2010 Medicare Changes Demand Careful Review

Like warnings from the boy who cried wolf, pleas to some 46 million older consumers to carefully review their Medicare insurance risk are falling on deaf ears. After all, this advice is given every year as we approach the annual open enrollment period for Medicare, November 15 to December 31. But this year, the stakes are very high. Insurers have substantially cut back choices in Medicare Advantage and Part D prescription drug plans and have generally raised premiums in the process. They are responding to continued inflation in healthcare costs and government rules that could reduce the profitability of their Medicare policies.

[See Your Guide to Maximizing Medicare.]

Nearly 11 million people use Medicare Advantage (MA) policies for their Medicare coverage, and most of them choose MA policies that include prescription drug coverage. Doing nothing about your MA policy is always an option, but it will be an expensive choice in 2010. The Kaiser Family Foundation has reviewed 2010 MA plans and says the average premium for people who keep their current coverage will rise by roughly a third—to $48 per month, up from $36 this year. That's on top of the $96.40 that most people pay every month for basic Medicare coverage. For higher-income Medicare beneficiaries, however, basic Medicare premiums in 2010 are set to rise by 15 percent. Kaiser says that monthly average premiums for Part D prescription coverage will rise 11 percent to $38.94 but notes that rates vary greatly—from $8.80 to $120.20—depending on plans and where beneficiaries live.

[See Double-Digit Medical Expense Trend to Continue.]

The commotion over Medicare has been heightened by discussion of the program's future in the debate over national healthcare reform. Allsup, a company that provides individual and employer services for Social Security disability and Medicare, sponsored a consumer poll that found that 16 percent of Medicare beneficiaries are at least somewhat open to the possibility of coverage changes for 2010. Given that 95 percent of the survey respondents said they had never changed Medicare coverage since entering the program, that 16 percent looks like a huge swing toward consumer activism.

In approaching open-enrollment decisions, it can help to focus on the individual parts of Medicare. You also should spend time on the Medicare website reviewing the health and drug plans available where you live.

Part A covers hospital expenses and is provided at no cost to people who are at least 65 years old and have earned wages for at least 40 quarters during their lives.

Part B covers physician, medical equipment, and other nonhospital expenses. Part B premiums are $96.40 a month unless people have annual taxable incomes exceeding $85,000 ($170,000 for joint tax returns). These higher-income participants will face 15 percent increases in Part B premiums in 2010, up to $353.60 a month for the highest earners. Requests to cancel these increases are pending in Congress.

Medigap policies, also known as Medicare supplemental insurance, are offered by private insurers to pay some of the costs that are not covered in basic Medicare. The agency provides an online tool to compare Medigap policies by ZIP code. There are 12 standard Medigap policies—"A" through "L"—that carry different coverage terms. All private insurers must offer the same provisions in each type of Medigap, so price is the main variable. There is a good explanation of Medigap coverage on the AARP website, which also has other helpful Medicare tools.

Part C is Medicare Advantage (10.3 million participants), private insurance plans that offer policies that may be more attractive than Medigap; 80 percent of participants also elect to get their Part D coverage within their Medicare Advantage plan. There are several types of MA plans, including local health maintenance organizations (HMOs) and preferred provider organizations (PPOs), private fee-for-service plans, regional PPOs, and special-needs plans. Nearly two thirds of MA participants are in HMOs. Because of government rule changes, several major insurers left the 2010 private fee-for-service market, and their customers will be forced to consider other plans. Medicare offers a tool to compare MA and basic Medicare policies.

All MA participants should evaluate their existing policies—coverage terms, deductibles, and copays—and be alert to changes in some of the MA "sweeteners" that have attracted people to the program. These include dental, vision, and other enhancements that are not available to basic Medicare users. In 2010, they may not be as sweet as in prior years because of reduced coverage and higher payments.

Part D (26 million participants) is the drug prescription program, begun in 2006. Private insurers offer plans that may either be part of basic Medicare or be included in other Medicare coverage plans. About 50 different Part D plans are offered in most states.

According to Kaiser, the baseline elements of stand-alone Part D coverage in 2010 will include up to a $310 initial deductible (up from $295 in 2009) and then a 25 percent copay up to $2,830 in total drug costs (up from $2,700 in 2009). People then enter what's called the "doughnut hole" in Part D coverage and must pay all of their drug costs until their out-of-pocket spending reaches $4,550 (up from $4,350 in 2009). This spending total excludes Part D premiums.

Consumers should make sure their Part D insurance plan covers the specific drugs they require. The Medicare site has a prescription-plan finder tool that locates various insurance plans by ZIP code. It includes a feature enabling you to determine whether your prescription drugs are offered by a Medicare insurance plan, and under what payment terms (there are different tiers of drug coverage).