Tuesday, March 2, 2010

A Must Read

by Gene Berkau

My wife and I have been self employed since 1986. We did not have any problems obtaining reasonably priced, private health care insurance until about 2000. My first acute attack of atrial fibrillation (AFIB) was in 1999. I went to the Vanderbilt Emergency Room. My heart slowly came back into rhythm and I had a series of tests over several weeks that showed no damage to the heart or disease. At that time there was no explanation for the AFIB. The test results indicated that I had a healthy heart which was confirmed by the Vanderbilt cardiologist.

When my wife’s real estate company chose not to continue to offer health care insurance in 2001, we had to find another health care insurance company. Although the hospital records on the AFIB incident were available to the insurance companies, I was denied health care insurance by numerous companies simply because of the pre-existence of the AFIB condition. A high deductible or a high premium policy was not offered. My wife had no problem obtaining a policy. I was without health care insurance until nine months before I was eligible for Medicare in 2004. The policy excluded any form of AFIB.

In 2004 I was eligible for Medicare. Since 1965, Medicare has covered 80 % of Part A (hospitalization) and Part B (physicians and related services). Only in a few cases does original Medicare cover prescription drugs. Medicare is partially funded by payroll taxes imposed by the Federal Insurance Contribution Act (FICA) and the Self-Employment Contribution Act (SECA) of 1954. The Medicare program is a social insurance program administered by the United States Government for those 65 years of age and older and it is a single-payer health care system. Since the beginning, the Centers for Medicare and Medicaid Services (CMS) have contracted with private companies in the insurance and health care areas to serve as intermediaries between government and medical providers.

Private insurance companies cover the rest of the costs. These “Medigap” policies cover the costs that Medicare doesn’t cover, except for prescription drugs. They were standardized into Plans A through J in 1992. All plans cover the basic benefits of Part A and Part B, approximately 20% of Part A and Part B that Medicare doesn’t cover. Plans F and J have a high deductible option in which the plans do not pay benefits until there is $2000 out-of-pocket expenses. Starting June 1, 2010 there will be two new Medigap plans offered, plans M and N, and plans E, H, I and J will no longer be available.

Traditionally Medicare has not covered prescription drugs. But on January 1, 2006 Medicare Part D went into effect as part of the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (MMA). This federal program subsidizes the cost of prescription drugs for Medicare beneficiaries. It has a coverage gap, known as the “Donut Hole,” when total out of pocket expenses for formulary drugs reach $2,830. The beneficiary then must pay all of the drug costs until the catastrophic limit of $4,550 is reached. After the catastrophic limit is reached, the beneficiary only pays a small copayment for each drug until the end of the year. There is no standard formulary.

In 2003 Congress prohibited the Federal Government from negotiating prices with the pharmaceutical companies on Medicare Part D drug program (MMA). Other federal agencies are allowed to negotiate drug prices in other programs. For example the Veterans Administration established a formulary and is allowed to negotiate drug prices. As a result the VA pays 58% less for drugs on average than Medicare Part D. For the drugs Lipitor and Zocor, the VA pays $520 and $127 a year, while Medicare pays $785 and $1,485 a year.

There are two private programs in which Medicare beneficiaries can get the drug benefit: a Prescription Drug Plan (PDP) for prescription drugs only or Medicare Advantage plans (MA) that cover medical services and prescription drugs. From 1997 to 2008 Medicare payment policy has shifted from one that produced savings to one that focuses on expanding access to private plans and extra benefits to Medicare beneficiaries. This shift in policy has greatly increased the costs of the Medicare program.

My wife and I selected the “original” Medicare and Medigap F private insurance policies.

The cost of the “original” Medicare program has ranged from $696 per year in 2003 to $1158 per year in 2010. The increase in costs from 2003 to 2010 was a total $460 or an average increase of $66 per year. In the last three years Medicare has not increased premiums, remaining at $1158 per year.

A Medigap F policy annual premiums were $1141 in 2003 and increased to $2352 in 2008. The increase in costs from 2003 to 2008 was $941 or an average of $188 per year. Typically medigap policy premiums increase with age of the insured. The original Medicare program which pays for 80% of the health care costs had an average premium from 2003 to 2008 of $963 per year, whereas the F Medigap policy which pays for 20 percent of the health care costs has an average premium of $1848 per year for the same period.

In addition the prescription drug coverage has additional costs. The premium of one Prescription Drug Plan (PDP) ranged from $324 per year in 2006 to $408 per year in 2008. The increase in costs was a total of $84 or an average of $42 per year. In addition the beneficiary may pay a deductible of $310 and different levels of copays for a month or three months supply of prescription drugs depending on whether they are generic, brand names, specialty or other category. The beneficiary and the insurer’s cost for the drugs are added together to determine when the beneficiary’s costs has reached $2830 or the “donut”. The beneficiary must pay all of the costs of the drugs until $4550 out of pocket costs is reached (referred to catastrophic) and then pay a nominal copay until the end of the year. There is no standard formulary and each person must review the list of drugs to see if their drugs or an alternative are listed. The total premium costs for Medicare, an F Medigap policy and PDP in 2008 would be $1158 + $2352 + $408 or $3918 per year.

A Medicare Advantage (MA) would be a cheaper alternative and would cover what Medicare, Medigap and PDP covers in three programs. An MA policy must take a beneficiary regardless of pre-existing conditions. The premiums and copays are county or regional specific and the companies cannot void a policy or raise the costs of premiums or copays because of an illness. An MA policy covers Medicare Parts A, B and D and usually some extra partial benefits, such as dental, eyeglasses, hearing aids, over the counter drugs and silver & fitness. However you must pay the premiums for Medicare and the premiums for MA. In 2008 the Windsor MA Platinum plan and the Medicare annual premiums were $1733

In 2007 the premium for the Platinum (the top of the line for Windsor) policy was $1008 per year and increased to $1656 per year in 2010. The average premium for those years was $1149. The total costs of the Platinum Plan in 2007, including Medicare premiums, were $2124 per year. In 2010 the total costs increased to $2814 per year. The Platinum plan premiums increased $648 from 2007 to 2010, while the Medicare premiums increased a total of $42 in the same period. In addition to the premium increases for the Platinum (now the Diamond plan), there were significant increases for primary care doctors and specialists, inpatient hospital costs, skilled nursing facilities, outpatient fees, supplies, drugs (including Part B chemotherapy and other drugs) and allowances or costs of the extra benefits.

There are other MA plans which have lower premiums. However, these plans will generally have higher copays/coinsurance and less coverage. There is another problem if the beneficiary should want to go back to a Medigap policy. There are penalties for preexisting conditions. For instance, the annual premium in 2009 for Plan F of AARP’s United Health Care Insurance Company is $2127 for age 65. The annual premium with pre-existing conditions or universal rates is $3190 or $1063 more. The increase with age from 65 to 70 in Physicians Mutual rates is $190 per year.

I expect from past trends that the health care insurance rates to continue rising at a steady pace, with the private insurance rates increasing faster than Medicare’s, if there is no health reform. Already the US has the highest per capita costs of health care in the World. In 2007 the US had a cost of $7290 per person. Of the 31 member countries of the Organization for Economic Co-operation and Development (OECD), Switzerland has the next highest per capita costs at $4417 and Mexico has the lowest at $823. The average per capita costs is $2986. UK is at the average at $2986 and Canada, France, Spain and Japan are at $3895, $3601, $2671, and $2581 respectively.

The average life expectancy for the OECD countries is 79.2 years. The US life expectancy is 78.2 years and ranks 38th in the world. The life expectancy in Japan is 82.6 years. The life expectancy for the US is lower than most “other developed nations and many developing ones.” Twenty seven members of the OECD are described as high income economies. Mexico, Poland and Turkey are described as upper middle-income economies.

Here are some observations on private and Medicare health care insurance from our experiences:
There is a serious problem of obtaining private health insurance for a person with pre-existing conditions before age 65.

The cost escalation of Medigap, Medicare Prescription Drugs (MPD) and Medicare Advantage (MA) policies are unreasonable when compared to Medicare.

The average premium for PDPs has increased 35% from 2006 to 2009 and the cost of tiered drugs has also increased.

The subsidies for MA policies provide non-essential benefits to Medicare beneficiaries.

There is the need for a standard formulary.

Medicare needs to be able to negotiate prices with the pharmaceutical companies.
Only the US and Mexico are without universal health coverage of the OECD countries. “Lack of health insurance is a factor in life span and contributes to an estimated 45,000 deaths a year”(Johns Hopkins Bloomberg School of Public Health). The cost of extending healthcare to the uninsured would only be 1.2 % of the $2.5 trillion last year (Rand). The majority of uninsured are not offered benefits through their employers (Kaiser).

In an annual report of independent actuaries of the Federal CMS, the estimated costs of health care “consumed a record 17.3 % of all spending in the US economy last year or roughly $2.5 trillion.” “In the absence of change Wednesday’s report (CMS Report 2/3/2010) raises a grim prospect for the country – a health system consuming a greater and potentially unsustainable share of the economy, even as private health lags.”

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