Making Sense Of Medicare

We'll help you navigate the new maze of options

If you are over 65, you're about to get a 56-page booklet from Uncle Sam called Medicare and You 2000. It doesn't have much of a plot. But it might be the most important reading you do this year.

For seniors or their adult children, the volume outlines the choices Medicare recipients face in the fast-changing world of health care. And if you are one of 327,000 people in a health maintenance organization that is pulling out of Medicare on Dec. 31, it has key information about how to keep getting care.

But Medicare is mind-numbingly complicated, and it's all too easy to get lost in a maze of options. To ease your way, BUSINESS WEEK has prepared a primer on the choices available under Medicare. We look at how they work and review the pros and cons of each.

Basic care for 33 million seniors is provided through traditional Medicare. It is divided into Part A, which covers hospital stays, and Part B, which pays for your visit to the doctor. While there is no premium for Part A, Part B costs $45.50 a month.

PLENTY OF PLANS. Medicare is a fee-for-service system, so you can pick your own doctors and hospitals. But it has some real drawbacks, says Diane Archer, executive director of the Medicare Rights Center, a New York-based patient advocacy group: "It requires you to spend a significant amount of money if you get sick."

For instance, you pay the first $768 for a hospital stay of up to two months, and $192 a day for the following 30 days. After that, costs rise even faster, and after 150 days, you must shoulder the full expense. In addition, after a one-time annual deductible of $100, you have to pay 20% of the cost of each visit to the doctor. There's no coverage for drugs or routine eye care.

As a result, about two-thirds of Medicare beneficiaries opt for extra insurance. Some have access to coverage from unions or former employers. Others must look to supplemental private insurance, commonly called Medigap. There are 10 separate standardized policies, identified with the letters A to J. The basic plan (plan A) covers your coinsurance for hospital costs and picks up that 20% you pay for visits to the doctor. Mid-range plans (B-J) add other hospital costs and protection if you are traveling overseas. Gold-plated plans (H, I, and J) also cover drugs.

Medigap premiums vary widely according to your plan, age, and residence. While every insurer is required to offer the same benefits for each of the standard plans, they do compete on price. So it pays to shop around. We asked Weiss Ratings, an insurance rating firm in Palm Beach Gardens, Fla., to quote annual premiums for Medigap plans in Miami, Los Angeles, Phoenix, and Columbus, Ohio. In Miami, Golden Rule Insurance charges $688.44 for the basic plan, while Standard Life & Accident Insurance charges $1,543.21. The same policy can cost as little as $556 in Ohio and up to $1,690 in Los Angeles. At the top of the line, a Phoenix resident can pay as much as $3,444 or as little as $2,109 for plan J.

Which you should buy depends on your health and whether you're willing to risk out-of-pocket payments. But policies that offer drug benefits may not be worth the money. Michael Gluck, director of health policy studies at the National Academy of Social Insurance, says buyers can pay more in extra premiums than they get in added benefits. For instance, a 75-year-old in Miami can spend almost $2,300 more to buy a plan with drug benefits than a similar policy without such coverage. But the maximum drug benefit under the more costly plan would be just $1,250. To shop, prices are available online at such sites as quotesmith.com or from Weiss (table).

NEW PREMIUMS. The third option for seniors is to join a Medicare managed-care plan, also called a Medicare HMO or Medicare+Choice. They provide all the coverage of the fee-for-service Medicare program, plus more benefits. Instead of paying 20% coinsurance for each doctor's visit, for example, you may pay a flat fee of, say, $10. Many also cover medication. The added benefits have persuaded more than 6.3 million seniors to join Medicare HMOs. But these have many downsides. You must use the plan's doctors, and you can't go to a specialist without your primary care doctor's approval.

It is also tough to shop for an HMO. This year, for the first time, Medicare has some information on its Web site that can help you choose. For example, it will tell you what drug benefits various HMOs provide. But key data, such as how many patients quit an HMO and why, are still not available. The other big problem: HMOs can cut benefits, raise premiums, or even withdraw from the Medicare program. This year, plans were required to tell you by Sept. 15 if they are changing coverage next year. Many have announced big cuts. In 2000, for example, more than 1.2 million Medicare HMO patients will see drug benefits trimmed.

At the same time HMOs are cutting benefits, many are hiking premiums. Take Prudential Insurance. This year a senior in Tampa can get free generic drugs and up to $2,000 in brand-name medicine. But in 2000, Prudential will slash its annual drug benefit to a maximum of $750. And it will add a $65-a-month premium to the basic $45.50. "The market's changing," says Geri Dallek, project director at Georgetown University's Institute for Health Care Research & Policy. "You're not going to get off without paying more."

If you're unhappy with your HMO, you can join another. Your new coverage will start the month after you leave the old plan. Or you can go back to traditional Medicare. But think before you switch. If you resign after a year in an HMO, you may not be able to buy Medigap coverage. That's because in most states insurers can reject you if you have a preexisting condition.

If your HMO drops out of Medicare entirely, you can resume Medigap coverage, even if you are already sick. But the rules for doing so are complicated. If your HMO has notified you that it is withdrawing from the program as of Dec. 31, call Medicare to learn what to do.

Finally, remember that none of these choices--traditional Medicare, Medigap, or HMOs--cover long-term nursing home or at-home care. For that, you'll have to buy private insurance, which can cost thousands of dollars a year if you sign up after age 65 (BW--July 19).

All of these choices allow seniors to tailor a plan to their needs. But it also makes picking insurance much more complicated. And a mistake can be costly, both in terms of health and money.