I know I’m a little early in talking about the new Medigap plans, but let me be the first to go out on a limb and say I like the new Plan N which is coming on June 1st, 2010. The previous 4 new plans which were introduced with Cost Sharing have failed miserably, at least when you look at them in terms of #’s of insureds taking the plans (High Deductible Plan F, High Deductible Plan J, Plan K and Plan L). I think the new Plan M will also fall into the trash heap of Medicare Supplement plans.
So why might Plan N succeed where the other 4 (or 5, if you agree with me on the fate of Plan M) have failed?
1. Plan N is Easy to Explain. Anybody who’s tried to explain a High Deductible Plan F/J or Plan K and L will know what I’m talking about. Selling these plans is more like selling a Long Term Care policy than Medigap. And what is the reward for the agent? Lower Commission is the agent’s reward on the plan due to the lower premium. The beauty of Plan N, on the other hand, is the simplicity to explain. You pay $20 when you see a Doctor and $50 if you use the ER (without admission, I suppose) and that’s it. Otherwise, you’re covered 100% on all Medicare Approved charges. [End of Presentation] That said, the premium will be 25 – 30% LOWER than a standard plan C (thus lower commission/sale), so are there any other advantages for the agent? I think the answer is “yes”.
2. Plan N addresses the Senate Finance Committee’s Concerns about First Dollar Medigap plans leading to higher utilization of Original FFS Medicare Benefits. I blogged a while ago about about the committee’s concerns about Medigap. Senate Finance wants to see more cost sharing on behalf of the Medicare Beneficiary and Plan N accomplishes this. Senate Finance is particularly concerned about Plans C and F which currently dominate the market and offer ZERO cost sharing from the Medicare Beneficiary.
3. Plan N will attract a better Selection of Risk. Let’s face it, if a client has the next 12 months of Doctor and Specialist visits already penciled in on their calendar, the Plan N will not be attractive to them. They’d be better served with a Plan F. This “self selection” process should yield more favorable underwriting results and, therefore, smaller rate increases and less need to change a plan.
4. Plan N’s Cost Sharing Component should lead to lower Utilization. I don’t know if the effect will be dramatic, but the reason why Private Insurance Companies have Co-Pays is to discourage untilization (to a point). Lower utilization will, again, yield better underwriting results, lower claims and smaller increases.
5. Plan N is not Guaranteed Issue. Even if it was, it probably wouldn’t be the first plan choice for an individual who is not able to go through the Medigap Underwriting process (due to the cost share).
6. Baby Boomers and Medicare Advantage Members are used to Co-pays. We all know the Baby Boomers are on their way into the Medicare system in the next 24 months. Baby Boomers have been utilizing Health Insurance Benefits with Co-Pays for 2 decades. Boomers are definitely not the 80/20 crowd and may even be skeptical of a Zero cost share health plan. This might make Plan N are perfect plan for the Boomers and Plan M’s introduction in one year seems like the perfect timing as well.
In summary, I believe that Senior Market Agents look at more than just commission/sale. Agents need to consider the risks of having their product replaced, the ease of explaining the product and the future potential of rate increases (meaning they have to sell it again for no additional commission). When you take all of these factors into account, if the Plan N is priced right, I think it could give Plan F a run for it’s money in the second half of 2010!
I think Craig makes a couple of key points. First, a plan that is easy to explain is easier to sell and easier for people to own. Secondly, a plan that encourages lower utilization offers a more stable premium and doesn’t need to be replaced as often. Finally, the observations about Baby Boomers, and also seniors on MA plans being used to cost-share is also accurate.
However, I disagree about the effectiveness of the “older” plans such as deductible F, and Plan K. They may be a little bit more difficult to explain at first, but with practice they become a very attractive offer to seniors who are really only concerned with a stop-loss to their Medicare and are tired of switching plans every couple of years due to chronic rate increases. Deductible Plan F is a simple, straight-forward stop loss to Medicares deductibles and co-ins. Plan K offers a 50/50 co-ins with a stop-loss as well.
Both these plans offer a similar structure to MA plans, but without some of the side effects of MA plans.
Eventually, the market was going to arrive here anyway. The idea that you could own first dollar coverage at an affordable premium is ludicrous. Certainly it’s easy to explain, which is why Plan F has always been so popular. However, it is also a self-destructing plan by it’s very design. It might be convenient for you to drive through some 15 minute oil change facility and have them change your oil, all your filters and fluids, and rotate your tires, and when it comes time to pay, just flash your car insurance and drive off with a $20 co-pay. Sounds nice until you get your new premium notice later. This is exactly what we have been selling to seniors for too many years.
I welcome cost share supplements and having another one in my portfolio only makes it easier to fit my customer with the right plan. If agents have a hard time explaining these plans to their customers then they should take the time to learn. They aren’t for everyone, but they do fit the needs of many more people than we currently offer them to.
Dan:
I don’t dispute anything you said here. Generally, it doesn’t make good financial sense to try and insure a “high frequency/low severity” risk (like going to the primary care doctor). This is why plan F doesn’t make a ton of sense the standpoint of insurance theory. When I say “easy to explain”, I’m being a bit casual. More accurately or theoretically, I’d say there are certain “transaction costs” associated with selling medigap plans with cost sharing. The reason I like Plan N is that it’s (1) a fundamentally sounder insurance product than C, D, F, G or J and (2) has lower “tranaction costs” than the other plans with higher cost sharing (like high deductible plans F and J or plans K and L). All in all, I don’t think you and I are too far off and I applaud your willingness to go the extra mile to put your clients in more stable products.
I agree the Medigap Plan M will fail.
What might have worked would be a plan that includes 100% of the Part B deductible but only 50% of the Part A. (The larger but less frequently applied amount)
That is a plan that consumers might buy. Maybe it could be a future plan “O”.
The problem is Bureaucrats designing plans with zero concept of what consumers want or need.
Assuming the new Medicare Supplement Plan N has premiums 25-30% lower they will be a welcome addition for Medicare beneficiaries.