Why Wall Street loves Medicare Advantage (and why this should bother you)

Editor’s Note: Journalist Philip Moeller, who writes widely on health and retirement, is here to provide the Medicare answers you need in “Ask Phil, the Medicare Maven.” Send your questions to Phil.

Moeller is a research fellow at the Center on Aging & Work at Boston College and co-
author of “How to Live to 100.” He wrote his latest book, “How to Get What’s Yours: The Secrets to Maxing Out Your Social Security,” with Making Sen$e’s Paul Solman and Larry Kotlikoff. He is now working on a companion book about Medicare. Follow him on Twitter @PhilMoeller or e-mail him at medicarephil@gmail.com.

Medicare Advantage (MA) plans have become the hot topic in Medicare if not all of health care—excluding of course that tiny, tiny upcoming Supreme Court ruling about the Affordable Care Act. Humana, a top issuer of MA plans, has put itself in play for an acquisition, triggering largely bullish Wall Street reports about the investment appeal of this sector.

About 30 percent of Medicare beneficiaries choose MA plans. Their market share is forecast to become a rising percentage of a growth market, given the sustained surge of Americans turning 65 who no longer have employer coverage and are required by law to be covered by Medicare. It’s a sweet deal for insurers—they sell a legally required product that more and more people must have. Uncle Sam lays out most of the bucks while insurers reap as much money as they can under Medicare’s burdensome but ultimately profitable rules.

Other insurers offering MA plans are competitors, of course, but many experts see the industry on the cusp of a major consolidation. When this happens in other industries, the major outcome is often less competition and higher profits. And this is certainly the future seen for MA insurers.

By contrast, the only other Medicare insurance option is basic Medicare, which now is purchased by the 70 percent of the market that does not take MA. Basic Medicare includes Part A, which covers care in hospitals and, within limits, short stays in skilled nursing facilities and other institutional settings, and Part B, which includes covered expenses for doctors, medical equipment and other outpatient expenses.

Basic Medicare is not run by insurance companies but by contractors hired by Medicare. And if you’ve never heard of these contractors or seen consumer outreach ads from them, then you’ll get some idea of the marketing vacuum that MA insurers face in trying to woo customers over from basic Medicare. The bar, as they say, is set very, very low. And that 70 percent figure has been shrinking steadily in recent years.

Basic Medicare does not cover drugs, and while this coverage is not legally required, it is a practical necessity for most seniors (I hate that word and will celebrate when some wordsmith superior to me comes up with a better one). Such coverage is offered under Part D of Medicare.

Most MA plans, by contrast, are offered with a Part D-compliant drug plan built in, making them a more convenient way to shop for Medicare in the eyes of many consumers.

Basic Medicare is often augmented with a Medicare Supplement policy, also known as Medigap. These additional policies cover many of the things not covered by Parts A and B, and through smart shopping, it’s possible to configure a coverage package that removes nearly all of a person’s exposure to uninsured health care risks. It all costs money, of course, which is where MA plans have proven increasingly attractive to consumers.

Many MA plans can afford to offer coverage superior to basic Medicare, in large measure because MA plans use their own network of hospitals and doctors, while basic Medicare is a fee-for-service program that lets beneficiaries use whichever providers they wish, so long as the provider is licensed by the agency, which nearly all are.

By building a provider network within which it has leverage to bargain for favorable pricing, MA insurers can reduce costs. Some also offer things like vision and dental coverage, which isn’t offered by basic Medicare. And some also offer “bells and whistles” features such as gym memberships.

There is a constant tension between Medicare regulators and MA plans. The regulators want a level playing field where everyone gets equal access to quality health care. The MA plans have a competitive desire to distinguish themselves with unique product offerings that appeal to consumers. They want to be different, and they will continue to push the rules to seek competitive advantages.

Now, both “flavors” of Medicare must function under fee schedules approved by the agency. But it’s clear, and not a little amazing, that insurers can make lots and lots of money in Uncle Sam’s Medicare bazaar.

MA plans were subsidized in the years preceding passage of the Affordable Care Act, but this advantage has been cut back in recent years. We’re getting closer to the day where the MA plans will be fully reliant on profits from network efficiencies and better management of people’s health risks. But is there any doubt that the appeal of MA plans versus basic Medicare will continue to favor the insurers? Why else would Wall Street be salivating over this sector? On the other hand, some of the basic Medicare contractors are part of publicly traded companies as well. I wonder how much money they are making off of Medicare?

Your Medicare Questions

Medicare rules and private insurance plans can affect people differently depending on where they live. To make sure the answers here are as accurate as possible, Phil is working with the State Health Insurance Assistance Program (SHIP). It is funded by the government but is otherwise independent and trains volunteers to provide consumer Medicare counseling in state and local offices around the country. The nonprofit Medicare Rights Center is also providing on­going help.

Grant – Fla.: My father is 20 percent disabled and has Veterans Administration benefits. He just turned 65, and we are unsure of how to proceed with Medicare Part B. We would like to go without it and save $104 a month if we can. Somebody mentioned in passing a plan with Humana Gold Plus (HMO) that offers cash back each month. They would pick up roughly $94 of my dad’s monthly costs and $10 would be deducted from his account. Is there really a program like this? Also, if my dad has to keep Part B and pays the $104 a month but doesn’t have supplemental coverage, what would happen in the event he had medical care and couldn’t afford his 20 percent co-pay? Would he lose any benefits if he couldn’t pay? Having to take out supplemental insurance on top of Part B at $104 a month really hits him hard so we were considering going without this as well. I’ve heard there are Medicare assistance programs, but I think he makes too much to qualify. Do you know what the income rules are for these programs in Florida?

Phil Moeller: Speaking of attractive Medicare Advantage plans, here is one that actually pays you upfront, not the other way around! A Humana spokesman confirmed that the company’s so-called “Part B Giveback” plan is available in the Tampa area, where Grant and, I am assuming, his dad live. Go to Humana’s site and enter your ZIP code to see available plans in your area. If you download the plan’s summary of benefits, as I did, you’ll see that it will pay back up to $92 of your monthly Part B premium.

Despite this seemingly sweet deal, this Humana plan has a higher annual out-of-pocket maximum than some other MA policies in your area, including some other Humana policies. Before signing up for this plan, you should see if your dad’s financial resources—income and assets—are low enough to qualify him for a Medicare Savings Program. There are several of these, and your local SHIP office—called SHINE in Florida—can help you work through them. MSPs can pay for all Medicare expenses. Medicare’s Extra Help program helps pay for drugs as well. In this case, it could be that you could do better than with the Part B Giveback policy. Also, make sure any Medicare services he uses are from providers who accept Medicare’s fees and thus can’t charge you more than Medicare’s negotiated rates.

Lastly, and with apologies for more detail than you may need, it’s not at all clear that your dad even needs Medicare. If someone receives most or all of their care from VA hospitals they may choose not to enroll in Medicare Part B. However, if they decide that they later wish to enroll they will face delays in enrollment and possibly also late-enrollment penalties. Reasons for later needing Part B would include moving further away from a VA center, wishing to see doctors outside of the VA network, needing care when travelling, or needing care not covered by their VA benefits. You should check with the VA about situations where Medicare may be needed.

Diana – Mass.: If a medical doctor in a nursing home is providing routine care to a Medicare hospice patient but does not work directly for the hospice company, can Medicare pay them under the patient’s hospice benefit under Part A of Medicare? Can they bill directly to Medicare under Part A for care related to the terminal diagnosis? Or, in the alternative, can the hospice company bill the doctor charges to Medicare Part A under the patient’s hospice benefit and then pay the money received over to the doctor? While hospice companies have their own doctors, they don’t seem to provide direct care to patients. So, if non-hospice doctors are providing care to hospice patients, I think they should be able to be paid for the care, when it is related to the qualifying hospice condition, under the hospice benefit. Is there an administrative procedure at all for billing a non-hospice doctor’s medical care under the hospice benefit?

Phil Moeller: First off, best wishes on dealing with hospice. I am a huge fan of hospice and believe it will become the standard for end-of-life care. Having said that, hospice is not easy and neither are the Medicare rules that govern payment for hospice services. Judi Lund Person is an expert on Medicare rules for the National Hospice and Palliative Care Organization. She says Diana asks a very good question and that “physician billing when a patient has elected hospice is a bit tricky”—rarely a promising beginning to a Medicare answer. Part A certainly will pay if the care is provided by a hospice-employed or hospice-contracted physician. The hospice bills Medicare and reimburses the physician. If, instead, the physician is the patient’s independent attending physician, Part A does not cover this but Part B does. The physician would bill Part B and include what’s called a “GV modifier,” meaning he is not employed or compensated by the hospice and that her or his services were related to the patient’s terminal prognosis. If the doctor is not the patient’s attending physician and is not employed or under contract to the hospice, Medicare will not cover the services provided to the patient, according to Lund Person. If the doctor in this particular nursing home regularly provides hospice-related care to patients, I’d hope they are under contract to the home. Hospice programs are required to have medical directors, Lund Person notes, and they should be alert to the Medicare payment implications of care decisions. Patients often select a hospice physician to be their attending, she explains, adding that a nurse practitioner also can fill this role. She suggested it might help you to read this Medicare explainer on hospice and Part B coverage.

Steve – Ala.: I recently had my home oxygen taken away because my blood gas numbers were too good. However, I really struggle without it and am worried I’m going to pass out or have a heart attack or stroke. Do I have the right to get retested as an outpatient, or do I have to wait until I am so sick that I get hospitalized in order to qualify again?

Phil Moeller: Your doctor is the key player here. Regardless of your numbers, if your doctor thinks your health is at unacceptable risk without your home oxygen, he or she should help you file an appeal. You also should be able to see your doctor and be retested as an outpatient. Call your doctor’s office and make an appointment. Ideally, your doctor’s office would have the needed testing equipment. If not, talk with the office about scheduling the test in a hospital as an outpatient. The office should be able to confirm that the test is a covered expense. As for the equipment itself, Part B of Medicare will cover it if you meet these four conditions:

• Your doctor says you have a severe lung disease or you’re not getting enough oxygen.
• Your health might improve with oxygen therapy.
• Your arterial blood gas level falls within a certain range.
• Other alternative measures have failed.

Of course, it’s always possible that your blood gas numbers will continue to disqualify you for this equipment. Or, your doctor might want to wait for a retest until a certain amount of time has passed since your last test. In any event, good luck.

Walter – Ariz.: Are Medicare benefits retroactive for six months for individuals who enroll in the program after turning at least 65 and a half? In my case I have a Health Savings Account/High Deductible Health Plan (HSA/HDHP) and do not want to enroll for at least two more years, when I will be 67 and my wife 65. I know you should stop HSA contributions six months before you file for Social Security, because Medicare benefits are considered retroactive for six months, but do I have to similarly stop HSA contributions six months in advance of enrolling only in Medicare? I do not plan on filing for Social Security until a later date.

Phil Moeller: Yes they are. You should check with your employer to see if you can defer signing up for Medicare because you’re covered under the employer’s health plan. If you can, you might consider waiting to sign up for Medicare so you won’t lose your HSA benefits. You also might want to talk with Social Security to figure out your best timing strategy to shift from your employer plan into Medicare.