10/12/2011 01:41 pm ET Updated Dec 12, 2011

Medicare Open Enrollment Time -- Have You Been Dumped?

Most of us breathe a sigh of relief when we reach Medicare age because we think we will have coverage until we die. And we will. But we may not get all the options we want. Medicare Open Enrollment period officially opens Saturday October 15th, but the insurance companies that administer the Medicare program announced their 2012 plans and rates this past weekend. There was good news and bad news.

Whether you are 16 or 66, getting dumped is a humiliating and frustrating experience. Last week, some residents of my county received a letter from their insurance company saying that their Medicare managed care plan will no longer be offered here next year. Yep. Dumped by Anthem Blue Cross.

In some places around the country, there will be no real choice of managed care options in 2012. In my county only one managed care plan will be offered and it will cost $192 a month. Other counties that Anthem dumped will be left without any managed care plans at all. It's not just California, though. Medicare beneficiaries in Virginia saw Optima drop out of the market for 2012, citing $20 million losses for that managed care business, and 500,000 enrollees in states offering Coventry or WellCare will also see their managed care options reduced.

Will more insurance companies drop their managed care business when they realize they cannot continue to make the same profits they have been making? Perhaps. Even though the number of plans dropping out of the market is small this year, is it a national trend? Actually, so far it is nothing like a national trend.

In fact, earlier this month, federal officials said they expected a 10 percent increase in enrollment in Medicare Advantage plans, and they said premiums will be 4 percent lower on average in 2012 with benefits remaining consistent with 2011 plans. Which is all well and good if you live in a place where there is still a lot of competition for you as a Medicare beneficiary. But if you do not?

You still have basically three choices when you are eligible for Medicare. You can go "bare" and take what the "original" Medicare offers in terms of insurance and pay whatever extra is charged; you can buy what is called a "supplement' or gap plan that fills in the holes of what Medicare doesn't pay for but costs anywhere from $50 to $300 a month depending on your age, where you live, type of plan, etc. Or you can enroll in a "Medicare Advantage" plan (MA), which is the name of the managed care option Medicare offers, with monthly premiums that range from zero to $300 or more, again depending on where you live and your age.

The Bush Administration pushed the concept of managed care in 2003 when the Medicare+Choice plan (implemented in 1997) became Medicare Advantage and the government sweetened the pot for insurance companies by paying them more than Medicare paid for its original program.

A Medicare Advantage benefit costs the government 14 percent more than exactly the same benefit offered through regular Medicare. In some parts of the country, the difference is as high as 20 percent. That extra money is being eaten up in marketing and administrative costs, and in profits to the insurance companies. According to the U.S. Department of Health and Human Services, all Medicare beneficiaries, including those enrolled in regular Medicare, are paying for these overpayments through higher premiums. HHS says that this year these subsidies are adding about $3.60 per month to premiums.

As a part of health reform, Medicare decided to require these insurance companies to compete for the business, instead of simply accepting whatever they bid. And it is true that health reform set in motion a process by which that 14% overpayment would be reduced over a period of years to the level of what the government pays for original Medicare .

It's a reasonable question to ask -- why should where you live, or where you have to live, be a punishment for the beneficiary if the plan you have is suddenly dropped? Who can you blame in this type of situation? Unfortunately, there are no real evildoers to blame. Every one of the players acts pretty rationally, given the rules. The problem is -- we need to change the rules to make it more fair for everyone.

  • The Centers for Medicare and Medicaid Services (CMS) requires these plans to compete for business. That makes sense. They don't allow insurers to take excessive price increases or boost their profits unreasonably. That also makes sense. CMS also sets the rates that are paid to plans and hospitals. CMS is the payer here, and they are paying with our money. We should want them to get the best deal they can. The problem is that the rates they set vary hugely by region in the US and if you happen to be an area with low costs, the rates can punish you for that efficiency. This is something CMS is undoubtedly working on.
  • Health insurance plans that offer Medicare Advantage get a fixed amount per month for every Medicare beneficiary whom they enroll. If that person isn't sick, they keep the change. If that person goes in the hospital they have a loss. Their incentive is right -- to keep you healthy. But unfortunately the amount the plans get paid varies by county in somewhat bizarre ways -- counties who have historically efficient systems of care get paid less. Areas like Miami/Dade, get paid more. If you live in a community where the hospital is the most expensive in the country like I do, there's not a whole lot you can do about it. Health plans eventually don't make as much as they think they should and they drop the plans in that community.
  • Hospitals are the largest part of the health care dollar and they of course don't have any incentive to lower their rates, particularly if there is little competition in their market. So they keep getting more and more reimbursement based a lot on what they pay their workers. The better the wages, the higher their reimbursement and the more costly they become. We all want our nurses and hospital staff to get a good living wage, but the wage trends vary rather dramatically around the country, and there is a lot of gaming going on by hospitals to assure that they associate themselves with the right wage index.
  • Doctors can't get paid more unless they get out of the Medicare program entirely, and since that program influences private rates and so many of their patients may be on Medicare, it doesn't always make sense to just bail out, although some do so anyway.

It's small comfort to be at the mercy of these plans, even with reassurances from the Federal government that these plans are here to stay and the fact that most Medicare Advantage plans are still offering affordable programs. The lonely Medicare beneficiary who can't move to a "better" reimbursed county is stuck with the options the market offers them. And the market does not work perfectly for health care. The rules of the market are to maximize your profit. Even with our very own single payer, government-run, "socialist" program Medicare, we are still at the mercy of the market and will be as long as we have a private sector delivery and insurance system. It's important not to forget that the Republicans would put us all at the total mercy of the market with their voucher proposals for Medicare.

I don't mean to sound whiny about this. I feel incredibly fortunate to have Medicare, and if it weren't for the heroics of my local congressman Sam Farr (D- Monterey) and the vigilance and work of the Medicare staff, I would not have a set of supplemental plans to choose from and plans would be charging even more than they do. But it does kind of make you wish you lived in Vermont, doesn't it? Taking the profit out of health care. Now that's a concept.