A New Medicare Strategy

Writing in the August 25 WSJ Weekend Edition, Ellen E. Schultz offers up a nice summary of the key elements of Medicare, the decisions participants must make, and ways of controlling costs.  She notes the additional benefits available to Medicare participants as a consequence of the Affordable Care Act, including free mammogram and colonoscopy screenings and a phase out of the “doughnut hole,” which costs many seniors thousands of dollars in prescription drug costs.  At the heart of the article, Schultz lays out the basics of Medicare in a clear, straightforward summary:

The basics: Under the traditional Medicare program, Medicare Part A, which covers hospitals and skilled nursing, and Part B, which covers doctor visits, are directly administered by the government. Your primary task is to enroll on time, generally when you turn 65. The Social Security website has the details.

You have the option—but not the obligation—to purchase supplemental Medigap insurance, which covers the 20% of costs that Part B doesn’t pick up. These Medicare supplement plans come in nine tiers, ranging from high-deductible policies, which have low premiums but high out-of-pocket costs, to Plan F, which offers the most comprehensive coverage.

Dozens of insurers sell these plans, including AARP and Blue Cross/Blue Shield. The good news is that the plans are standardized, meaning that each insurer has to provide the same benefits at each tier.

You must also choose a Part D prescription-drug plan if you want drug coverage under the traditional Medicare Part A and B program. Like Medigap, these plans are offered by dozens of competing companies; unlike Medigap, the coverage isn’t standardized, and the drugs available (the “formulary”) and prices vary.

Seniors may also choose a Part C “Advantage” plan, in which a private insurer provides Part A, B, and D coverage. Kaiser Permanente is one example of an organization offering such a plan.  One of the ways that the Affordable Care Act pays for some of the new benefits mentioned earlier is by dropping the subsidies the government has been paying to Advantage Plan providers, which were costing the government 17% more than traditional Medicare as of 2010.  Reducing these subsidies makes up about a third of the $716 billion in Medicare savings provided by the Affordable Care Act.   Sara Kliff wrote a nice summary in the Washington Post describing the components of these savings.  She also makes a point that has been lost in recent political debates:

It’s worth noting that there’s one area these cuts don’t touch: Medicare benefits. The Affordable Care Act rolls back payment rates for hospitals and insurers. It does not, however, change the basket of benefits that patients have access to. And, as Ezra pointed out earlier today, the Ryan budget would keep these cuts in place.