It’s open enrollment time, and that means we’re seeing more insurance commercials than normal, especially those targeting Medicare beneficiaries. They’re nearly as annoying as the political ads we’ve been inundated with for months.
The Medicare ads encourage consumers to call a toll-free number and check their zip code to see if they qualify for extra benefits. These extra benefits vary by plan, but they can include dental, vision, and hearing benefits, gym memberships, rides to the doctor, an allowance for over-the-counter items, and even “the benefit that adds money back to your Social Security check,” which is heavily promoted on many of the commercials.
And while the extras are nice, the fact is that most of these ads don’t mention the most important reason for people to sign up on a Medicare Advantage plan: to cap their out-of-pocket exposure.
As you know, Original Medicare has a lot of holes in it, including a Part A hospital deductible of $1,600 in 2023 (which can hit multiple times in a single year), a daily copay of $400 after 60 days in the hospital, and a copayment of $800 per day after day 90. Part B of Medicare has a calendar-year deductible of $226 in 2023 followed by a 20% coinsurance responsibility with no annual cap. For more information on Medicare cost-sharing requirements, click here.
To fill the major gaps in Medicare, many seniors purchase a Medicare supplement, like this from Allstate Health Solutions. One advantage of Medicare Supplements, obvious to experienced agents, is that most offer the flexibility to see any doctor or go to any hospital that accepts Medicare patients. But not everyone can afford a Medigap plan. The other option—a Medicare Advantage plan—offers a much lower premium (sometimes no additional cost after the monthly Medicare Part B premium), and it caps the member’s out-of-pocket exposure at a few thousand dollars per year. Yes, some Advantage plans also offer additional benefits like those described above, but the biggest benefit is the financial protection they offer.
Unfortunately, many seniors don’t understand the insurance component, so they tend to focus on the perks. As one agent we work with told us, “I’m having trouble explaining these plans to my own Mom. Right now, she wants to change from one Advantage plan to another because her current plan charges too much for toothpaste in its online catalog. When I explained that the quarterly OTC allowance is just the shiny object meant to attract consumers and that we need to compare the insurance benefits before she makes a decision, she said that she doesn’t understand all that but she does understand over-the-counter costs, so that’s what she’s comparing.”
She’s certainly not alone. It’s a lot easier, and a lot more fun, to compare the extra perks than it is to review all the boring insurance benefits. But the insurance stuff is much more important.
Sheena Iyengar, a professor and the author of The Art of Choosing, explains that having too many options can actually serve as an obstacle to decision making. For instance, in one study, she found that employee participation in 401(k) plans drops significantly when ten or more options are available; participation is higher when there are only a handful of plans to choose from.
Barry Swartz, author of The Paradox of Choice, explains it this way in a Los Angeles Times article: “as the complexity of a decision increases, a person is more likely to look for ways -- often erroneous -- to simplify the choosing process. If there are 100 kinds of cereal, instead of looking at all of the characteristics, people will evaluate a product based on something familiar, such as brand name, or easy, such as price.”
Think about the number of Medicare Advantage plans available in some markets. It’s nearly impossible for consumers to compare all of the features of those plans, many of which they don’t fully understand, so they instead focus on the extras. And that’s exactly what some insurance companies want them to do, which is why they spend so much time promoting the perks rather than explaining the plans.
As agents, we need to be careful not to fall into this trap. Instead, we should take the time to examine the more important components of the plan, like the out-of-pocket limit, the prescription drug formulary, and the provider network. Whether the plan covers our clients’ doctors, the copays for their monthly prescriptions, and their total financial risk in the event of a serious illness are all more important than the additional benefits the plan might offer. The Quotit platform makes this simple to do for Medicare agents.
That’s not to dismiss these extra benefits. They certainly can help our clients, and perhaps they could be the tiebreaker if two plans are similar enough, but they should not be the primary reason clients choose between one plan and another.
Here’s the silver lining for brokers: because insurance is confusing, and many of the commercials intended to attract consumers only add to the confusion, most people need the guidance that a licensed insurance agent can provide. Think of it as job security.