ON MEDICARE DRUG PLAN
November 11, 2005
Health correspondent Susan Dentzer talks with Robert Laszewski, a health insurance industry consultant, about the new Medicare prescription drug plan.
The NewsHour Health Unit is funded by a grant from The Robert Wood Johnson Foundation.
SUSAN DENTZER: Let's go back in history and encapsulate what people thought on the eve of the passage of the Medicare reform law in 2003, what they thought might be ahead for this market, and the doubts that they had about it versus what's actually transpired since.
ROBERT LASZEWSKI: Well, there were a lot of doubts about
this as a marketplace. Would health insurers, HMOs, come to the table
and actually offer products? And a lot of people in the industry --
and I'm one of the people in the industry -- really didn't think we
would see anywhere near as many, or any health plans come to the table,
because this is an insurance plan that wasn't created by insurance executives,
that worked the way insurance executives like them to work.
This was a health plan that was really created by politicians,
a lot of input from the drug industry in terms of what the pharmaceutical
industry wanted to see here.
So it was really crafted by people outside the insurance
industry, and crafted in a way that, frankly, violates a lot of the
traditional insurance underwriting rules we've all come to expect. When
you have a voluntary plan that pays first dollar benefits, that people
can decide they're going to be in or not be in, what tends to happen
is a lot of seniors, or a lot of customers for a plan like that sit
down and decide whether they're going to make any money on it from day
one, as opposed to an insurance plan.
When you buy insurance, you don't buy your auto insurance, knowing you're going to have a car crash tomorrow. You buy insurance because you, you're not sure what's going to happen.
SUSAN DENTZER: So despite these doubts, what's actually occurred?
ROBERT LASZEWSKI: What's actually occurred is in an enormous response by the insurance industry. In fact, what's happened is far more insurance companies than we expected would show up. Instead of having no one in the market, in effect we've got the other extreme, we've sort of got the market run amok. In Charleston, West Virginia, for example, there are more than 50 different plans that seniors have to choose from.
It's an almost impossible task to figure out which of the plans best suits their needs.
|Insurance company response|
SUSAN DENTZER: What could possibly explain this exuberant response from the market?
ROBERT LASZEWSKI: Well, I think when the day was done, most insurance
companies felt that they -- if they were going to be in the senior health
insurance market, if they were going to be there with other products,
other health insurance products and other products for seniors, they
were afraid that they'd get left out, that they would not be seen as
active and vibrant in the senior marketplace, and so most of them got
Also many insurance companies did analysis and found that they could
modify the plan designs in such a way, that perhaps they could move
seniors to lower-cost drugs.
One of the big opportunities in the pharmaceutical insurance business
is moving people away from brand name prescription drugs that might
cost a $100 a month for a monthly prescription, to a generic equivalent
that might cost $30 a month.
So you may have very high drug costs for the senior who's on brand
name drugs, but if they can be given incentives, reasons why they'd
want to look at more cost-effective drugs, you can change the insurance
structure and it could theoretically be very profitable.
So this is still a very contentious issue.
SUSAN DENTZER: We had some plans coming in and offering extremely low premiums. Humana, ten bucks a month for some of its plans in West Virginia, as is elsewhere in the United States. What's going on?
ROBERT LASZEWSKI: Well, they may be wrong, they may be underpricing
them beyond where they think they should. People make mistakes in the
way they price health insurance every day. They may be structuring those
plans in such a way that it's going to have a very high co-pay or very
high out-a-pocket amount for a brand name drug, and the only way you're
really going to be able to get good coverage is if you take the cheaper
generic. I don't know that that's the case. But plan design has a lot
to do with it.
In a sense, I think what I would say to seniors is you get what you
pay for. So whether Humana was right or wrong in the way they priced,
we in -- we'll be very curious to know in the industry, in 18 months,
whether they were or not.
But I -- what I would say to a senior is just be very careful in looking at those cheaper plans and knowing what it means to you.
SUSAN DENTZER: What price you're paying to be in a cheaper plan, you're saying.
ROBERT LASZEWSKI: That's right, because you could have a plan that
costs almost nothing per month. It's going to be a reasonable plan.
There are no bad plans here because Medicare has approved all of them.
They're all considered actuarial equivalents of one another. In other
words, the amount of money it should cost the insurance company from
one plan to the other is going to be about the same.
SUSAN DENTZER: Several years ago, in the Medicare HMO market, we saw lots of plans come in initially and then lots of plans exit the business entirely. Are we going to see that kind of a shakeout in this market?
ROBERT LASZEWSKI: We will almost certainly see a shakeout here. We
will not have, I don't think, as many insurance companies competing.
So almost certainly we'll have a shakeout in the market somewhere down the road.
SUSAN DENTZER: What does that mean for people who are trying to pick a plan today? How can you be assured that you're going to pick one that's going to be around for a while?
ROBERT LASZEWSKI: I wouldn't be too worried about whether the insurer
today, that I pick today, is going to be around in five years or not.
First of all, this is very carefully regulated by Medicare. You're not
going to have anyone going out of business and not paying their bills.
I don't think there's any real chance of that.
Secondly, if an insurance company withdraws, you're automatically able to enroll in another plan. You'll be given plenty of notice of that. Seniors have got a lot of things they have to worry about in terms of which plan they pick. I wouldn't even put that one on the list right now. I would worry about which plan works best for you.
SUSAN DENTZER: Now the good news about all this competition is that prices are lower than expected, both on the insurance side and on the drug side. What's the bad news?
ROBERT LASZEWSKI: Well, the bad news is, is we have too many plans
to choose from, it's a very confusing marketplace, it's really hard
to know if -- yeah, the premium is lower but what are you getting for
You know, the good news we have competition and we have lots of choice,
but in a sense we almost have choice run amok.
If I'm in Charleston, West Virginia, as a senior who hasn't had a lot of experience in this, trying to figure out which of the more than 50 plans to choose from is almost a nightmare.
SUSAN DENTZER: You've had some experience trying to sift through the various options on behalf of a relative. Tell us about that experience.
ROBERT LASZEWSKI: Sure, and, you know, it's really important here for
the children of seniors to get involved in this, because many of the
seniors, when they receive health insurance through their employer,
their employer made all these decisions for them. So, you know, we don't
have -- a lot of the senior generation has never had to make these kinds
of choices before.
They've always been given maybe one or two or three plans at work to
choose from, or perhaps just one. And this is really daunting. So I
think it is very important for the next generation to be involved.
There's a lot of information available on the Internet that is easily
accessed, that maybe the senior's not able to get at.
So it's really daunting to figure it out and my experience is that
one of our folks said, you know, this is overwhelming, I don't even
wanna look at it. They just wanted it to go away. And you shouldn't
let that happen, because this is, for all its complexity, a really good
drug plan for seniors.
The government is paying about 75 percent of the costs. Yeah, the senior
might be paying $10, $20, $30 a month but the government's paying more
than a $100 a month on behalf of everyone who signs up.
SUSAN DENTZER: Is that true, across the board, for the vast majority
of Medicare beneficiaries? There are some people who might have military
coverage, who are going to stick with that, or employer coverage that's
going to be subsidized.
But everybody else?
ROBERT LASZEWSKI: Very -- it's a very good point to say that not everyone
should sign up because they already have coverage. If you're in an employer
retiree plan, if you're in a government plan, you work for the city
or county or state, for example, it's very likely that many of these
people already have good coverage. They'll receive a letter from their
plan sponsor, telling them that their plan coverage is at least as good
as Medicare Part D, the drug plan. If they receive that letter, they
should do nothing. They should be very happy that they've got that great
coverage and I think just let it be.
If they are in a Medicare HMO that gives them good drug coverage today, it's likely that they should stay put. But take a look at what your benefits are and perhaps compare them, but in all likelihood you should stay where you are. But if you don't have drug coverage today, I think you'd really be foolish to pass this up with the government paying 75 percent of the costs.
SUSAN DENTZER: So how should a senior or a disabled person go about choosing a plan?
ROBERT LASZEWSKI: How a senior goes about choosing a plan is going
to be complicated. There's just getting around it, and this is daunting.
It's daunting for me to look at all these selections.
If you have the ability to go on the Internet and you're good on the
Internet, there's a Web site at Medicare, it's in the booklet, where
you can put your drugs in and it will tell you which of the plans will
cover you and how well. If you're in a marketplace where there may be
50 plans or 30 plans, you're probably going to get a lot of information
back and it's going to be difficult to digest it all.
If nothing else, if you're not able to really do the comprehensive
review which I think very few people are going to be able to do, if
nothing else, look at the plans, find an insurance company that you
know to be a credible, good company that's been around a long time,
maybe you've done business with them before. Look at the insurance premiums
that are being charged. As a general rule, the more you pay the more
you'll get. The higher-priced plans will probably cover those name-brand
drugs better. The cheaper plans won't cover the name-brand drugs as
well but will probably cover generic brands pretty well.
Pick a plan that is affordable for you, and if nothing else, pick something
in the middle in terms of price. Call their 800 number, have your drugs
that you take ready, and ask them how they're going to cover them. If
it sounds to you like they're going to cover them reasonably well, buy
I think one of the problems here is we can get so caught up in the details and as a result throw our hands up and walk away, when in fact, getting a good plan, it may not be the best plan you could get, but if the alternative is not getting this coverage, I think you're foolish because you can't buy a bad plan.
SUSAN DENTZER: Again, because the rules were set by Medicare.
ROBERT LASZEWSKI: The rules were set by Medicare. Medicare approved
all of these plans. Medicare looked at the financial stability of the
insurance companies, the reasonableness of the rates that the insurance
companies were charging. The benefits all fall into the parameters of
what the Part D drug benefit is supposed to be. Yes, one particular
plan may not pay your particular drug as well as another one, but if
the alternative is throwing up your hands and not buying any of the
plans, I think you've made a mistake.
Also this will sort out over the next 2 or 3 years. It will become clearer which of the plans are better, and you can change every year without penalty.
|Looking for plans|
SUSAN DENTZER: You went out to look for a plan on behalf of your mother-in-law.
ROBERT LASZEWSKI: Yes.
SUSAN DENTZER: Tell me what was going through your head as you were looking. What did you do?
ROBERT LASZEWSKI: I know first hand how daunting this can be for seniors
because my own mother-in-law was basically throwing up her hands and
saying, "Just make it go away. I've got a good health insurance
plan, I'd got a good Medigap plan, I've got the booklet, I've tried
to read it, it's just too complex." And I said, "Wait a second.
The federal government is paying 75 percent of these costs and you don't
have prescription drug coverage. So let's let me take a look at it.
Tell me which drugs you're taking, I'll go through the book in the Hot
Springs, Arkansas, and we'll try to figure it out."
In doing that I found that were again dozens of plans available. It
was very difficult to know which of the plans were going to cover which
drugs and exactly what the co-pays were. You have to either go online,
go on the Web which is a very complex process, or you've pretty much
got to call each of the companies and ask them if they'll cover the
What I finally said to her was, "We are never going to figure out exactly which of the plans is best for you, and I do this for a living." What I did is I pointed to a company that is well known among consumers, is a good brand name, with a price that was sort in the middle, and I said, "Let's call this company and see how they cover your drug, and if they cover it reasonably well, make that choice. Rather than make no choice and give up the federal subsidy and give up any kind of drug coverage, make that choice because making no choice and having no coverage really makes no sense at all. This is important to take advantage of it. And we may not make the perfect choice, but it's foolish not to take advantage of this."
SUSAN DENTZER: Did you say to yourself as you were going through this, I've been in the business for three decades, I don't know how to make these choices?
ROBERT LASZEWSKI: Yes. I've been in the business for 30 years, I read
every page in this book. I'm supposed to be an expert in Medicare and
lots of it confused me, and it was very hard to navigate in certain
I compliment CMS for putting an absolutely terrific manual on Medicare
together, but for a senior who doesn't pay attention to these things,
Medicare is a very daunting and complicated program. And to date, most
of the decisions that seniors have had to make around Medicare, Medicare
has made for them. Suddenly they're expected to do this evaluation.
Lots of seniors when they work during their working years, their employer
made all the benefit choices for them. Maybe the employer gave them
one or two clear choices to make, but here you've got to choose in Charleston,
West Virginia, from among 50 things.
It's interesting that in Medigap, the basic coverage that so many seniors
have, we learned some years ago to standardize Medigap. There are a
certain specific, small number of Medigap plans that are available out
there. The senior chooses the Medigap plan that works for them and then
finds the insurance company that does the best job in terms of price
or whatever else on that plan.
Here instead of having a few standardized plans, if there are 50 plans in the book, every one of those plans is different. So it's as if we forgot the lesson we learned in Medigap when we standardized it a few years ago.
SUSAN DENTZER: About a year ago a Kaiser Family Foundation poll suggested 1 out of 10 beneficiaries would sign up. Apparently now most surveys are showing 1 in 5 beneficiaries will sign up. What do you think enrollment is going to be?
ROBERT LASZEWSKI: I don't know what enrollment is going to be. The
anecdotal evidence is seniors are very confused and very frustrated,
and I don't blame them, and as a result, one would expect many fewer
people signing up than they should.
And again I'll give you the same message I've given you before which
is sign up. Don't let the confusion and the details scare you away.
You could do a lot worse things than throwing a dart at the board and
signing up for that one. It won't be the perfect plan, but there are
some very good benefits here, particularly catastrophic benefits if
you get very sick. I wouldn't suggest throwing any darts.
Again, find a company you know, find a premium you can afford, call
their 800 number and ask them how they'll deal with your drugs. If it
sounds reasonable, sign up for it. If it doesn't sound reasonable, go
to your second choice, and don't try to make the perfect decision. I've
been in this business for 30 years and I can't make the perfect decision.
ROBERT LASZEWSKI: Seniors can sign up between November 15th and May
15th of next year, anytime during that period. Their coverage is effective
the month after they sign up. There's a penalty for late enrollment.
That penalty is 1 percent for every month they delay.
Again I think it's important for seniors to sign up right away and
have the insurance. You just don't know what's going to happen. But
if for some reason you don't sign up between now and May 15th, it is
not a daunting penalty. If you think about it, if you delay 3 years
after May 15th, if you delay 36 months, your premium would be 36 percent
higher than it would have otherwise been. If your premium was going
to be $30 a month and it's going to be 36 percent higher, it's only
going to be a little bit over $40 a month to sign up even 3 years later.
It takes 100 months or more than 8 years for your premium to double.
So if for some reason you don't sign up now, the penalties are not that
severe to sign up later on.
Now you can't join a plan until the end of the year. There is only one guaranteed enrollment period a year at the end of the year, so that's important to understand also. I think it's important to sign up. This is a reasonably priced insurance product and it's one that you could well use. It's not going to cost you a lot of money. But if you do miss the enrollment for some reason, don't think that the train has left the station forever. The penalty is not that great.