The Continuing Rise of Medicare Advantage

Last week, the economist Austin Frakt said in the NY Times that “Today, 30 percent of Medicare beneficiaries are enrolled in a Medicare Advantage plan, more than at any time in history. In some states, like Hawaii and Minnesota, about half of Medicare beneficiaries are in such plans. This is despite the fact that government payments to plans were cut by the Affordable Care Act. They’re down eight percentage points from their peak in 2009, as measured relative to the cost of traditional Medicare coverage.”

None of this is news.  Back in January the Aetna CEO said the same thing and we commented on it:

CMS pays private insurers to take over the risk for each senior who enrolls for Medicare Advantage.  At one time, the average CMS payment was 114% of the cost for traditional Medicare enrollees. These higher payments were partly because of risk-adjusters in the CMS payment formula – and partly because Medicare Advantage provides better coverage than traditional Medicare.  However – and this is important information – Bertolini said the average government payment to Medicare Advantage insurers is now down to 106%, and is “headed to zero.”  

In other words, private Medicare Advantage insurers believe they have figured out how to provide better benefits and better service than traditional Medicare, for the SAME cost. That's big.

It's big because it would bring good news all around: CMS will shed even more traditional Medicare risk – and cost – thus reducing its financial strain; private insurers will pick up even more Medicare Advantage enrollment on a profitable basis even when paid the same as the cost of traditional Medicare; the taxpayers will benefit if there is reduced need for higher taxes to support traditional Medicare; and seniors who prefer Medicare Advantage over traditional Medicare will still have that highly popular option available to them.

Frakt continues, “One answer is that baby boomers, who are just entering Medicare-eligibility age, are more accustomed to the types of insurance Medicare Advantage offers, such as H.M.O.s”

Bertolini also said that back in January.   Today's employees are increasingly willing to sign up for Medicare Advantage when they reach age 65, because they have had years in which to become familiar with managed care.  I think that means enrollment growth in Medicare Advantage is likely to accelerate over the next few years; an accelerating trend would of course be compounded as more “boomers” retire.

Frakt continues “Another answer is that prior generations of retirees may have been more likely to have had coverage from former employers that wrap around traditional Medicare, filling in its gaps. This coverage has become less common as employer-sponsored retirement benefits have eroded generally.”

Frakt is correct about the withering of employer-based retiree coverage but I disagree that is a reason more of us are specifically choosing Medicare Advantage. 

I'm enrolled in a Medicare Advantage policy.  I did not enroll because my former employer ended retiree coverage; I enrolled in it because Medicare Advantage is a better deal for me then traditional Medicare.  Even today, without employer-sponsored coverage, retirees can purchase government-approved Medicare Supplement policies that fill in the traditional Medicare "gaps."  Yet retirees increasingly prefer Medicare Advantage over traditional Medicare with Supplements.  Frakt does not explain this preference. 

I think the answer is: because Medicare Advantage offers much better coverage; is a simpler arrangement; is easier to use; is thus a better value; and thus a smarter buy.

Besides, Frakt’s use of the term “gaps” glosses over the size and seriousness of the very real inadequacies in original Medicare.  Those inadequacies have been called "gaps" for a long time; Frakt is not the first to use the term, nor will he be the last.  But calling these inadequacies "gaps" is akin to calling the Obamacare Exchange systems debacle "glitches." The term makes Medicare's inadequacies sound small, even trivial. Truth is, the inadequacies are serious, not small.

Calling them "gaps" amounts to deception by vocabulary.  

So it seems to me if the decline of employer-sponsored supplemental plans is any factor at all in the growth of Medicare Advantage, it's only because such decline has for the first time exposed the serious inadequacies in original Medicare to a significant number of retirees.   Those inadequacies are the issue.  And we retirees are noticing.

FWIW. there’s an additional factor:  more and more people – not just retirees - are also noticing the federales have done little or nothing to improve the traditional Medicare product.  Medicare has not chosen to respond to its Medicare Advantage competition by improving its own product. Instead, Medicare chose to respond to its competition by using its power to kill its competitor, rather than compete with it.  That illustrates pretty well how governments tend to "compete" and we all need to keep this in mind when the "public option" idea again surfaces.

HSA's - Good news edition

As regular readers know, we're big fans of Health Savings Accounts, which have found new life under the ObamaTax. And, as FoIB Holly R tips us, they seem to be doing quite well:

" ... overall enrollment in health savings accounts linked to high-deductible health plans increased almost 12% to nearly 17.4 million this year"

Remarkably, HSA enrollments in large employer plans are up by more than a third over last year. On the other hand, small group and individual enrollments remained flat, but that's not necessarily bad news: for one thing, not losing ground is a net positive for this market segment. And for another, we don't really know, since there's so much confusion in the individual market as to whether or not folks have any insurance in-force.

Anecdotally, I know that I've seen an increased interest in these plans, and my HSA clients who've had to transition to ObamaTax-complaint plans have all requested to stay under the HSA umbrella.

Time will tell, of course.

I don't get it...

On the one hand, I was extremely flattered and honored to be the 2012 National Underwriter Elite Award Winner for Industry Awareness. I was the 2nd such recipient, and the first agent to be so honored.

And it looks like I'm still the only agent to be so honored:

2011: Insurance Industry Charitable foundation which, while funded by the industry, is not made up of agents.

2012: [Moi]

2013: Daniel C. Steenerson. President and CEO of Disability Insurance Services. Mr Steenerson has done admirable work in the disability field, but appears never to have been an actual, you know, agent.

2014: Jesse Slome, executive director of the American Association for Long-Term Care Insurance. Again, a truly admirable person, but there's nothing in his bio to suggest that he's ever actually sold an insurance policy.

I just don't understand this: it appears that none of the other recipients have ever sat down at a kitchen table with a husband and wife, or across the desk from a small (or large) business owner and explained how insurance works, and how it can provide peace of mind in troubled times.

Is this really the best we can do to raise "industry awareness?"

Good news (kinda/sorta)

"Superior HealthPlan confirmed ... that the insurance company will cover Savannah's surgery at Texas Children's "for continuity reasons."

The reason for the "kinda/sorta" is twofold:

First, the plan is an HMO model, which typically doesn't cover out-of-network claims. It's not clear to me whether or not the Snodgrass family had chosen this kind of coverage intentionally, in which case I think the carrier was wrong to fold, or whether they just didn't understand (which is also possible - lots of folks just pull the trigger on lowest price).

The other reason is that ObamaTax "skinny networks:" are going to mirror a lot of this issue, with folks finding out last-minute that they may be digging deeper into their own pockets.

And there's this: how come no one is asking the provider why the surgery was cancelled for lack of coverage? Why is this all on the insurance company?

LTCi Trends

The kind folks at MassMutual recently emailed with some interesting information about what they see as major trends in Long Term care insurance. A couple stood out:

■ There continues to be a move away - industry-wide, really - from lifetime benefits. This is likely due to two interrelated factors: fewer companies even offer it, and it's hellaciously expensive (cf: chicken, egg). In fact, lifetime benefit sales dropped from 33% in 2004 to roughly 13% in 2011.

■ Inflation protection (whereby the benefit increases automatically every year to keep pace) has always been an attractive rider (and is, of course, required for Partnership Compliance). Most carriers offer both 3% and 5% options, but the sales of the latter seem to be dropping off, most likely due to cost.

As always, Herman Brun's primer on why you might want to consider LTCi is a must-read.

This Sceptered Isle – Part CCXLIX

A leading Dutch supporter of euthanasia has changed his mind, and speaks out against it, on the occasion of a similar law now being proposed in the British Parliament.  “Don’t make our mistake.”

InsureBlog has commented previously on this issue here and here. 

Legalized, state-administered euthanasia seems more popular but not less controversial now, than 10 years ago. 

The questions that still face America:  are we prepared to follow in the steps of the Netherlands and (potentially) the U.K., and if so does ACA already provide the legal framework in which to do it?

SexistCare©

There's a lot of talk about women's and children's health, and that's fine. But something that seems to have gone unremarked is men's health issues. Here's what I mean:

All ACA-compliant plans must include a laundry list of Essential Health Benefits, including very specific preventive care coverage. In fact, the list of services that must be covered with no out-of-pocket (deductible, co-pay or co-insurance) includes well over 60 such items, and specifically 22 for "[c]omprehensive coverage for women’s preventive care," and over two dozen more for "children’s preventive health services."

Notice the missing category?

So for all this talk about covering birth control convenience items and mammograms (to name but two), there is no corresponding requirement to cover, say, prostate exams or even STD screening for XY'ers. Adding insult to injury, there is no provision for charging us different (lower)  rates, even though there are specific benefits which we cannot access (eg Cervical Cancer screening).

Where's the hue and cry?

History Lesson: Consumer Operated and Oriented Plans - CO-OP's (Part 1)

Alternative to Public Option?

Consumer Operated and Oriented Plans (CO-OP's) were included in Obamacare as an alternative to private health plans that are being offered to individuals and employer sponsored plans. These are start up insurance companies funded with taxpayer money that was set aside in the law. Each state was to have at least one or two of these not-for profit operations that would keep "profit mongering" private health insurance companies from paying extreme salaries to executives and huge dividends to wealthy investors. (Never mind MLR, although that's a completely different post)

Originally $10 billion was to be included for CO-OP's and it was going to be in the form of grants. That was in early 2009. By the time the law passed funding was cut to $6 billion and was now in the form of very low interest loans. These loans have very tight repayment measures and strict requirements on what CO-OP's can use the money for.

White House Intervention

In April of 2011 during budget negotiations - and amid concerns around Solyndra type loans - the White House caved on CO-OP funding and it was cut again by a little over $2 billion. Even more worrisome was a report from HHS in July of 2011 stating that roughly $1.4 billion of the remaining loan money would not be paid back. The last straw for funding was "The Fiscal Cliff" deal. To come to an agreement the White House agreed to eliminate all of the remaining funding for CO-OP's with the exception of a small contingency fund. They also agreed that they wouldn't take funding from any other sources to continue CO-OPs.

The results

In total Obamacare was able to distribute close to $2 billion dollars in loans before remaining funding was eliminated. The money was able to fund 24 CO-OP's in 23 states but around 40 additional applications were scrapped.

One CO-OP never got off the ground (Vermont went belly up at a cost to taxpayers of $4.5 million) and several others were either so far behind in the approval process that they weren't able to meet deadlines to sell plans in 2014 or are considered to be in financial trouble.

What is the current status of CO-OP's and how are they accommodating to the ever changing rules of Obamacare? In part 2 I'll share one CO-OP's response and initial game plan they have to enter the Ohio insurance market.
 

Cavalcade of Risk #212: Skynet edition

RJ Weiss presents this week's round-up of risk-related posts, with a heavy emphasis on risk, from cyber liability to under-reserving.

Great stuff, great hosting job.

Rx Conundrum

In the wake of the Hobby Lobby decision, there's been a lot of discussion about whether or not employers (and their health insurance providers) should be forced to provide "free" birth control convenience items coverage to their employees/insureds.

[I put the scare-quotes around "free" because of course they're not: someone is paying an insurance premium. Or did Ms Shecantbeserious think that Big Pharma was giving it away?]

It's also important to remember that this is a purely administrative issue - BC is nowhere to be found in the ObamaTax law itself.

With that in mind, consider this:

"It has always struck me as rather strange that that is the one prescription that the administration wants to insist should be provided at no cast to insured employees. Think of all the possible medicines that they could have chosen to be provided for free - prescriptions for heart problems, cancer, diabetes, asthma, HIV, or psychiatric treatments. But none of those were considered worthy of mandating that they be provided free of cost. Only contraceptives."

I'm embarrassed to admit that this rather obvious - and critical - point had gone completely under my radar. But it rings true, doesn't it? Why this one particular medication, and no other?

Thanks to increased transparency, it's not really difficult to find the average cost of medicines. A few minutes online yielded this information:

Average cost of BC: $15 to $50 per month (or $180 to $600 a year). That's about the cost of maybe a dozen latte's a month, max.

Average cost of chemo: up to $15 thousand a month.

Or how about HIV treatment? This averages $2,000 to $5,000 a month.

And yet the two life-saving regimens are subject to deductibles and co-payments, while the convenience items must be "free?" If it's truly about "women's health," are we to assume that no females get cancer or HIV?

Reality says otherwise.

[Hat Tip: Ace of Spades]

If you like your current agent...

Well, you know...

Still another broken ObamaTax promise:

"Nearly half of insurance brokers polled nationally have considered leaving the industry in the wake of the [ObamaTax] ... Companies' use of brokers has increased to 61 percent in 2013, compared to 56 percent in 2011"

So just when we're needed the most, a chunk of us are contemplating bailing. I must admit to having (briefly) considered this option last year. Not leaving the business, of course, just the health insurance side of it. Eventually, I abandoned that plan, but I know that quite a few others did decide to pull the plug (and several have been referring their health insurance clients and prospects my way, which is nice). Still, I'll need to make time soon to re-certify for the Exchange, which means another half-day on a .gov site that's barely navigable.

And this news comes as we learn that "45 percent of companies surveyed said they plan to increase their reliance on brokers ... when making changes to their employee health plans." So, a lot of potentially disappointed, and frustrated, small business owners.

The other (bigger) problem, of course, is the plight of individuals trying to navigate (Heh) the Exchanges (both public and private) by themselves. Although the ObamaTax was sold as a means to simplify consumer choice, it's really had the opposite effect. People have questions about subsidies, and plan designs, and networks, and they're not getting answers from the 404Care.gov folks.

So to whom will they turn?

Remember Open Enrollment?

Yeah, about all those newly insured folks:

"Months after the deadline to enroll in a health insurance plan through ObamaCare has come and gone, thousands of Americans have found themselves without coverage due to backlogs or glitches in various enrollment systems"

I blame the enrollees.

No, really:

"Many of the consumers who [believe they] bought "qualified health plan" (QHP) coverage through the public exchange system are scrambling to back up the information they put in their applications."

Turns out, the rocket surgeons who can't even straighten out the problems in their own systems require would-be insureds to "prove it or lose it."

One wonders if when said consumers will claim that the info was on that darned hard drive that just crashed. Should work, right?

One can hardly wait for the next round coming up this Fall.

A Sticky Wicket

Recently, Pat wrote about the ObamaPlan auto-renewal process. Briefly, folks who've already bought new plans on-Exchange will be able to automagically renew their plans by simply checking off a box and sending the form back in to the carrier. Pat wrote about some of the key issues facing consumers who go this route; today, we'll take a look at the issue from the carriers' perspective.

One of the key problems facing insurers is likely to be "retention." Retention is the percentage of policyholders who keep their coverage over time. For some lines of business, a high retention rate is profitable, for others, a higher rate of turnover ("new blood") is preferable. So what's the problem with the auto-renewal process as regards retention?

Well:

"Simply letting [ObamaTax] exchange plan enrollees keep their plans without re-enrolling could change the plans' exposure to health claim risk."

So says Steve Zaharuk, Senior VP at Moody's Investors Service. His argument is that carriers with higher retention rates will have an edge in attracting investors. The idea is that carriers with higher retention rates will have an edge with investors, since "the ability to retain a sizable block of their business, administrative costs will be more predictable, and policyholder inertia will likely result in retaining many healthier, less risky individuals."

I beg to differ.

Historically, it was to the policyholder's advantage to shop around every few years, because it was almost a truism that new business rates at competitors would result in substantial savings (assuming one was in reasonably good health). Why would this change under the auto-renewal system? While it's true that the underlying assumptions that drove those lower new business rates are now gone, the economic issues remain. That is, if you've been relatively healthy the past year, and you see your renewal rate skyrocketing (again), you're going to be shopping.

Mr Zaharuk compounds his mark-missing with this little gem:

"Sick enrollees may be more likely to stick with their QHPs, even if prices rise, because they are in the middle of courses of treatment and need to keep their doctors and hospitals"

That's quite an assumption. First, since there's no underwriting -  Guaranteed Issue means never having to say you're sorry (as in "Declined") - there's little incentive not to shop. Skinny networks are skinny networks, and it's not necessarily unlikely that another carrier's wouldn't have some (or a lot of) overlap. Second, assuming that all (or even most) "sick enrollees" are in the "middle of treatment" is kind of a stretch. Many folks have chronic, manageable conditions that don't necessitate heroic efforts (and specific providers).

In the contest between affordability and accessibility, which do you think's going to win out? From the carriers' perspective, then, I'm not seeing this as a "win."

High Risk Heisman

If you follow college football,you're most likely familiar with FSU quarterback Jameis Winston. As a quarterback, he's in a risky position, so it makes sense that he's amenable to risk management tools. Insurance, of course, is an invaluable such tool, and pretty much custom made for someone in his position.

So what kind of insurance purchase did Jameis make that would make the news? How about a $10 million combination Disability/Loss-of-Value plan?

Regular readers are familiar with disability insurance: if Jameis gets hurt or sick bad enough to never play again, the disability plan will pay out.

The Loss-of-Value policy is interesting in that, instead of replacing his current salary, it "would pay should Winston fall in the draft because of injury or illness." In other words, it would pay out based on what he would have made had his career not been cut short due to injury or illness.

Sounds like a winner.

Happy Independence Day

For certain values of "Independence:"

"HHS releases 1,296 pages of regulations ahead of holiday weekend"

The new reg's deal with provider reimbursement rates.

They've been increased by -2.9% (give-or-take).

Does she know about shrinkage?

LifeHealthPro's Allison Bell reports that "[e]nrollment in employment-based health plans may be declining faster than Congressional Budget Office analysts thought it would."

No kidding.

Here's a question: Based on past performance, why would anyone count on CBO estimates?

The bigger question, though, is what these numbers auger for the future of employer-based health insurance. It seems that actual group enrollment "may have fallen 2 percent, to 177 million in the first quarter of 2014, from 180 million a year earlier." While 2% isn't necessarily catastrophic, one wonders about the long-term trend from here.

The SHOP (small business health insurance Marketplace, or Exchange) is due to come online soon, and it will be interesting to see if that has any effect on these dwindling numbers. Based on the experience of the individual market Exchanges, I'd say: not good.

Cannonfiring Halbig

Regular readers will recall that Cato's Michael Cannon has been all over the Halbig case. Briefly, Halbig argues that the ACA authorized subsidies only on Exchanges built and run by individual states, not the Fed.

Today, the DC Circuit Court is expected to rule on this case. Which way they decide is likely a harbinger of the ObamaTax's future sustainability (such as it is).

We'll update this post once the verdict is announced.

Cavalcade of Risk #212: Call for submissions

RJ Weiss hosts next week's Cav. Entries are due by Monday (the 7th).

To submit your risk-related post, just click here to email it.

You'll need to provide:

■ Your post's url and title
■ Your blog's url and name
■ Your name and email
■ A (brief) summary of the post

PLEASE remember: ONLY posts that relate to risk (not personal finance tips and the like). And please only submit if you are willing to link back to the carnival if your submission is accepted.

Kidnapping & Ransom & Insurance

It's been a while since we've even touched on the subject of Kidnap and Ransom insurance, and that was primarily as it relates to piracy. But as our world has gotten more dangerous (and smaller), it may be worth a quick lesson in how this kind of coverage works. And thanks to the folks at Global Underwriters (nationally recognized experts in this special risks area), we can offer a primer.

First, this type of insurance is actually comprised of several distinct but interrelated risks:

The most obvious, of course, would be Kidnap and Ransom. The covered event "is the abduction and holding of a covered person by someone who is demanding a ransom in exchange for the release of the captive person."

The coverage ostensibly covers the ransom payment itself.

"Ostensibly," Henry?

Peter Schulteis, Executive Vice President  of Global Underwriters, pointed out that it's illegal to insure an actual crime, so carriers have figured out an administrative solution to legally reimburse the actual payment.

There's a related covered peril called Express Kidnapping, which "covered event is a kidnapping where the duration of confinement is less than 24 hours." This was less obvious to me, and I asked Peter for an example: imagine that you've flown over to Merry Olde England for a long weekend of Wimbledon watching, and some bloke sticks a shiv in your ribs, demanding that you hie to the nearest ATM and hand over some cash. That's the kind of thing that this piece covers.

Next is Hijacking, which is defined, conveniently enough, as "the illegal holding under duress of an insured while on board any form of transportation by people who demand a ransom in exchange for release." This is basically an enhancement to the underlying kidnapping coverage.

Detention is "an arbitrary and capricious act of involuntary confinement of a covered person." An example might be the young mother currently hiding out in the American embassy in the Sudan: while traveling, your papers are found "not to be in order," so we'll hold you until you pay up.

And finally, we have Extortion ("when there is receipt of a threat to cause bodily harm or property damage by persons who demand a ransom to not carry out the threat"). Peter offered the fascinating story of how, a few years ago, Chiquita (of yellow fruit fame) was approached by hoodlums who threatened to kill the company's Ecuadoran employees, bit would refrain from doing so for a monthly "fee."

A truly amazing - and scary, really - look into an area of insurance which doesn't get a lot of attention (and maybe that's a good thing).

Thanks, Peter!

And the hits just keep on comin'

This morning, Bob posted on the outrageous waste of money called the Health Exchange, and to which I added a note about its apparently non-trivial cyber-security problems.

But it apparently doesn't take Romanian hackers to fundamentally destroy the site's credibility or usefulness:

"According to [a report from the health department inspector general], the administration was unable to resolve 2.6 million so-called "inconsistencies" out of a total of 2.9 million such problems from October through December 2013."

That's a 90% fail rate. And that's even after "applicants submitted appropriate documentation."

Winning!

Oh, and there's this: out of those 330,000 or so cases that were actually "fixable," only about 3% were actually resolved. And that's a 97% fail rate.

My apologies to those of us who were told that there'd be no math.