The Department of Health and Human Services recently drew fiercerebuke from government auditors for its plan to earmark more than$8.3 billion in 2013 to Medicare Advantage plans that werepreviously scheduled to have massive funding cuts. The money wouldbe paid out as “demonstration project bonus payments” to MedicareAdvantage insurers in 2013, which likely would result in the MAplans being able to keep benefits to beneficiaries at the currentlevels, or even improved in some cases.

The reason for the media frenzy is the timing of this rathergenerous bonus money. Under the Patient Protection and AffordableCare Act, hundreds of billions in scheduled cuts to MedicareAdvantage subsidies should begin to take effect with the 2013Medicare Advantage plans. GAO auditors suspect the administrationis attempting to use these demonstration project dollars to delaythe cuts in Medicare Advantage plan benefits until the year afterthe presidential election.

Even though the PPACA cuts wouldn’t take effect until Jan. 1,the new 2013 benefits for each Medicare Advantage plan would bepublicized well in advance of that date, since the annual electionperiod begins Oct. 15.

No presidential candidate in his right mind would want ournation’s senior citizens to get bad news about their health carebenefits weeks before the election. In fact, no political partyseems to ever want to address the problems with Medicare’ssustainability, as any massive changes to Medicare are widelydeemed by both sides to be political suicide.

With so much media and legislative focus aimed at the MedicareAdvantage program, news about traditional Medigap plans has beenrather sparse, and what news there has been has not been positiveor promising. The president has proposed a 15 percent excise tax oncertain Medicare supplements (C, F and G), which would take effectin 2017, along with a Part B premium surcharge for people who buythese plans. The aim of this move is to discourage beneficiariesfrom buying first-dollar coverage Medigap plans that give them lessincentive to consider the cost of services.

The irony here is not lost on the agents who work in theMedicare market. If PPACA proceeds as planned, seniors on MedicareAdvantage plans will get whacked with benefit cuts. But if theychoose one of the most popular Medigap plans for their coverageinstead, they’ll face higher premiums for Part B and taxes on theirinsurance plan.

Considering this, some are asking whether Medigap plans remain aplayer in the Medicare health insurance market, or whether theplans will die a slow death over the next decade simply becauseseniors can no longer afford them as premiums increase withinflation.

Still alive?

Can an agent today build a business on a foundation of Medicaresupplement 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 aliveand well, with nearly 10 million beneficiaries enrolled in atraditional Medicare supplement. While Medigap plans have higherpremiums than most Medicare Advantage plans, the back-end financialsecurity and nationwide access to any Medicare provider arebenefits many seniors still find comforting.

Some also might be surprised to find that it’s not only wealthyretirees who flock to Medigap plans. Instead, middle-incomeretirees are the bread-and-butter clients for most agents in theMedicare supplement market.

The difference

This begs the question—exactly why are beneficiaries on fixedincomes willing to spend more money for a Medicare supplement inlieu of an MAPD plan?

For starters, Medigap coverage has been helping beneficiariesfill the gaps in their Medicare benefits since the 1960s. Ifnothing else, the policies are reliable across the board, thanks tostandardization of the plans in the Omnibus Budget ReconciliationAct of 1990. It’s not uncommon in the Medicare insurance markettoday to hear a 65-year-old refer reverently to the carrier thatcovered a parent’s costly illnesses some years ago. When a Medigapcarrier shells out tens of thousands of dollars during a longillness, leaving little or nothing to be paid by the patient,friends and family of that patient have a very long memory aboutthe insurance carrier that paid so well.

Also, though OBRA standardized Medigap plans, beneficiariesstill have several different options, depending on how muchcost-sharing they are willing to do. An individual can choose fromabout 10 different standardized plans, as well as onehigh-deductible option. While each of the plans has different formsof beneficiary cost-sharing, every plan covers what many brokersconsider to be the most vital piece: the 20 percent of the Part Bco-insurance, or the outpatient expenses.

Which plan?

Plan F has long been one of the most popular plans, as it offersprotection for all the out-of-pocket Medicare-approved healthcareexpenses that are not paid by Medicare. However, in recent yearsthere has been rapid growth in plans that require enrolleecost-sharing for some services. Plan N, which was rolled out inJune 2010, has shown a consistent upward trend in enrollment, eventhough beneficiaries are responsible for some of the costs,including the Part B deductible and copays of up to $20 forphysician office visits.

“What we are seeing here with the Plan N sales is a willingnessby beneficiaries to share in some expenses to keep premiums lowwhile still maintaining what is most vital to them, which is thefreedom to choose their own doctors and hospitals,” said one ownerof 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 maynot have out of network benefits for anything other than emergencycare.” He estimates his agency’s clientele is made up of about 70percent Medigap policyholders, the remaining 30 percent covered byMedicare Advantage.

He also was not surprised to learn that lower- to middle-incomebeneficiaries make up a significant percentage of Medigappolicyholders. “When living on a fixed income, people are reluctantto leave anything open to chance. Beneficiaries want to know thateven if a catastrophic illness occurs, they can budget for theirspending. With a Medigap plan, it’s much easier for them to budgettheir costs and control their out-of-pocket exposure.”

A broker’s benefit

For health insurance agents, the Medicare supplement marketoffers a longevity few other sectors provide. Commissions on mostMedicare supplement premiums will pay for about a decade, and oftenpolicyholders will stick with a carrier they perceive as “payingwell,” even though other Medicare supplement carriers would pay injust the same manner.

Unlike Medicare Advantage plans, which front a year’s worth ofcommission to the agent upon initial enrollment, most Medicaresupplement plans offer the broker the option of taking commissionsas-earned. This is a good thing for serious agents looking tosteadily grow their client base without getting ahead ofthemselves.

“The upfront income might not be as high as that of a groupinsurance broker,” says Eric Johnson, co-founder of ComedyCE.comand a former Medicare market sales rep. “However, agents whospecialize in Medicare supplements can grow a very large clientbase over a number of years. They reach a point where the businessis nearly self-sustaining by its own referrals, and when they losethe occasional policy, it doesn’t hurt as much as when a groupbroker loses a 50-man case.”

Johnson also noted that Medicare agents seem to be among themost satisfied brokers. “We offer a number of CE classes in theMedicare sector, and we see the same happy faces returning foreducation year after year. They are just a really dedicated groupof agents whose daily dealings with our nation’s ‘greatestgeneration’ seem to create job satisfaction and emotionalfulfillment with their work,” Johnson says.

Fort Worth agent Crystal Millican agrees.

“The money is good, but it’s the clients that make the jobrewarding,” she says. “Getting such warm and positive feedback froma client after you help them understand something as confusing asMedicare just never gets old.”

Millican says she frequently receives emails and handwrittenthank-you notes from her clients— something she rarely saw in herprior sales career.

With more than 10,000 baby boomers aging into Medicare everyday, there has never been as much demand for information andeducation about the program.

Even if laws are passed that result in beneficiaries puttingmore skin in the game, we are likely to still see manybeneficiaries choosing Medigap for their coverage. The planscontinue to sell like clockwork today, despite all the speculation,and realistically, it will be difficult for anyone to squash aconsumer’s desire to purchase first-dollar coverage when thatconsumer has the means to purchase such a policy.

“There will always be a market for Medicare beneficiaries whowant complete freedom of choice and first-dollar coverage,” saysClifton Stubbs, of Benefitmall’s senior products division. “Healthcare is a personal choice, based on the individual needs of theconsumer, and not a one size fits all. Agents who understandthis and offer both Medicare Supplements and Medicare Advantageplans will have a healthy career ahead of them.”

Danielle Kunkle is the co-owner of Boomer Benefits, anagency that specializes in Medicare-related insurance productsnationwide. She is the immediate past-president of the Fort WorthAssociation of Health Underwriters and currently sits on the boardof the state association as its quarterly magazine editor. She canbe reached at [email protected].