Medicare: Decisions, Decisions

With drug and HMO plans now in the mix, seniors face a raft of complex choices

If you are 65 or older, you might want to buy a bigger mailbox. If you are the adult child of a senior, you better get ready to answer a raft of questions from your parents. Medicare is about to undergo profound change. Starting Oct. 1, seniors will be buried under a blizzard of advertising, all aimed at persuading them to buy new health insurance.

Should they buy a Medicare prescription drug policy? Should they enroll in an all-in-one managed care plan, called Medicare Advantage, that will cover both drugs and other care now provided by traditional Medicare?

For health insurers scrambling to grab market share in the nation's biggest untapped private insurance market, "it will be like the Oklahoma land rush," says Joseph Antos, a health economist at the American Enterprise Institute. For seniors and their families, the next few months will be a time of both opportunity and confusion as they struggle through conflicting claims and difficult choices. In the midst of the marketing cacophony, nearly 40 million seniors and their families will have to decide what to do. Joining the prescription plan or Medicare Advantage is optional. If you are already enrolled in Medicare or just turning 65, you'll be able to sign up starting Nov. 15 through next May. Actual coverage begins on Jan. 1, 2006.

The biggest mistake seniors can make is to toss those ads in the trash. In the end, you may decide not to buy drug insurance. But think it through first. "Not making a decision isn't an option," says Kris Gross, director of the Iowa Senior Health Insurance Information Program.

Seniors will confront some complex choices. Gross's volunteers are getting 17 hours of training to learn about the new benefits. You can't take that course, but there are ways to make the process easier.

First, look for help. Medicare says you'll be able to compare plans on its Web site by mid-October, while state advisers such as Gross will be running community meetings and providing help by phone. Some programs you'll encounter may be run by insurance salespeople whose primary interest is selling a policy, not giving the best advice.


Once you get the info you need, you'll have to decide whether to buy drug insurance. Seniors on Medicaid -- often the case with nursing home patients -- will be automatically enrolled in a no-premium plan. Those with annual incomes up to $14,356 for singles, and $19,246 for couples may qualify for a low-cost policy. By contrast, if you already have retiree drug insurance from your former employer, you may be better off sticking with it. You'll need to check that policy carefully to see how its benefits stack up with the new Medicare drug plan, called Part D.

For everyone else, it's a tougher, and much more personal, question. It will depend on your finances, age, health status, and tolerance for financial risk. For instance, if you are in your late 70s or 80s, and can afford the premiums, a drug policy is probably a good idea. If you are taking lots of drugs or have a chronic disease that may require more meds as you get older, buying a policy also makes sense.

If you are younger and not taking many drugs, you can delay enrolling. But you'll pay a penalty for that decision. If you don't buy by May, your premium will go up 1% every month you wait. With premiums running about $30, it will cost an extra $3 or $4 per month if you sign up a year later. "What is it Clint Eastwood asked? 'Do you feel lucky?"' says Stuart Guterman, director of the Program on Medicare's Future at the Commonwealth Fund, a New York think tank. "There are so many variables. It's a daunting decision."

If you do decide to buy drug insurance, you'll have to figure out which plan is best for you. Many seniors may be able to choose among a dozen or more plans. Some insurers will offer as many as three choices in the same market.

Congress designed a model drug plan that carried a $35 monthly premium and a $250 annual deductible. It paid 75% of costs from $251 to $2,250, nothing for expenses from $2,251 to $5,101 (the infamous doughnut hole), and 95% for costs above $5,101. But actual policies may be different. Insurers can offer any plan they want, as long as its overall value is equal to that basic plan. Some may even eliminate all or most of that annoying doughnut hole. Remember, there is always a trade-off between premiums and out-of-pocket costs. Lower premiums mean higher deductibles and co-pays.


Don't just look at price. You also need to know about formularies -- the lists of specific drugs that are covered by a plan. If a drug that you take is in a policy's formulary, you may pay only $5 to fill a prescription. If it is not, you may have to pay full retail price -- perhaps $50 or $100.

That means you'll have to make sure your drugs are in a plan. The choice gets tougher if some of your meds are covered by one policy while others are in a different plan. There is another catch: You must stay in your plan for a year, even if you change drugs or add prescriptions. So you will have to be sure that your doctor prescribes generics or the brand-name drugs that are covered by your plan.

Finally, you'll have to make one more choice. Do you want to stick with traditional Medicare or switch to a managed-care plan called Medicare Advantage? The government is giving insurers billions of dollars to create these new plans in an effort to wean seniors off the traditional program.

Most seniors are expected to add the new drug plan to traditional Medicare. Many will continue to supplement their Part A and B hospital and doctor insurance with a Medigap policy -- private insurance that covers what Medicare does not, such as long hospital stays. By sticking with traditional Medicare, you'll retain a wide choice of doctors. But you'll be paying stiff premiums -- $88.50 in 2006 for Part B, as much as $200 a month for Medigap, and $30 or so a month for your new drug program. (Medicare recipients will still get Part A, which covers hospital care, at no cost.)


A Medicare Advantage plan may be much less expensive. In some states, your drug benefit may be free, at least for 2006. Plus, you won't need Medigap, since all your benefits will be included in your HMO. And if you have many chronic illnesses, having all your care coordinated through a single plan might make sense.

That approach has big drawbacks. You'll be able to use only the doctors or hospitals in your plan's network. If you go to another doc, you'll pay much more. "In some markets, the HMOs offer richer benefits," says Robert Hayes, president of the Medicare Rights Center, a New York consumer group. But, he adds, "people will sacrifice the choice of physicians and hospitals."

In addition, the plan can refuse to pay for some costly treatments, such as experimental therapies. If you get very ill, your insurer may be increasingly reluctant to cover your care. And as budget deficits explode, don't be surprised if those generous federal payments now subsidizing the plans dry up. If they do, premiums will rise, benefits will shrink, and insurers will abandon the market, just as they did in prior Medicare managed care experiments.

If you don't like your plan, you can switch to another one after a year. If you decide to return to traditional Medicare, however, you may be unable to purchase a supplemental Medigap policy. That's because insurers in many states can deny coverage for illnesses you already have. A Medigap insurer can exempt your heart disease from the policy or charge higher rates.

For many, the changes in Medicare are an opportunity to insure against the high cost of drugs, an increasingly important element of medical care. For some seniors, managed care can be an important, low-cost option. Before they choose, however, elders and their families are going to have to navigate a painfully complex maze of choices.

By Howard Gleckman

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