp market and the consistently higher margins, versus other health segments, it has earned over the last nearly decade.
For this reason, reinsurers have a strong appetite to support development of this business with both large quota-share reinsurance structures, and comprehensive turnkey programs (i.e. their willingness to commit to the MedSupp business is a positive indicator of what they know about this segment.) A regional health plan, insurer, or association program can build a profitable $25-100M portfolio over 5 years. A MedSupp plan could complement an existing MA plan, and have the cost advantage of a network contracted to manage care at rates less than Medicare Allowable.