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The Medicare Trick Insurers Are Using to Get You to Pay More


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Buried beneath the hoopla brought about by election season is an arguably far more important issue for our nation's seniors: the open enrollment period for Medicare.

Every year between Oct. 15 and Dec. 7, Medicare enrollees -- of which five in six are 65 or older -- are free to shop around and enroll in a Part D prescription drug plan under original Medicare or an alternative plan known as Medicare Advantage (which is also known as Part C). Since a majority of retirees are receiving Social Security benefits by the time they become eligible to enroll in Medicare, they're automatically enrolled in original Medicare Part A (hospital insurance) and Part B (outpatient services). However, for those who've chosen to delay taking their Social Security benefits, this period is also a time to enroll in Part A and Part B.

The importance of Medicare simply can't be understated. Though Medicare beneficiaries aren't receiving a tangible monthly check as they would from the Social Security Administration, the cumulative lifetime benefits received from Medicare compared to Social Security is narrowing. According to estimates from the Urban Institute of an average-earning male turning 65, by the year 2055 Medicare will be paying out more in lifetime benefits to retirees than Social Security. Thus, your annual Medicare coverage decision isn't something to take lightly. 


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Medicare premiums are on the rise

As most seniors may have rightly guessed by now, the costs to be insured through Medicare are going up in 2017, though for some enrollees more than others. For enrollees receiving Social Security, the "hold harmless" rule will ensure that their Part B premiums rise by no more than their cost-of-living adjustment, which was just recently announced at 0.3%. However, new enrollees to Medicare, as well as those who aren't enrolled in Social Security, or prefer to be billed directly by Medicare, could be looking at a greater than 20% increase in Part B premiums in 2017. 

Additionally, Part D premiums for prescription drug plans (PDPs) are on the rise. According to the Kaiser Family Foundation, PDP premiums are expected to rise by 9% in 2017 to $42.17 a month, based on the weighted average of 2016 plan enrollment. Keep in mind that KFF's estimate may not be perfect as it makes the assumption that enrollees stick with their current plan, and it combines the premium costs for both basic and enhanced PDPs.

Much of the blame for rising prescription drug costs can probably be cast on brand-name and specialty therapeutics, as well as the inherent pricing power advantages most drug companies have while operating in the United States.


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Insurers are using this trick to get you to pay more

Prescription drug plans are especially in focus for enrollees in original Medicare (which comprises about seven in 10 enrollees) because there are no limits on annual out-of-pocket expenses. Choose a plan that isn't the best value, and you could wind up paying way more out of your own pocket than you'd anticipated.

However, there's much more to a PDP than simply its premium. Additional expenses, such as copays, coinsurance, and formulary tiers (most insurers have five tiers in 2017), can play a big role in determining how much you spend out of pocket. Think of formulary tiers as a pyramid of all approved drugs by an insurer, with the most expensive and specialized therapies on the highest tiers and the cheapest drugs on the lower tiers. Insurers appear to be betting that seniors won't pay close enough attention to the difference between copays and coinsurance as we head into 2017, and it may pay off in insurers' favor, and at the detriment of seniors who didn't take the time to shop around.

Copays are a fixed amount that a member pays across the board for drugs in a certain tier. On the other hand, coinsurance requires the member to pay a percentage of the cost of the drug rather than a flat fee. Thus, coinsurance can be considerably costlier to Medicare members if their prescription drugs wind up in one of the higher tiers.

Based on data from research firm Avalere announced in March 2016, the number of drugs subject to coinsurance under Medicare Part D has increased from 35% in 2014 to 58% in 2016. Furthermore, Avalere notes that 96% of beneficiaries are enrolled in a PDP that has more than one formulary tier that requires coinsurance. That's up from just 39% in 2014. If this trend continues, it could soon be impossible for seniors to find a PDP with copays rather than coinsurance.


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What you should do

The clear takeaway from this push toward coinsurance is that insurers are trying to pass along some of their rising expenses to the consumer. With very little stymying drugmakers' pricing power, it's unlikely that this trend will slow or reverse anytime soon. It essentially means that seniors really need to take their time when reviewing PDPs over the next month.

The most important thing seniors need to understand as they shop for a Part D plan for the upcoming year is the difference between copays and coinsurance. Pay exceptionally close attention to whether your regular prescription drugs are treated as copays or coinsurance with the plans you're researching since it could have a very large out-of-pocket difference.

Second, and this probably goes without saying, you need to shop around with the assumption that your PDP last year may not be the best value for you in the current year. Part A and Part B are a one-size-fits-all package for Medicare members, but the more than one dozen Part D plans are contracted by Medicare with private insurance companies. These insurers can change their formulary tiers, copays, coinsurance, and premiums every single year.

Third, as was alluded to above, pay attention to the tier your regular prescription drugs fall into. It's not uncommon for the tiers of specialized therapies to vary from one insurer to the next, so there could be substantive savings to be had by keeping a close eye on the drug tiers when comparing plans.

Last, it's probably worth your while to at least consider a Medicare Advantage plan. Medicare Advantage plans offer the same services as Medicare, plus a few others (e.g., dental, vision, and hearing coverage), all rolled up into one easy-to-enroll plan. There's no guarantee that your prescription drugs will necessarily be any cheaper with a Medicare Advantage plan, but it's worth your time to consider this potentially more competitive original Medicare alternative.

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Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, and check him out on Twitter, where he goes by the handle 

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