Dear Clients & Friends of Cornerstone:
Open enrollment for Medicare has already begun. This month’s article explains how to shop and compare policies for your prescription-drug and Medicare Advantage plans, and also presents options you may not have considered that could save you money. In the long-run, doing a little homework before you switch will pay off if you can find a plan that meets your needs and costs less.
Medicare’s Open Enrollment Checklist
Premiums for top prescription-drug plans will rise an average of 8% in 2016, but there are opportunities to save, says contributor Mark Miller.
By Mark Miller | 10-12-15 |
If you’re enrolled in Medicare, get ready to shop.
Fall open enrollment for prescription-drug and Medicare Advantage plans runs from Oct. 15 to Dec. 7. It’s the best chance seniors will have all year to manage their health-insurance costs by comparison shopping–and possibly switching providers.
Many seniors don’t bother to reshop their coverage annually, but they should. Premiums for prescription-drug plans (PDPs) can jump sharply from year to year, along with the level of coverage provided for medications. Premium hikes haven’t been a big issue in Medicare Advantage, the all-in-one managed-care alternative to traditional Medicare. But their networks of healthcare providers can change from year to year, along with quality ratings.
Research by the Henry J. Kaiser Family Foundation (KFF) found that, on average, just 13% of enrollees voluntarily switch their drug or Medicare Advantage plans year to year–which suggests many people are leaving money on the table. The study found that 46% of plan switchers saved at least 5% the following year, mainly on premiums.
For 2016, PDP costs will rise at the fastest clip in five years, driven mainly by the rising cost–and usage–of specialized drugs designed to fight catastrophic illnesses.
Medicare officials said in July that the average premium for a basic Medicare Part D prescription-drug plan next year will hold steady at $32.50 per month. But the 10 most popular plans–which include basic plans and those offering enhanced coverage–will see premiums rise an average of 8% next year, according to Avalere Health, a consulting and research firm. Five of the most popular plans will see double-digit increases (see chart). That’s a big change from recent years–average premiums for the top 10 have been flat or down a bit in each of the past four years. The average PDP premium in 2016 will be more than $40 for the first time in the program’s history.
Costs also are rising elsewhere in Medicare. The Medicare Part B premium may jump more than 50% for some enrollees, although final numbers won’t be released until later this month.
Here’s hoping that Medicare beneficiaries will take the time to shop this fall; with that in mind, here’s an open-enrollment shopping checklist.
Check your statement. Medicare plans mail an Annual Notice of Change (ANOC) to PDP and Advantage enrollees no later than Sept. 30 each year that contains fair warning of any significant changes in coverage for the year ahead. The ANOC is an excellent starting point for shopping, since the statement is personalized. “If a medication you take no longer is covered, or the terms of coverage have changed, the statement must notify you about that,” says Frederic Riccardi, director of client services for the Medicare Rights Center, a nonprofit advocacy group.
Pick your premium. Monthly premiums–and increases–are all over the lot for the top 10 plans, which account for more than 80% of total Part D enrollment.
PDPs come in two basic flavors–basic and enhanced. By law, plan sponsors must offer a standard benefit package that includes an annual deductible and a gap in coverage (the “donut hole”) when spending reaches high levels. Enhanced plans offer some coverage in the donut hole (more on the donut hole below).
Enhanced plans come with much higher premiums. For example, AARP MedicareRx Preferred, which is the largest of the top 10 plans, will see its average premium jump 21% to $60.79. Humana Enhanced will boost its average premium 25% to $66.25. Higher premiums for enhanced plans stem, in part, from higher plan costs for sophisticated drugs used to battle catastrophic illnesses, says Tom Kornfield, vice president of Avalere Health. “It’s a combination of higher prices and higher utilization.” The largest basic plan, SilverScript Choice, will charge an average of $22.56 next year.
Look beyond the premium. Consider not only the monthly premium you’ll pay, but how well a plan matches your medication needs. Look carefully at the “formulary” in a plan to determine if your prescriptions are covered, what cost-sharing is required, and whether any special rules apply. In some cases, the insurer can require you to start with an alternate medication rather than the drug your physician prescribes (step therapy), limits on quantity, or a required prior authorization.
Plans increasingly are using preferred pharmacy networks to deliver drugs as a cost-control mechanism; that could be a big retailer, such as Wal-Mart (WMT), CVS Health (CVS), or Walgreens (WBA), or a delivery-by-mail option. Make sure you are comfortable with the delivery network for plans that you’re considering.
Gap coverage or not? If your drug spending is low, you’ll save money on premiums by going with a basic plan; should costs jump sometime during 2016, you can switch to an enhanced offering in 2017 that protects you in the donut hole.
The coverage gap starts when total annual drug spending by you and your insurance company hits a certain point. In 2016, the gap starts at $3,310 and ends after you’ve spent $4,850. Every month that you fill a prescription, your drug plan mails you an Explanation of Benefits notice, which tells you how much you have spent on covered drugs and if you’ve reached the coverage gap.
The Affordable Care Act gradually closes the donut hole, and currently it gives enrollees who enter the gap discounts on brand-name and generic drugs. In 2016, the discount on brand-name drugs remains 55%; the discount for generics will increase from 35% to 42%.
Click here for more details on how the donut hole works.
Is Advantage advantageous? Advantage plans have gained enrollees quickly in recent years as more enrollees turn to them to save money on premiums; about 33% of Medicare enrollees are in Advantage plans this year.
When you join an Advantage plan, Medicare provides a fixed payment to the plan to cover your Medicare Part A (hospital) and Medicare Part B (medical insurance) coverage. There are usually additional copayments and deductibles, depending on the type of plan you join.
Advantage plans are required to use any savings they achieve between the government payments they receive and their costs to either reduce premiums or improve the benefits they offer. The plans also can offer–and charge for–supplemental benefits such as vision, hearing, and dental care.
Many plans wrap in prescription-drug coverage with no additional premium. Avalere reports that 81% of Advantage beneficiaries will be able to pick a plan with no additional premium for drugs, up from 78% this year; the average monthly Advantage plan premium will fall 1%, to $32.60.
What’s your share? Advantage plans aren’t permitted to charge cost-sharing, such as coinsurances, copays, or deductibles, for certain preventive services that don’t have cost-sharing under traditional Medicare. These include the program’s initial preventive-care visit, annual wellness visits, and screening procedures.
Although traditional Medicare does not include an annual out-of-pocket limit on cost sharing for Medicare A and B benefits, all Advantage plans are required to have a limit no higher than $6,700 annually.
The out-of-pocket caps imposed by plans have risen in recent years, according to a KFF analysis. Between 2011 and 2015, the share of enrollees in plans with a limit above $5,000 nearly doubled to 46%; over the same period, the share of enrollees in plans with limits below $3,400 declined from 51% in 2011 to 27%.
Study the network and quality. Although an Advantage plan will save money for some seniors, it’s important to review the plan’s network of doctors to make sure yours are in the plan. Also pay close attention to the plan’s copays, coinsurance, and deductibles for in-network and out-of-network care. Pay particular attention to the drug coverage offered by Advantage plans, as outlined above.
Medicare rates Advantage plans on a 5-star rating scale. A growing share of plans have achieved 4- and 5-star ratings in recent years, due in part to incentives built in to the ACA.
The Medicare website’s Plan Finder tool lets you sort plans in your area by quality rating–and you can view different components of quality. “A number of different measures go into the overall rating, so you can take a look at how a plan earned its rating,” Riccardi says. “A plan might be getting high ratings in an area like customer service or the health of its membership.”
Riccardi also recommends talking with your physicians to determine which plans they participate in–and whether they expect to stay in the plans long term.
Enroll smart. Talking to individual-plan sponsors by phone can help get your questions answered. Riccardi recommends doing your actual enrollment over the phone with Medicare (1-800-MEDICARE) or online in order to create an official record of your selection. That’s crucial if you later find any errors in your enrollment and need to backtrack with Medicare. “Make sure you get–and print out–a confirmation number,” Riccardi says.
The Medicare Rights Center maintains a free telephone hotline (1-800-333-4114) that can walk beneficiaries through differences between traditional Medicare and Advantage plans, and help with selecting PDP and Advantage plans. State Health Insurance Assistance Programs can also provide this kind of free assistance.
If you’re willing to pay to get advice and help with paperwork, hire an independent, fee-based counseling service such as Allsup Medicare Advisor or GOODCARE.com.
Mark Miller is a retirement columnist and author of The Hard Times Guide to Retirement Security: Practical Strategies for Money, Work, and Living.