It’s been a truism for years: Healthcare is the runaway train in every retirement plan. It’s one of the largest categories of expense and price increases race ahead of overall inflation.
But is the truism still true?
Healthcare inflation actually has stabilized. Fidelity Investments, which publishes an annual report on retiree health-care costs, reported recently that a 65-year-old couple retiring this year will need to have saved $220,000 to meet their future health-care expenses, the same estimate the company made last year. And Fidelity’s 2012 forecast reflected an 8 percent drop in projected costs.
Fidelity’s figures demonstrate a slowdown in Medicare’s cost growth. The Congressional Budget Office has cut its Medicare spending forecast in each of last six years, and its 2019 spending forecast is now $95 billion lower than it was four years ago.
Experts aren’t ready to declare long-term victory - some expect healthcare inflation to heat up again. But for now, several factors are tamping down price pressures. The Affordable Care Act included cuts in payments to hospitals and private Medicare plans. In the Medicare prescription drug program, there’s been a dramatic shift from brand-name to generic medications. And some think the slowdown simply reflects the slow economy, which has forced people to cut back their spending on healthcare.
Tame healthcare inflation is good news for your retired clients. The annual Medicare enrollment period for prescription drug and Advantage managed care plans begins on October 15th, and runs through December 7th; with that backdrop, here’s a look at how healthcare costs are shaping up for the year ahead.
The monthly premium for Medicare Part B (outpatient services) will stay at $104.90 in 2015 for the third consecutive year. Since Part B premiums typically are deducted from Social Security benefits, that means seniors will keep all of the cost-of-living adjustment (COLA) awarded next year, expected to be around 1.7 percent.
That’s a marked change from just a few years ago, when runaway healthcare inflation meant that the Part B inflation routinely consumed the entire COLA (in years when the premium increase is greater than the COLA, the COLA stays flat for most beneficiaries - there’s a hold-harmless provision that adjusts the net premium downward to avoid a negative COLA; the exceptions are high-income seniors paying an income-adjusted Part B premium, and new enrollees, who simply pay the new premium).
Moderate increases in the Part D prescription drug program are an important part of the bigger picture in Medicare costs. The average premium will actually drop a bit next year, to $38.95 from $39.88, according to Avalere Health, a research and consulting firm.
But no one pays the average, of course - and a look at the most popular plans shows why it is important for your clients to re-shop their coverage annually, if possible. Avalere’s analysis of the top ten drug plans shows that rate changes will be all over the map: one is raising premiums by 52 percent, while a couple are cutting prices by 21 percent.
Very few seniors re-shop their coverage regularly. A study released last fall by the Henry J. Kaiser Family Foundation found that, on average, just 13 percent of enrollees voluntarily switched their drug plans over four recent enrollment periods. Among those who did switch, 46 percent saved at least 5 percent the following year, mainly on premiums. (The switching rate was nearly identical for those in for Advantage plans, the all-in-one managed-care option offered to Medicare beneficiaries.)
Your clients shouldn’t limit their plan searches to premiums, however. It’s also important to check carefully on whether their prescriptions are covered, and under what rules - in some cases, they may have to run the gauntlet of extra documentation from physicians or rules requiring them to try alternate medications before receiving a more expensive alternative that the doctor prefers.
Also pay attention to the method of delivery. The least expensive plans have created “preferred pharmacy networks” to contain costs; it’s important to make sure that the low-cost delivery option works for your client.
Advantage plans bundle together hospitalization, doctor visits and prescription drug plans, and many don’t charge an additional premium beyond the basic Part B premium that all enrollees pay. Advantage plans also limit annual out-of-pocket spending, eliminating the need for the separate Medigap supplemental coverage purchased by many participants in original Medicare. Typically, that limit is $3,400.
Those savings - along with the convenience of all-in-one coverage- are boosting the popularity of Advantage plans - they will cover 33 percent of all Medicare enrollees next year.
Among plans that do charge an extra premium, prices are rising an average of four percent for next year, according to Avalere’s analysis. And, fewer plans will offer zero-deductible drug coverage.
For clients already on Medicare, the starting point is the Annual Notice of Change (ANOC), which Part D and Advantage providers must send by mail no later than September 30th each year. The ANOC informs beneficiaries of changes in premiums, co-pays and allowed drugs; it provides a starting point for considering whether a change in coverage is merited.
All advisors should have a copy of the federal government’s free guide to Medicare benefits, Medicare & You, which is updated annually. This is the definitive source on all things Medicare and can be useful in plan decision-making. Your clients receive one by mail; you can download it at no charge here.
When it comes time to start shopping for Part D or Advantage plans, the Medicare Plan Finder tool is the starting point. Your client plugs in his or her Medicare number and drugs, along with dosage information. The tool then displays a list of possible plans; their estimated cost, including premiums, and deductibles; which drugs are covered; and customer-satisfaction ratings. Be sure to check the detailed “formulary” for a plan, which shows the rules for drug coverage.
Although it’s possible to enroll online via the Plan Finder, it’s a good idea to confirm coverage information by phone with a plan representative, and to do the actual enrollment by calling Medicare’s enrollment hotline (1-800-MEDICARE), rather than direct from the plan. If any of the plan information turns out to be incorrect, the government has a record of what transpired, and will allow a plan change.
If clients need help with plan shopping beyond what you’re able to provide, a number of good advisory services are available free or with modest cost.
Free one-on-one help is available from your State Health Insurance Assistance Program (SHIP), a network of non-profit Medicare counseling services. The Medicare Rights Center also offers free counseling by phone (1-800-333-4114).
If you’re willing to pay to get advice and help with paperwork, hire an independent, fee-based counseling service such as Allsup Medicare Advisor (1-866-521-7655), or Goodcare.com. For a modest sum, these firms will do a one-on-one evaluation of a Medicare enrollee’s needs and help select plans.