The author of ‘Get What’s Yours for Medicare' discusses traditional Medicare versus Medicare Advantage, shopping for Medigap plans, and recent reforms to prescription-drug coverage.
Our guest on the podcast today is Phil Moeller. He’s the primary author of the Get What’s Yours series of consumer guidebooks, including a newly revised edition of Get What’s Yours for Medicare: Maximize Your Coverage, Minimize Your Costs. In addition, the series includes Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security and Get What’s Yours for Health Care: How to Get the Best Care at the Right Price. Phil wrote the “Ask Phil” Medicare column for the PBS NewsHour website, Making Sense, reported on aging healthcare and retirement for Money magazine, and wrote “The Best Life” feature on aging and retirement for US News & World Report. He began his career as a newspaper business reporter and editor, and has worked for The Baltimore Sun, The Charlotte Observer, The Chicago Sun Times, The Hartford Business Journal, and The Louisville Courier Journal. He later founded the insure.com consumer website and also worked as a communications executive for a large insurance company.
Background
Books: Get What’s Yours for Medicare: Maximize Your Coverage
Get What’s Yours: The Revised Secrets to Maxing Out Your Social Security
Get What’s Yours for Health Care: How to Get the Best Care at the Right Price
Parts of Medicare Explained
“Phil Moeller: What’s New for Medicare—and More—in 2024?” by Phil Moeller, uhc.com, Jan. 10, 2024.
“Phil Moeller: Filling the Coverage Gaps in Medicare,” by Phil Moeller, uhc.com, Sept. 25, 2024.
What Medicare Part D Drug Plans Cover
Private Insurance
“Learning to Love Insurance Brokers (Within Limits!),” by Phil Moeller, substack.com, April 22, 2024.
“Medicare Moment by Phil Moeller: Moving From Employer Health Insurance to Medicare,” Video by Phil Moeller, uhc.com, Nov. 21, 2022.
Other
“Washington State Establishes a Long-Term Care Program,” by Alicia H. Munnell, Center for Retirement Research at Boston College, crr.bc.edu, Aug. 13, 2024.
Christine Benz: Hi and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.
Amy Arnott: And I’m Amy Arnott, portfolio strategist for Morningstar.
Phil, welcome to The Long View.
Phil Moeller: Thank you.
Benz: We wanted to have you on the podcast for a while, and this seems like a good time to do it because you’ve got a fresh edition of your Get What’s Yours for Medicare book coming out, and we wanted to delve into all things Medicare. But we wanted to start a little bit with your background. You’ve written several books, including another Get What’s Yours book about Social Security, which you co-wrote with Laurence Kotlikoff and Paul Solman. That book coached readers on maximizing Social Security, and it was widely reported to have prompted changes to Social Security to close some loopholes that may be higher-income seniors were over-availing themselves of. So can you talk about that? Did it in fact affect the Social Security program, and if so, how so?
Moeller: Bloomberg reported that it did several months after the book came out. There was a claiming provision that was allowable in Social Security, which Larry Kotlikoff, who’s a very bright guy, he figured it out. There’s nothing that prevented this claiming technique, but clearly it was not something that the powers that be at Social Security had ever intended people to do. So this is called a file and suspend. Under this, a person, let’s say a person is 66, which at the time was called full retirement age. They could file for their own Social Security and then suspend it. By suspending it, they could keep their benefits accruing until age 70, which is the maximum age at which you can max out your Social Security. But by filing and suspending, they enabled their spouse to file for a spousal benefit. The spouse could also file and suspend. So in effect, the spouse could collect really sort of free spousal benefits for up to four years. It depends on the age differences of the two spouses. But given the earnings level of people who come close to the maximum payroll tax every year, that spousal benefit was worth $60,000 over four years. It was a lot of money, and readers clued in on this right away. Right away.
It was a major propelling device for sales of the books, and it got the attention of a lot of people. We never learned who sponsored the legislative change—we tried. But clearly it was supported by a lot of people who felt, as you alluded to, that higher-income earners were getting a disproportionate benefit from using this technique. Higher-income people get a disproportionate benefit from every technique. So our pushback was that we didn’t disagree with that, but we thought people of moderate means were also getting a legitimate benefit from this claiming device. Our argument did not carry the day and what did carry the day is the sense that this was not an intended benefit and that it had a disproportionate effect on benefit to higher-income people. And so it should be disallowed and that’s what it was. There were some grandfather provisions that allowed some people to get limited benefits for a period of time. But as we now speak, all of those benefits are over and we’re in a world where generally if you file for any Social Security benefit, you are deemed to be filing for all benefits that you’re entitled to. So you can’t just take a spousal benefit anymore. You’d also be filing for your own insurance benefit, and you get whichever amount is greater. So this was a big change. Again, not something that we thought needed to be changed, but it’s what it is.
Arnott: So at first blush, Social Security’s complexity makes it seem like there would be maybe more to discuss than there would be with Medicare in the realm of maximizing benefits. Does that seem like a fair perception or do people tend to underestimate the complexity of Medicare?
Moeller: The answer is no and yes. I want to push back a little bit on the notion that Medicare and Social Security are so incredibly complicated that mere mortals can’t navigate them. I’ve spent my professional career trying to explain things and I think these programs can be clearly explained in a way that lets people make informed decisions. I will say that my wonderful colleagues in the media and elsewhere make a living by making things complicated because if they’re complicated, you need them to explain them to you.
Benz: Right.
Moeller: And if you look at the private Medicare insurers, especially Medicare Advantage plans, they make their bread and butter by scaring you about how complicated these plans are. So we can tease this out during the course of the podcast, but my sense is that there are clear pathways in both of these programs that can be set forward to people. They do have to do some homework, but it’s not like the blind man and the elephant. It’s not impossible to do. Having said that, Medicare is a complicated program, and I needed all of the book to explain it. But what I’m trying to do with the book is basically saying, here’s a road map. The road map’s not that complicated, but the stops along the way can be complicated. So you need to do your homework here. The book hopefully provides a guide for how you do that.
Benz: That’s a great starting point. And we wanted to begin with the financial underpinning of Medicare and how we as a country pay for it. I think workers will be familiar with the payroll taxes that they pay that their employers also pay, as well as Medicare premiums in retirement. But there are other methods of financing Medicare. Can you talk about the program in totality, how we pay for it?
Moeller: I think the way we pay for Medicare is a real secret to most consumers and something that everybody in the country would benefit by knowing, especially in their role as taxpayers. So you alluded to the payroll tax. It only covers Part A of Medicare, which is for hospital and hospice and nursing home expenses. That has a separate trust fund, which is always close to running out of money and the government steps up and makes it whole for another period of time. That’s actually not the biggest cost that we face in Medicare. The second thing you mentioned are Medicare premiums. So the typical premium, first of all, Part A is free for anybody who qualifies and to qualify for free Part A or premium free Part A, you have to have worked enough to qualify for Social Security, which for most people is 40 quarters of covered work, which may be 10 years or the equivalent there of in terms of quarters that you’ve worked. The Part B premium is the one that affects most people in terms of affordability. Most people pay a basic Part B premium. About 8% of higher-income earners pay a surcharge, which I’ve never talked to anyone who likes. It may be equitable and fair, but here’s the thing to know: The basic Part B premium only covers 25% of what Part B actually costs. The other 75% is financed by you as a taxpayer and comes directly out of general revenues. There’s no stop sign. There’s no pass go, whatever it is. The government just forks over the 75%. And of course, not surprisingly, that’s 75% of a number that grows every year. It’s now approaching half a trillion dollars. It’s a lot of money.
And I don’t think consumers understand. In fact, all my email says, I paid for my Medicare. It’s outrageous I should have to pay more. I paid for my Medicare. Ninety percent of the people only pay for 25% of their Part B. I don’t think people know this at all. And that’s one of the things about Medicare policy that I think hurts us is that consumers don’t feel the pain. So when companies, which they tend to do, game the system and raise the price of healthcare, many consumers don’t feel this direct pain because it’s absorbed by their Medicare premiums, of which again, most people only pay 25%. So I think that’s a big cost consideration that somebody has to step up the plate and start behaving like an adult and say, this is what Medicare really costs you. And until that happens, I don’t know that we can have an informed electorate, that people can make decisions based on good information or not.
Arnott: So, given that lack of understanding of how Medicare is actually funded, do you think that funding the program would ever really be in question? Or would that be a nonstarter politically?
Moeller: We’re talking about a manner of decree. Medicare’s not going to go away. It’s incredibly useful. It’s a great insurance program that older and disabled Americans need. The question is, who pays for it? My sense is that if Congress really grapples with this seriously, they’re going to have to come to terms with the endemic price gouging that private Medicare players, insurers, and drug companies, and pharmacy benefit managers, they’re going to have to engage with the cost side of healthcare. This is a discussion that would take three of your podcasts. But the point is, it’s a discussion that needs to be seriously initiated and maintained by a Congress that somehow is going to have to sort of man up—pardon me, woman up, whatever you want to say—and start taking its fiscal responsibility serious. I skew liberal on a lot of things, but I don’t skew liberal on government finance. And we are saddling our kids and grandchildren with a burden that’s really unfair to them. So when I talked about the financing of Medicare, I also neglected one other thing.
There are huge subsidies built into Medicare Part D programs and Medicare Advantage programs. Those are in addition to the Part B subsidies. When Congress passed the Prescription Drug Act in 2003, they didn’t create a funding mechanism for it. Any shortfall in Part D comes straight out of general revenues again. And guess what? There’s a big shortfall in Part D because it’s in the interest of everybody to keep consumers happy. So the drug companies tend to charge too much money. Congress doesn’t want to make people unhappy. They go along with. And so again, consumers don’t know the real cost of the healthcare they’re using.
Benz: Phil, this seems like a good time to get into some definitions just to make sure everyone’s following for people who aren’t steeped in this. So my hope is you can discuss Medicare A, B, C, and D—quickly outline what they entail, and also the difference between traditional Medicare and Medicare Advantage just to get the terminology straight.
Moeller: I think I have this on what I call a mental save get because I’ve been asked so often. Part A covers hospitals, nursing home, hospice, and hospice can be delivered increasingly at home. So people tend to think of it as, institutional care, but in hospice, it does cover home-based hospice care. Part A has pretty stiff deductibles if you’re in a hospital for any period of time or a nursing home. Not so much with hospice. Hospice is a great program. So, that’s Part A. Part B covers outpatient services. Big, big category. So you might think of that as you go to your doctor’s office. Yeah, that’s a Part B. But you have a drug infused at a clinic or even an outpatient hospital setting, that’s Part B. So Part B does cover some drugs administered in an outpatient setting. These are becoming really important because the new generation of great miracle drugs, weight loss drugs, cancer drugs, they can all be delivered in an outpatient setting. Part B also includes medical equipment. Again, a big category. So that’s Part B. And I should say it also covers what would be considered nonhospital care. So you have an emergency care clinic. You have an outpatient center. Even if it’s run by a hospital, if it’s not an inpatient situation, it’s covered under Part B. Again, a big category.
Part C is the technical name for Medicare Advantage. So I’ll come to Medicare Advantage later. Part D are the drug plans we just discussed. And so they cover prescription drugs. Generally, they do not cover over-the-counter drugs. So they have to be drugs prescribed by a clinician or your doctor. In terms of the two approaches to Medicare, the traditional approach, again Medicare Advantage plans have only been around in their current form about 15 years. The traditional pathway is you get original Medicare. You buy a standalone Part D drug plan. So that gives you A, B, and D. However, the big hole in Part B is that it only covers 80% of approved claims. You’re on the hook for the other 20%. This gave rise to a private insurance product called Medicare Supplement Plans, or Medigap, as it’s known. Medigap policies are regulated by the states, and they’re offered in what I call 10 flavors distinguished by letters of the alphabet. The different letters designate varying amounts of coverage that protects you from things that aren’t fully covered in basic Medicare.
So the most comprehensive plan that people who are new to Medicare can now get is the letter G plan. It covers nearly everything that basic Medicare does not cover. It covers the in-hospital deductibles. It covers surprise bills, which aren’t supposed to exist, but guess what they do. It covers that 20% that Part B doesn’t cover. And it covers some other things as well. So that’s a traditional approach. I will say that most people who are higher-income earners go this route. The reason they go this route is that with basic Medicare, you can pick any physician in the country that accepts Medicare and 95% do. It can be a heck of a time getting an appointment with a doctor these days, but they will accept Medicare’s payment structure for the services they provide. That’s a big deal.
If you move over to Medicare Advantage. Medicare Advantage plans have become increasingly popular for a couple of reasons. The first reason is they’re much cheaper. Premiums are much lower, especially if you have basic Medicare and a Medigap plan. You can get a Medicare Advantage plan for much, much less money than that. The second reason they’re popular is that they are allowed to cover dental, hearing, and vision needs, things that original Medicare is by law not allowed to cover. Well, this has been a very popular benefit. The Medicare Advantage plans all cover these supplemental benefits. They do so to varying degrees of completeness, so it’s important for consumers to shop. But it’s one of the real reasons that Medicare Advantage plans now represent 54% of all Medicare beneficiary enrollment choices.
Is this all too good to be true? Well, it is, because the reason Medicare Advantage plans work the way they do is that this is called managed care. The plans have the responsibility and the authority to review your need for care and to make decisions about whether your care is allowed and if so, who’s going to provide it? So in terms of whether care is allowed, these plans engage in a process called prior authorization where if you’re a Medicare Advantage plan and your doctor says you need a procedure, your plan needs to review that. And they may ask you to demonstrate that prior authorization—they will review your request for care and either approve or deny it. A substantial percentage of requests for care are denied in the prior authorization process, some unfairly, I think most fairly. But the point is consumers are affected by this and nobody likes to be on the receiving end of a negative claim for care. The second thing about Medicare Advantage plans, the reason their care can be more efficiently provided is that it’s provided through a network that the plans build.
So there’s an in-house network of providers of hospitals, doctors, and other clinicians that belong to, let’s say, plan X’s provider team. Your preferred doctor may not be on it. You may have little choice but to use the providers the plan suggests. If you go outside the plan, your request for care could either be denied or you could be subject to a surcharge for out-of-network care. So those are some big asterisks with Medicare Advantage plans. Again, they are very popular with people. Consumers love them, who have them. These tend to be folks of more modest economic means and honestly, people who don’t have a lot of healthcare needs. So there’s not a big downside to some of the limitations that might exist with the Medicare Advantage plan. On the other side, policy makers and researchers hate Medicare Advantage generally because it doesn’t do all the good things that basic Medicare does.
The problem with basic Medicare, which is called fee-for-service medicine, is it encourages doctors to way overprescribe care. It’s very expensive. It has no guardrails to control these costs. And it’s one of the reasons why our healthcare system generates prices that are literally double those of any other major nation. So if we pay 17%, 18% of GDP for our healthcare and other countries pay half that, wouldn’t you like to have 9% of the United States GDP to invest in climate change, infrastructure, better roads, all the things that we know we desperately need? So there’s a real cost to higher healthcare expenses that people don’t see.
Arnott: You mentioned some of the things that aren’t covered by traditional Medicare—dental, vision, and hearing, for example. Are there other types of expenses that Medicare doesn’t cover that might come as a rude awakening to people?
Moeller: It shouldn’t because people like me have been pounding away at it for years and years, but it does. So I mentioned the Part B exposure, which is a big one. And I mentioned some of the others. The other big thing that Medicare doesn’t cover, it doesn’t cover nonmedical custodial care, which in common parlance we consider long-term care. If you go into a long-term-care facility and you do not need medical care, but you need care with feeding, bathing, dressing yourself, getting around, Medicare doesn’t cover that. So private long-term-care plans cover that, but fewer than 10% of people have long-term-care insurance. It’s very expensive. It’s encountered substantial solvency problems itself because the insurers way underestimated the cost of providing this care. The underwriting on long-term care wasn’t done. It was done after the product started being sold in the marketplace. And so these are problems that cropped up years after the plans had been in effect. And so you’ll see many of these private plans that have had to really increase premiums by a lot. And still there’s some concern about solvency. So the choices of someone who goes into a nursing home are limited to the extent you basically, you have to spend down all of your liquid resources until you qualify for Medicaid. Medicaid does cover long-term care. You would not be surprised at the quality of the long-term care that Medicaid can afford to fund. It’s not something that you would look forward to.
Benz: Phil, I wanted to stick with that for a second. Going back to Medicare Advantage, you mentioned that part of the reason they’ve gotten popular is that some of the plans do cover dental, vision, and so on. How about long-term care? What is Medicare Advantage doing with respect to long-term care?
Moeller: Not much. Again, they are not allowed to cover. Well, let me back up. If they wanted to cover long-term care, they probably could. But I haven’t seen anybody with a financial model that makes this workable. There’s a very interesting program that just launched in the state of Washington because some states are stepping up here. The state of Washington has approved a state long-term-care program that is going to start to automatically fund long-term-care spending accounts for the people in the state and end up providing a substantial component of what it’s going to cost to provide long-term care to a lot of the aging people in Washington state. It’s real early in the process, so I’m not going to make predictions. But it is an interesting program worth looking into. Your listeners might want to check out the Center for Retirement Research at Boston College, which just did a very interesting white paper explaining in human accessible terms how this program is going to work.
Arnott: Can you talk a bit about the nuts and bolts of actually signing up for Medicare at age 65? And also what happens if you don’t sign up on time?
Moeller: The good news is that after years of pounding the beaches with cautionary tales, the horror stories about people’s experiences signing up for Medicare have gotten less and less prevalent in my email box. When you turn 65, if you are transitioning to Medicare from an employer insurance plan, you have eight months to sign up for Medicare, a window of eight months. And when you say sign up for Medicare, these people tend to get Part A automatically. We’re talking about signing up for Part B. And then after you sign up for Part B, you have another window in which to get a Part D plan and yet another window in which to get a Medigap private supplemental plan if you choose to get one. The issue here is don’t wait until the end of your enrollment period. Don’t try to time it down to the day because the cost of failing to sign up for Medicare on a timely basis, there are two big costs. Late enrollment penalties are the one that gets all the ink. But the most important cost is that you wouldn’t be insured. I tell people, the day you step off a curb and break your ankle is the day when you don’t have insurance. That’s when these things happen. So for goodness’ sake, make sure you’re covered. Don’t expose yourself to a lack of coverage window.
And this is on me, obviously. If you have to pay an extra month of Part B, well, go for it. It’s not terribly expensive. And it’s not worth the risk of trying to time these decisions. So the first step is sign up for Medicare on a timely basis. The second step or component of this is do not expect Medicare to tell you when to do this. They do not hold your hand, which is true of Medicare throughout the subject. So if you are a trusting soul and assume that Medicare will do the right thing and let you know what’s going on, you will be disappointed. So in terms of sign up, that’s the important window. The second thing, again, the late-enrollment penalties for Part B can be steep. They’re 10% of your monthly Part B premium forever, as long as you have Part B. Some people, especially people who’ve lived overseas and don’t think they need Medicare and then they come back to the United States, some of these people have late-enrollment periods of five years, even longer.
The question then is doing the math to figure out what’s my cost of late enrollment? What’s my benefit of not enrolling? How do I want to do that math? And a lot of people do that. I’ve had some affluent friends who basically went without Part D for 10 years and then they paid the Part D penalty for the rest of their lives. Part D penalty is less onerous. It’s 1% a month you’re late applied to the average Part D premium, which is, again, a figure that no mere mortal understands, but it’s about low-$30 range. So you’re paying an extra $0.30 a month for each month you’re late. So again, you’re above-average listeners, which I think includes everyone, can do the math and figure out when it makes sense to perhaps delay filing for Part D. The other filing, there are two filing what I call “gotchas” that you’re bound to be aware of, too. A lot of people when they lose a job and they’re 65 or older, may get COBRA continuation insurance, which will continue their private insurance plan coverage. They’d have to pay both parts of the premium now, not just their employee part. They have to pay the employer part as well.
The problem with COBRA is that it does not represent primary insurance as far as Medicare is concerned. So, very innocent people can assume they’re just doing fine. So they turn 65, they get their COBRA, they don’t sign up for Medicare because why do they need it? And then down the road, they have a health issue, and they file a claim only to be told, I’m sorry, you’re not covered. The COBRA insurer may not honor that claim as primary and may only honor it as secondary coverage. Up to the COBRA insurer, I’ve heard from readers to say my COBRA insurance is marvelous, they’re taking care of me, it’s OK. I’ve heard from lots of readers saying, oh, this is a bad wake-up call for me. There’s nothing that legally requires a COBRA insurer to offer you primary coverage if you are Medicare eligible.
That’s a big thing to know. The second thing to know is that Medigap supplemental plans have a two-month window of what’s called guaranteed access. If you apply for a Medigap plan within two months of initial eligibility and realize this eligibility is triggered to your Medicare basic eligibility, if you apply for Medigap within two months, you are covered with no questions asked. The insurers cannot take into account prior conditions when they set your premiums, they have to offer you the policies on a favorable basis. When that period expires, you can run into serious issues in terms of trying to get a Medigap plan at that time. Insurers are not legally required then to sell you a Medigap plan. If they do sell you a plan, they can charge you more money based on preexisting conditions.
Again, a lot of people don’t know this. It’s the kind of thing that makes it very important for people to think really hard upfront about which pathway into Medicare they want to take. If they get a Medicare Advantage plan after their initial enrollment period and they decide a year later, boy, I think I want to go back to original Medicare and I want to get a Medigap plan, they shouldn’t assume that they can get a plan on terms that they like. Having said that, insurers are in business to sell policies, not to not sell them. My sense is they will be able to find a plan, however, it may cost more than it would have if they’ve gotten it at the time they originally had that guaranteed access window.
Benz: Phil, I want to talk about the people who are still working post-age 65, which seems to be a bigger share of our population every year. What steps can they take? What should they bear in mind to make sure that they don’t run afoul of some of these rules that you’ve just talked about? How can they determine whether to stay on the employer-provided health insurance or switch to Medicare?
Moeller: Deceptively easy question, not an easy answer. Traditionally, people just stayed on their employer plan because it was better. That’s less and less the case these days. Employers are under a lot of financial pressure to cut the cost of their benefit programs. So, more and more of them are turning to what are equivalent to Medicare Advantage plans. Again, Medicare Advantage is a managed care plan. And so, before just blindly assuming you want to keep your plan, you should find out exactly what your employer offers, and especially if they’ve gone to a managed care approach. In that situation, the Medicare Advantage plan provides primary coverage, and their employer plan probably is going to provide secondary coverage somewhat akin to a Medigap plan.
So, you can be protected from big upside expenses if you have an employer plan. So, I advise people to not assume what their best package is, which means doing a little bit of homework, talking to your employer benefits people, finding out the kind of coverage you’re going to get when you turn 65. So, the other rule that comes into play is that if you work at an employer with 20 or more employees, the employer by law must continue your employer coverage when you turn 65. If you work at a smaller workplace with 20 or fewer employees, the employer has the option to either continue your coverage or to say, I’m sorry, your plan’s ending, you’re going to have to get Medicare. So, that’s again, it’s a surprise that people will work at smaller shops, but it’s the employer’s choice. Not surprisingly, most employers say, bye-bye, you’re going to need to get Medicare because it gets them out of a business they just don’t like. Employers don’t like to be in the health insurance business. It’s complicated. They don’t get any benefits from people. They get a lot of criticism. And so, especially for self-insured plans, which most employer plans now are— Medicare, if they can do away with Medicare, they’re happy to do so.
So, that’s the big set of decisions. One thing that people should be aware of is that if your employer continues your coverage, it is legally required every year to send you a statement saying you’re covered by this employer plan because when you finally lose that employer plan and apply for Medicare, Medicare is going to want proof of coverage. They’re going to make sure that you’ve been covered with an eligible plan. Otherwise, they’ll charge you late enrollment penalties. So, having your employer give you that statement every year ends up being pretty critical. If you did a poll of employees and said: How many of you know about the statement of continuing coverage? If you got more than 2% who’d said, “I know,” I’d be surprised. People just don’t know that this requirement exists.
Arnott: You mentioned earlier that Medicare Advantage is often popular among people with lower asset levels. Are there any other common characteristics of people for whom traditional Medicare plus Medigap would make the most sense versus Medicare Advantage?
Moeller: I don’t know that it changes the decision, but there is a really good program of low-income supports that Medicare has that tend to be available for people with basic Medicare. They include most prominently what’s called the help program that subsidizes Part D drug expenses. More than 10 million people use this program, and there are millions more that are eligible and for various reasons don’t know about it or don’t apply. That can be a really good supplement that makes basic Medicare a little bit more appealing than it otherwise would be for folks. Some of the other support programs can help you with your Part B expenses and others. Again, in some cases, this could say to a person, especially a person who has substantial health needs, I better go with original Medicare and not use Medicare Advantage. However, I still think at the end of the day, Medicare Advantage remains much cheaper than original Medicare. The big decision then is that if you have a health event and you decide you don’t like your Medicare coverage, and you want to use the open enrollment period to switch back to original Medicare. The odds are you might not be able to afford a Medigap plan, which is the big cost increment that gets added on. I would just say to people, you’re going to have to do some homework and decide what you can afford and do it before you have to make this decision so that you can be informed.
Benz: I wanted to ask about the role of private insurance brokers in all of this, which is the topic you cover in the book. Can you discuss how their incentives might influence what insurance products they pitch and how those might be in conflict with what’s good for consumers? You mentioned that these brokers are a big component of the growing popularity of Medicare Advantage.
Moeller: First of all, let me just say I love insurance brokers. They’re some of the finest people on the planet and they’re very knowledgeable. About a third of Medicare enrollees use the services of a broker. Brokers are free to the enrollees, so what’s the problem with free advice? Well, I use the analogy of buying a car. If you go into a Toyota dealership, I don’t think you really expect your sales guy to talk about how good Fords are or Chryslers or any other brand’s automobiles. But when you go into a Medicare insurance broker’s office or talk to them on the phone, I think people assume that person is going to tell you about all the cars on the market. You’ll be able to look at all the choices you could make in insurance plans like automobiles, and you would be able to see the entire field of what’s available and you could make an informed decision. Well, that’s not the case. First of all, no human being can keep track of all the private insurance plans out there, even the best broker. Secondly, brokers tend to migrate toward insurance plans that pay them the best commission. So the commission structure has a big determinant on which companies your broker is going to recommend when you are on the phone with him or her.
The book includes extensive extracts from some really useful focus group discussions that a private foundation had with Medicare insurance brokers. I was struck with, A, the brokers are really knowledgeable, B, they tend to want to do the right things, but C, they have to make a living, which means they have to pay attention to their commission structure. So I think the issue is, does this commission structure ever bias the recommendations they make? Yes, it does. How often? I don’t know. In some cases, the brokers will still do what’s in your best interest, even if they leave some money on the table, but I don’t know that that happens that often. I don’t have the frequency of that at all. All I want people to be aware of is that understand that your broker may not be telling you about all the products on the market that you might want to consider. So I would take their advice, ask them questions, and get comfortable with the choices they presented you. But then I would go the next step, and I would go online to do research about how to find other products on the market. And I can explain that research at some point, but it takes a little bit of time. So I’ll stop here.
Arnott: We’ve heard from some consumer advocates who look at Medicare, and they’ve been pretty forthright in saying that most consumers who can afford it would be better off with traditional Medicare plus a Medigap plan. Do you agree with that recommendation? And are there any exceptions to that?
Moeller: I do agree. Let me just give you a personal example. My family has substantial health expenses. We have, both my spouse and I have, letter G plans. We’ve had billed medical expenses in a recent year that exceeded $600,000. We paid zero additional money. Our total healthcare expense was our premiums for Part B and D, our Medigap premium, and our out-of-pocket drug expenses. We had literally no out-of-pocket expenses for Part A and Part B procedures, and they were just enormous. We take an infusion drug that bills at $60,000 a month. We paid zero. It bills out under Part B, not Part D, because it’s infused in a remote facility. So if you have the means, and especially if you have high medical needs, I think it’s a no-brainer to go with that combination. I would also argue that for me, I think that’s been the cheapest route to take, because the Medigap does such a good job of filling the holes in basic Medicare.
Benz: I wanted to ask about choosing a Medigap plan, and I think you kind of answered it, but I think the tendency might be to reach for that gold-plated plan. And I will share an anecdote from my mom and dad, which is that they had a great plan that covered their expenses wall to wall as well. And in addition to it being a cost saving, it was also just a tremendous administrative saving in our household as someone who was in charge of paying their bills that literally we never had to pay a bill, which was pretty nice. But maybe you can talk about key things to keep in mind when choosing one of those Medigap plans.
Moeller: Sure. The other thing I’m sure your parents benefited from is what I called the head-on-the-pillow test. When you’re protected, it just really is a de-stressor, and medical expenses become the wild card in later life finances. And if you feel like you’re protected, it just makes a lot of other things easier. The key thing about Medicare supplement plans is that I said there are 10 different letter plans. So say you have a letter G plan. Every insurer that offers a letter G plan must cover the same thing. They can do a couple of bells and whistles like maybe a health club, but that’s really a minor component of why you’re getting a Medigap plan. The fact that they all cover the same thing means that the only variable to really shop on is their premium. And there’s a wide variation in premiums. Why? Because people don’t aid or regulate the state level, and the details of state regulation are, shall we say, opaque. You can’t get access to these things. You don’t know the rate of return. You don’t know anything about their claims history for your plan. You don’t know what kind of profit they make on your plan. So bottom line is I urge people to shop based on premium, and you can see a big variation in premiums. Again, there’s a way to shop for these that I can explain to folks based on your interest in time.
Arnott: One of the things that happens during the open enrollment period is people have the opportunity to reshop their Part D prescription plans. What are the potential benefits of doing that?
Moeller: Well, they can be substantial, and in this year’s open enrollment period, they’re almost certainly going to be substantial. So as you may know, 2022 law called the Inflation Reduction Act has placed caps on out-of-pocket drug expenses. So beginning next year, nobody will pay more than $2,000 out-of-pocket for their drugs. This is a huge benefit to well over a million people who have high drug costs. But somebody’s got to pay for their good fortune, and it’s the rest of the Medicare enrollees. The insurers aren’t going to just eat that money. They’re going to figure out ways to get it back with the 90%-plus people who don’t benefit from the $2,000 cap. So that’s the big thing to look for, because there are real incentives for these Part D plans to change pricing for drugs, to change which drugs they cover, to change what’s called the pricing tiers. Part D plans usually have separate pricing tiers for what are called basic generics, preferred generics, basic branded, preferred branded, and the really expensive miracle drugs. So drugs can move around within tiers.
There can be, in some cases, hoops that people have to jump through to get access to drugs, and they could be tightened up in some of the plans. So look at your plan premium, look at your deductible particularly in terms of what that’s going to be. Again, Medicare provides tools that allow you to get a look at all of the plans that cover the drugs you want to take and calculate the average annual cost of these drugs. The other thing with open enrollment that may be different for next year is that Medicare touted the Inflation Reduction Act as a big price savings, and there’s some truth in that. But once they put in provisions of this plan and they saw how the private Part D insurers reacted to it, they knew that there were going to be some big increases in Part D costs for millions and millions of consumers.
So literally, for the last few weeks, they’ve lumped together a program that is going to provide billions and billions of dollars in subsidies to shield Part D enrollees from the steepest increases in Part D costs next year. So to me, being a suspicious type, this pretty much looks like straight-out election-year bribe. Democrats do not want to give voters a big reason to be unhappy leading into the election. Open enrollment starts Oct. 15, literally three weeks from election day. You can imagine the optics of stories coming out saying people are getting slammed by huge Part D increases and they’re unhappy about it. So most of that bad news has been taken off the table, but that doesn’t mean that there aren’t going to be big variations in the utility of Part D plans and the costs that you pay for the plan you want. So again, especially important this year for people to do some homework.
Benz: Amy and I have a million more questions and about 30 more have occurred to me during the course of this conversation. But I’m wondering, Phil, if you could…
Moeller: I’m available for a repeat visit.
Benz: Thank you. We’ll take you up on that. But I’m wondering if you can share some of your favorite resources for people who want to do due diligence on the various components of their Medicare coverage.
Moeller: I’m happy to do that. Medicare has a suite of online tools sort of generally lumped them to the metric of Plan Finder. This applies to Part D plans. It applies to Medigap plans. So they load all the datasets from the private insurers into this tool and allow you to actually do a fairly good apples-to-apples comparison of the products that are available in the zip code where you live. So it is place specific, which is very important. Medicare has never been terribly consumer-friendly, but they’re getting better—slower than I’d like—but they are getting better. And the tools tend to be more transparent, easier to use, easier to understand. It’s true of a lot of online applications that over time, they do get better. And so that tool is at the top of my list of the things that people should use. The general Medicare site also is getting better and better because it has many more good help files that walk you through the process. That’s true of open enrollment. It’s true of signing up for Medicare and some of the other things that you have to do to get your Medicare in place. So I recommend those. The government also has two annual publications, one’s called Medicare and Me. Maybe it’s Medicare & You. I think it’s Medicare & You.
That comes out every year. And so the current version explains all of the 2025 changes in Medicare that you need to take advantage of. There’s also a Medigap annual report, annual explainer that Medicare produces that explains how Medigap works. The things I talked about, like guaranteed access, those provisions can be really dense. So these two publications, which are available for free online, and I think they’ll mail them to you if you want, but mostly online, are really good to use. The other entity I rely on is KFF, which used to be called the Kaiser Family Foundation. It’s a foundation-funded healthcare research outlet. They do the best factual-based assessments of Medicare I’ve seen. They are not like super-easy reading, but they’re accessible. And for your audience, they provide a really good assessment of Medicare costs, changes in Medicare, what’s coming up, how to interpret them. For example, every year after the insurers announce next year’s plan offerings, KFF will do a really good assessment of what’s going on in the space, especially for Part D plans. So those would be the two at the top of my list for folks.
Benz: That’s a great list of resources. And of course, I would put your book on it. Amy and I learned a lot from reading it and certainly from this conversation today. So, Phil, thank you so much for being with us today on The Long View.
Moeller: It’s my pleasure. Thanks for having me on.
Arnott: Thanks again, Phil.
Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts. You can follow me on social media at Christine_Benz on X or at Christine Benz on LinkedIn.
Arnott: And at Amy Arnott on LinkedIn.
Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week. Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at thelongview@morningstar.com . Until next time, thanks for joining us.
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