Altered State: Health Care Reform and the Medicare Market By Dwane McFerrin FOR AGENT USE ONLY - NOT FOR USE BY GENERAL PUBLIC
It was the most indelible image to emerge from last summer s infamous town hall meetings: an elderly man in Simpsonville, S.C. standing up to tell congressman Robert Inglis (R S.C.) to keep your government hands off of my Medicare. Funny and ironic as that statement was, it was also prescient in a way. Though Medicare beneficiaries and agents in the senior market will experience some changes resulting from the reform bill Barack Obama signed into law this spring, it seems Congress did keep its hands off Medicare for the most part at least compared to the comprehensive overhaul in the under-65 market. But there were indeed changes, and where there is change there is opportunity. Now it s up to savvy agents to understand how the health care reform bill will affect the Medicare Advantage, Part D and Medicare Supplement plans they sell and how they can capitalize on the opportunities that will inevitably arise from this change. This white paper should help. continued on next page»
Medicare advantage The Obama administration delivered on its promise to damage the Medicare Advantage program. Short of a repeal or non-funding by a Republican-controlled Congress, MA plans will face the most change and adversity of all Medicare-related programs. In a report detailing how the recently passed reforms would impact different categories of health insurance, The Centers for Medicare & Medicaid Services (CMS) predicted that Medicare Advantage enrollment will be cut in half due to the new laws. The report forecast that reductions in Medicare Advantage payments which will lead to less generous benefits for enrollees will reduce total MA enrollees to 7.4 million by 2017 roughly half the number of enrollees today. But there are opportunities as well. Here are key changes resulting from Health Care Reform: 1. You know those quality ratings you see on Medicare.gov? Those aren t consumer ratings but scores determined by CMS. The five star ratings will carry some teeth in the future. Only one-in-four Medicare Advantage plans garner a four star rating. They will be the big winners with reimbursement rate quality bonuses of up to 10% in certain markets. 2. A minimum loss ratio of 85% will be required. Beginning in 2014, plans will be required to return the difference to CMS if loss ratio is too low. Plans can be suspended if loss ratios remain below 85% for two or more consecutive years, or terminated for five consecutive years. Any squeeze on profit margins means the carrier will have to operate on lower expenses. That can t be good news for agent commissions. 3. Payment rates for 2011 are frozen at 2010 levels, so MA carriers aren t facing any immediate cuts. Beginning in 2012, the payment methodology changes for insurance carriers. Counties will be classified in one of four county quartiles with some rural and suburban areas receiving up to 115% of the traditional Medicare amount and more urban, populous counties as low as 95% of standard Medicare rates. In 2010, 34% of Medicare Advantage beneficiaries are in counties slated to receive the higher reimbursement rates in the future. Carriers will be even more selective where they choose to market their products. 4. For those agents who hated selling during the heavy retail selling season and the holidays, there is reason to smile. The Annual Election Period (AEP) will change in the fall of 2011 to October 15th through December 7th. The Open Enrollment Period (OEP), starting in January, 2011, will be 45 days reserved only for those beneficiaries who want to leave a Medicare Advantage plan and return to Original Medicare and a Part D plan. Say goodbye to the traditional OEP and like-to-like switches.
The Unknowns: How will carriers respond to the dramatic funding changes? Their work was cut out to migrate from PFFS to network-based plans. Today s attractive markets may not necessarily be attractive to carriers in the future. How many of the 11.5 million seniors participating in Medicare Advantage plans will shift back to Original Medicare and purchase a Medicare Supplement? Our take: The carriers with low administrative costs and high quality win. The shift in focus toward disease management, medical management and network development which was already underway will continue. Expect the carriers to be even more demanding on agent compliance issues to maintain their star ratings. Carriers with an established presence and strong cost control methods will prevail and some carriers will likely be forced out of the market. Most MA carriers are already managing to an 85% loss ratio. Don t expect big changes in commissions since they are already regulated by CMS. The growth rate for Medicare Advantage plans will decline, primarily due to carrier exits from certain markets. continued on next page»
Prescription Drug (part d) One achievement to be hailed from health care reform is the closing of the coverage gap, also referred to as the donut hole. The change is not immediate, however. It will be phased in over 10 years with the beneficiary coinsurance rate being gradually phased down from 100% to 25% by 2020. Beneficiaries who reach the coverage gap in 2010 will receive a $250 rebate. The elimination of the tax deduction for Retiree Drug Subsidy (RDS) payments to employers will increase the size of the individual market. For those employers keeping the RDS, there will be an immediate impact on the FAS liabilities. Look to agents, call centers and online services including Medicare Coordinators to help transition clients from group to individual coverage. Carriers will not be allowed to offer more than three Part D plans as part of the PDP guidance on plan sponsor acquisition. This means that carriers that acquire or purchase other plans must consolidate the PDP plans within a limited timeframe. Some carriers use a direct-to-consumer plan design without agent commissions to compete for the auto-assigned dual-eligible population. They use a different carrier name for the agent-sold plans. For these carriers, their work just got more difficult. Closing the coverage gap couldn t come at a better time for the 78 million Baby Boomers poised to begin aging into Medicare in 2011. Choosing the right Part D plan won t be as daunting now that out-of-pocket expenses are limited. What will the agent need to know? 1. Careful review of the plan formulary will be important. Utilizing carrier tools, Medicare.gov or other quoting tools provided by Independent Marketing Organizations (IMO) will be important to ensure the client s drugs are covered by the plan. 2. The individual market will increase in size dramatically due to those leaving employerbased group coverage and those aging into Medicare. The number of agents available to service the clients will not be enough. Expect to see alternate methods of distribution applied by the carriers. Part D will remain a key door-opener product for many producers. 3. Beginning January 2011, beneficiaries who pay a higher Part B premium due to income above $85,000 for individuals and $170,000 for couples will begin to see Part D premiums also vary based on income.
4. Hoping that high-cost brand drugs will soon become labeled as generics? Think again. The Food and Drug Administration can approve generic versions of biologic drugs and also grant the manufacturers 12 years of exclusive use before generics can be developed. Expect some pressure on the manufacturers, but the pharmaceutical industry is well represented in Washington. The Unknowns: As the benefits are strengthened for Part D plans, how high will premiums go? Premiums have been kept relatively low by shifting cost increases to co-pays and deductibles. Will seniors drop drug coverage if they aren t on a lot of drugs and take the risk of paying a penalty later? Did the Obama administration s deal with the pharmaceutical industry put a lid on costs for the future? Here is wha has happened since 2006: 2006 2007 2008 2009 2010 Deductible $250 $265 $275 $295 $310 Coverage Gap Begins $2,250 $2,400 $2,510 $2,700 $2,830 Catastrophic Coverage Starts $5,100 $5,451 $5,726 $6,154 $6,440 OOP Threshold $3,600 $3,850 $4,050 $4,350 $4,550 Our take: Carriers will do all they can to keep premiums affordable. The $310 deductible will not change for 2011. Expect a continuing trend of tightened formularies, higher co-pays, step therapy and quantity limits. Richer plans will see significant premium increases.
Medicare Supplement Unless the regulators place minimum loss ratio requirements on Medicare Supplement and other supplemental plans, Medicare Supplement agents may be the big winners in all this here s why: 1. Modernized plans, including the new Plans M and N, create new opportunities for agents to sell coverage with lower rates than traditional Plans F and G. These new plan designs also compete with Medicare Advantage on one important point: They pay benefits above and beyond Original Medicare. There will be a land grab with Plan N, in particular with some carriers offering guarantee issue to attract Medicare Advantage clients. 2. New carriers are entering or re-entering the market, providing more choice to consumers. Competition is good and along with that comes innovative services, including telephonic and electronic applications, something that traditional Medicare Supplement carriers have avoided. 3. Taxation of the Retiree Drug Subsidy (RDS) for employer-sponsored plans has many groups reconsidering if, or for how long, they should continue to offer group coverage for their retired workers. Recently, large companies like AT&T, Verizon, Caterpillar and John Deere reported the bottom line impact of the new taxes in the tens and hundreds of millions. Many large employers have already moved to transition from group to individual coverage using a Medicare Coordinator model of call center or online enrollments. The taxation of the RDS will only speed the process and increase the size of the individual market. The elimination of the RDS tax deduction is effective January 1, 2013. continued on next page»
The Unkowns: Will the 80% loss ratio for individual, under-65 products be extended to Medicare Supplement? If so, carriers will have to reduce expenses drastically, including agent commissions to remain a player in the market. Will the doctor fix be implemented to increase or maintain provider reimbursements for Medicare patients? Today, 90-95% of providers accept Medicare assignment. Without the doctor fix (which is estimated to cost more than $200 billion), we could see the number of providers accepting Medicare assignment go down sharply. Our take: The minimum 80% loss ratio for individual products affects the under 65 market and Medicare Advantage market, but will not apply to plans that supplement Original Medicare. We predict the doctor fix is in whether temporary or permanent. Congress will make sure the reimbursement rates are increased after the health care reform dust settles. continued on next page»
conclusion As the Health Care debate raged on over the last 18 months, many opponents of the legislation used sky-is-falling scenarios to describe how it would affect the private insurance market. We re predicting nothing of the sort in the senior market. Quite the contrary, the outlook for Medicare Supplement in particular has never been stronger. Senior Market Sales works with top carriers and our marketers have the knowledge and the experience to help you navigate change and align yourself with the strongest products in your area. Click here if you d like a follow-up from a marketer about the Medicare Supplement, Medicare Advantage and Part D products your clients are looking for. Senior Market Sales also has exclusive lead programs and proprietary agent tools that will make you more efficient and more productive. Click here if you d like to learn more about SMS Agent Tools and Lead Programs that will help you leverage time, make more money and put your business in a position of distinction. To see all that we have to offer, go to www.seniormarketsales.com. Or Call 1-877-645-0147 to speak to a marketer. Dwane McFerrin is director of Medicare Solutions for Senior Market Sales Inc. of Omaha, NE, one of the nation s largest independent marketing organizations. McFerrin has more than 25 years of experience in the senior market. He can be reached by e-mail at dwane@seniormarketsales.com.
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