The Department of Health and Human Services recently drew fierce rebuke from government auditors for its plan to earmark more than $8.3 billion in 2013 to Medicare Advantage plans that were previously scheduled to have massive funding cuts. The money would be paid out as “demonstration project bonus payments” to Medicare Advantage insurers in 2013, which likely would result in the MA plans being able to keep benefits to beneficiaries at the current levels, or even improved in some cases.
The reason for the media frenzy is the timing of this rather generous bonus money. Under the Patient Protection and Affordable Care Act, hundreds of billions in scheduled cuts to Medicare Advantage subsidies should begin to take effect with the 2013 Medicare Advantage plans. GAO auditors suspect the administration is attempting to use these demonstration project dollars to delay the cuts in Medicare Advantage plan benefits until the year after the presidential election.
Even though the PPACA cuts wouldn’t take effect until Jan. 1, the new 2013 benefits for each Medicare Advantage plan would be publicized well in advance of that date, since the annual election period begins Oct. 15.
No presidential candidate in his right mind would want our nation’s senior citizens to get bad news about their health care benefits just weeks before the election. In fact, no political party seems to ever want to address the problems with Medicare’s sustainability, as any massive changes to Medicare are widely deemed by both sides to be political suicide.
With so much media and legislative focus aimed at the Medicare Advantage program, news about traditional Medigap plans has been rather sparse, and what news there has been has not been positive or promising. The president has proposed a 15 percent excise tax on certain Medicare supplements (C, F and G), which would take effect in 2017, along with a Part B premium surcharge for people who buy these plans. The aim of this move is to discourage beneficiaries from buying first-dollar coverage Medigap plans that give them less incentive to consider the cost of services.
The irony here is not lost on the agents who work in the Medicare market. If PPACA proceeds as planned, seniors on Medicare Advantage plans will get whacked with benefit cuts. But if they choose one of the most popular Medigap plans for their coverage instead, they’ll face higher premiums for Part B and taxes on their insurance plan.
Considering this, some are asking whether Medigap plans are still a player in the Medicare health insurance market, or whether the plans will die a slow death over the next decade simply because seniors can no longer afford them as premiums increase with inflation.
Can an agent today build a business on a foundation of Medicare supplement sales? The answer is a resounding yes.
Despite the media preoccupation with Medicare Advantage plans, national studies and feedback from brokers tell us Medigap is alive and well, with nearly 10 million beneficiaries enrolled in a traditional Medicare supplement. While Medigap plans have higher premiums than most Medicare Advantage plans, the back-end financial security and nationwide access to any Medicare provider are benefits that many seniors still find enormously comforting.
Some also might be surprised to find that it’s not only wealthy retirees who flock to Medigap plans. Instead, middle-income retirees are the bread-and-butter clients for most agents in the Medicare supplement market.
Consider the following statistics from the Partnership to Protect Medigap Coalition’s update on May 4:
- More than half of all Medigap policyholders (51 percent) and 60 percent of rural Medigap policyholders had incomes below $30,000.
- About half (45 percent) of Medigap policyholders had incomes ranging from $10,001–$30,000 in 2010. This income bracket accounted for the highest proportion of Medigap purchases.
- In rural areas, where one might expect lower-premium Medicare Advantage plans to be the most prevalent, the coalition found an even higher percentage— 53 percent of Medigap policyholders had incomes between $10,001–$30,000.
This begs the question—exactly why are beneficiaries on fixed incomes willing to spend more money for a Medicare supplement in lieu of an MAPD plan?
For starters, Medigap coverage has been helping beneficiaries fill the gaps in their Medicare benefits since the 1960s. If nothing else, the policies are reliable across the board, thanks to standardization of the plans in the Omnibus Budget Reconciliation Act of 1990. It’s not uncommon in the Medicare insurance market today to hear a 65-year-old refer reverently to the carrier that covered a parent’s costly illnesses some years ago. When a Medigap carrier shells out tens of thousands of dollars during a long illness, leaving little or nothing to be paid by the patient, friends and family of that patient have a very long memory about the insurance carrier that paid so well.
Also, though OBRA standardized Medigap plans, beneficiaries still have several different options, depending on how much cost-sharing they are willing to do. An individual can choose from about 10 different standardized plans, as well as one high-deductible option. While each of the plans has different forms of beneficiary cost-sharing, every plan covers what many brokers consider to be the most vital piece: the 20 percent of the Part B co-insurance, or the outpatient expenses.
Plan F has long been one of the most popular plans, as it offers protection for all the out-of-pocket Medicare-approved health care expenses that are not paid by Medicare. However, in recent years there has been rapid growth in plans that require enrollee cost-sharing for some services. Plan N, which was rolled out in June 2010, has shown a consistent upward trend in enrollment, even though beneficiaries are responsible for some of the costs, including the Part B deductible and copays of up to $20 for physician office visits.
“What we are seeing here with the Plan N sales is a willingness by beneficiaries to share in some expenses to keep premiums low while still maintaining what is most vital to them, which is the freedom to choose their own doctors and hospitals,” said one owner of an agency specializing in Medicare-related insurance products. “Medicare Advantage plans are sometimes viewed as more limiting, since networks are often built in local counties, and may or may not have out of network benefits for anything other than emergency care.” He estimates his agency’s clientele is made up of about 70 percent Medigap policyholders, the remaining 30 percent covered by Medicare Advantage.
He also was not surprised to learn that lower- to middle-income beneficiaries make up a significant percentage of Medigap policyholders. “When living on a fixed income, people are reluctant to leave anything open to chance. Beneficiaries want to know that even if a catastrophic illness occurs, they can budget for their spending. With a Medigap plan, it’s much easier for them to budget their costs and control their out-of-pocket exposure.”
A broker's benefit
For health insurance agents, the Medicare supplement market offers a longevity few other sectors provide. Commissions on most Medicare supplement premiums will pay for about a decade, and often policyholders will stick with a carrier they perceive as “paying well,” even though other Medicare supplement carriers would pay in just the same manner.
Unlike Medicare Advantage plans, which front a year’s worth of commission to the agent upon initial enrollment, most Medicare supplement plans offer the broker the option of taking commissions as-earned. This is a good thing for serious agents looking to steadily grow their client base without getting ahead of themselves.
“The upfront income might not be as high as that of a group insurance broker,” says Eric Johnson, co-founder of ComedyCE.com and a former Medicare market sales rep. “However, agents who specialize in Medicare supplements can grow a very large client base over a number of years. They reach a point where the business is nearly self-sustaining by its own referrals, and when they lose the occasional policy, it doesn’t hurt as much as when a group broker loses a 50-man case.”
Johnson also noted that Medicare agents seem to be among the most satisfied brokers. “We offer a number of CE classes in the Medicare sector, and we see the same happy faces returning for education year after year. They are just a really dedicated group of agents whose daily dealings with our nation’s ‘greatest generation’ seem to create job satisfaction and emotional fulfillment with their work,” Johnson says.
Fort Worth agent Crystal Millican agrees.
“The money is good, but it’s the clients that make the job rewarding,” she says. “Getting such warm and positive feedback from a client after you help them understand something as confusing as Medicare just never gets old.”
Millican says she frequently receives emails and handwritten thank-you notes from her clients— something she rarely saw in her prior sales career.
With more than 10,000 baby boomers aging into Medicare every day, there has never been as much demand for information and education about the program.
Even if laws are passed that result in beneficiaries putting more skin in the game, we are likely to still see many beneficiaries choosing Medigap for their coverage. The plans continue to sell like clockwork today, despite all the speculation, and realistically, it will be difficult for anyone to squash a consumer’s desire to purchase first-dollar coverage when that consumer has the means to purchase such a policy.
“There will always be a market for Medicare beneficiaries who want complete freedom of choice and first-dollar coverage,” says Clifton Stubbs, of Benefitmall’s senior products division. “Health care is a personal choice, based on the individual needs of the consumer, and not a one size fits all. Agents who understand this and offer both Medicare Supplements and Medicare Advantage plans will have a healthy career ahead of them.”
Danielle Kunkle is the co-owner of Boomer Benefits, an agency that specializes in Medicare-related insurance products nationwide. She is the immediate past-president of the Fort Worth Association of Health Underwriters and currently sits on the board of the state association as its quarterly magazine editor.