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 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 have seen some changes resulting from the reform bill President Obama signed into law, 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.
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 of all Medicare-related programs. But there are opportunities as well. Here are key changes resulting from health care reform:
- The quality ratings you see on Medicare.gov aren't consumer ratings, but scores determined by CMS. The five-star ratings will carry some teeth in the future. Only one out of four Medicare Advantage plans garner a four-star rating. They will be the big winners, with reimbursement rate quality bonuses of up to 10 percent in certain markets.
- A minimum loss ratio of 85 percent 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 percent 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.
- Payment rates for 2011 are frozen at 2010 levels, so MA carriers aren't facing any immediate cuts. Beginning in 2012, however, 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 percent of the traditional Medicare amount and more urban, populous counties as low as 95 percent of standard Medicare rates. In 2010, 34 percent of Medicare Advantage beneficiaries are in counties slated to receive the higher reimbursement rates in the future. Carriers will be even more selective about where they choose to market their products.
- 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 15 through December 7. 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.
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 in order 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 percent 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.
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 percent to 25 percent 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 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 knowing that the out-of-pocket expenses are limited. What will agents need to know?
- Careful review of the plan formulary will be important. Utilizing carrier tools, Medicare.gov, or other quoting tools will be important to ensure the client's drugs are covered by the plan.
- The individual market will increase in size dramatically due to those leaving employer-based 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.
- Beginning January 2011, beneficiaries who pay a higher Part B premium (those with income above $85,000 for individuals and $170,000 for couples) will begin to see Part D premiums vary based on income, as well.
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.
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:
- 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.
- 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.
- 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 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 Jan. 1, 2013.
Our Take: The minimum 80 percent 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.
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. In fact, the outlook for Medicare supplement in particular has never been stronger.
Dwane McFerrin is vice president of Medicare solutions for Senior Market Sales Inc. He can be reached at firstname.lastname@example.org.