Beginning June 1, my husband is switching from insurance at work to Medicare. After spending a lifetime working on the financial side of the insurance industry, he thought he knew everything there was to know about the business. But that was before he encountered the baffling complexity of Medicare.
After sorting through the basic options and wading through the dozens of proposals for plans that he received by email and snail mail, he chose a Medicare Advantage plan from an insurer he knows and trusts.
The biggest surprise was the cost. No matter what plan he chose -- Medicare Advantage or conventional Medicare with a Medigap policy -- his out-of-pocket costs would be much higher than they were when he bought insurance through his employer. In fact, his Medicare bills will be bigger than what I am going to pay for an individual plan sold on the open market now that I am no longer eligible for insurance through his work and not yet old enough for Medicare.
His Medicare Advantage plan also will provide less coverage than his old policy, especially for prescription drugs, dental and vision, even though the plan comes from the same insurer that we relied on before he chose retirement.
Opting out of Medicare isn't an option. If you're 65 and you don't have what Medicare calls "credible coverage" through an employer, you have to sign up.
All of this has been an eye-opening part of retirement planning, and it has made the discussion surrounding ways to save money on Medicare much more personal for me. Christine Eibner, a senior economist at the RAND Corp., and author of a study comparing the three most common suggestions for controlling the cost of Medicare, says anyway you cut it, reducing the cost of Medicare is going to also reduce access to health care among people who can least afford to pay. And in the long run, that will probably drive up the costs for everyone.
Here are the suggestions Eibner studied and their impact:
Add a Medicare Part A premium. Part A covers hospitalization and is currently paid for by payroll taxes. Adding a means-tested premium would cut Medicare spending by 2.4 percent and trim enrollment by 2 percent because some people wouldn't pay. The overall cost savings would be nominal, RAND calculates.
Increase the age of eligibility from 65 to 67. This would cut the number of seniors covered by Medicare by 14 percent and save 7.2 percent on its cost. But if 65- and 66-year-olds switched to the open market where costs will be controlled by the Affordable Care Act, their greater need for health care will drive up the cost of insurance for everyone. If they are low income, the government will still have to pick up some -- if not all -- of their costs. That could be an all around lose-lose.
Scrap Medicare as we know it in favor of a premium support plan. Premium support would give every senior a voucher to offset the cost of buying insurance on the open market. That would cut spending by 24 percent, but between 4 percent and 13 percent of people older than 65 would likely drop coverage because the vouchers wouldn't be enough to cover their costs to buy insurance. If they drop coverage and then get sick, they'll go to the emergency room and the health care system and taxpayers will still pay, RAND predicts.
"All three of the policy proposals we examined would require sacrifices in eligibility, and in the long run may impose higher costs on Medicare enrollees," Eibner says.
"Whether people pay out of pocket or the federal government pays through increased taxes, the rising costs are unsustainable. (To save money) you have to address the deeper issues that will bend the trajectory of healthcare costs," she adds.