For nearly every retiring American, Medicare is both universal and universally complex. Yet, Medicare is broken – and not in the way most people think.
Every few years, news organizations raise the alarm that Medicare’s primary trust fund may go bankrupt within a decade, absent congressional intervention. Medicare is massive. It’s the largest health financing program in the country, accounting for nearly 5% of GDP.
But there’s a bigger issue with Medicare for the 64 million Americans who use it: the program is near-impossible to navigate. Anyone who has signed up for Medicare or helped a loved one knows this reality firsthand.
The problem is so bad that approximately 40% of the people who choose coverage through the largest brokerages dis-enroll from that coverage within a year.
Choosing Medicare coverage is both higher-consequence and less reversible than purchasing other types of insurance.
Medicare plans are more complicated than auto or homeowners insurance, and Medicare plans are typically harder to change. Certain types of Medicare plans can be switched only once a year and other types can never be switched unless someone fully passes medical underwriting. (The sad reality is many people aged 65+ will fail.)
And Medicare plans are harder to select because there are so many Medicare plans available. In many counties, there are on the order of 100 plans available, including all options for medical and drug coverage.
As a result, the savings generated by making the right choice can add up. We find that many people are overpaying by more than $1,000 per year for a plan with comparable benefits.
The current Medicare brokerage model might be one of the biggest legalized scams in America, affecting 65 million people eligible for Medicare, including 4 million new people each year. Here’s why:
● There is no requirement that Medicare advisers or brokers consider a minimum number of plans. Nor are they required to disclose the options they do consider.
● There is no regulation that prohibits advisers from pushing the subset of plans that pay them commissions. (In fact, the regulations make it particularly challenging to act in the best interest of the consumer.)
● There is no widely-recognized industry certification or quality standard for brokers that consumers can use to identify the highest quality resources.
And there’s nothing illegal about it. The result is that every day, retirees pay far more than they need to and receive less health insurance coverage than they expect.
The root cause stems from both incentives and technology challenges. For a consumer, it’s shockingly difficult to evaluate plans across their costs, benefits, covered prescriptions, and networks of healthcare providers. Typically, a brokerage must have a contract with each carrier to receive structured data on their plan information.
But Medicare is different from almost every other insurance market. It is challenging, but possible to integrate data on every single plan, benefit, healthcare provider, pharmacy, prescription, and other features.
Of course, it’s not enough to build this data platform. Reforming this market also requires fixing many of the incentive issues that drive individual agents and large e-brokerages to discuss only the plans from carriers that pay them commissions and those that disincentivize supporting existing members.
Today, people turn to one of three places for Medicare guidance, all of which have problems:
- Local ‘independent’ brokers. While many local brokers are well-intentioned and knowledgeable about the plans with which they contract, we’ve never seen the term ‘independent’ so egregiously misused. Most do not disclose that they typically consider plans only from the carriers that pay them. Local brokers typically lack the technology – and incentives – to look at all available options or to provide sophisticated recommendations that optimize the match between a person and a plan.
- Large e-brokerages with names like eHealth, GoHealth, and SelectQuote. While most Americans have never heard of these companies, most have seen their advertisements hawking “Medicare hotlines” with endorsements from retired athletes. These companies steer Americans to plans that pay the e-brokerage more, consider a small subset of options, and have staggeringly poor customer support. How do we know this: approximately 40% of these companies’ customers dis-enroll from their plan in their first year.
- Federal and state government resources: Medicare.gov is an independent resource, but it is incomplete. Consumers can’t search provider networks to identify plans that accept specific doctors or hospitals. Furthermore, Medicare.gov does not include all Medicare Supplement plans, as state regulators have primary oversight of these plans. Another resource is State Health Insurance Assistance Programs (SHIPs), which provide guidance primarily on Original Medicare. However, their mandates typically prevent them from offering guidance on specific Medicare plans. Many SHIPs simply refer people to external agencies, leaving consumers subject to the same issues with local brokers or e-brokers.
The fact that American healthcare has both bad incentives and bad technology should not be a surprise. But it’s shameful that 4 million Americans approaching retirement become subject to this Frankensteinian system every year. We hope to do a small part to contribute to the discussion on improving Medicare navigation and transparency for consumers.
Cobi Blumenfeld-Gantz is chief executive and co-founder of Chapter, a data-driven Medicare adviser that helps match consumers with appropriate and affordable Medicare plans.
Corey Metzman is the chief operating officer and co-founder at Chapter.