Medicare Plans Offer Too Many Choices

Study finds that seniors make better choices when they have fewer plans to evaluate.

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Medicare Advantage plans have become an increasingly popular alternative to traditional Medicare. Congress expanded the plans several years ago and included financial subsidies to make them more appealing. Private insurers have since responded with an explosion of plan choices and coverage features. Now, a study finds, seniors are struggling with having too much of a good thing.

[See Social Security's Long-Term Outlook.]

Financially, Medicare Advantage has a clear edge over traditional Medicare, according to researchers at the Harvard Medical School. "By 2007 more than 95 percent of study participants faced lower expected out-of-pocket costs in Medicare Advantage than in traditional Medicare with Medigap coverage," said their study, recently published in Health Affairs, a medical journal.

Yet in localities with large numbers of Medicare Advantage plans, consumers are less likely to make wise choices, and thus may lose out on these benefits, the study said. While employer-based health insurance plans offer only a few choices, Medicare Advantage plans in many counties often offer 50 or more choices.

"The Medicare Advantage program presents an overabundance of choices for many elderly beneficiaries, posing a level of complexity far beyond that experienced by the nonelderly," the study concluded. More troubling still, the study found, the difficulty of wading through large numbers of complex health insurance choices has proven to be a special challenge for seniors with cognitive impairments.

"Elderly adults with low cognitive function were less responsive to the generosity of available benefits than those with high cognitive function when choosing between traditional Medicare and Medicare Advantage," the study said. "This difference suggests that many beneficiaries are unable to access or process information when making enrollment decisions in the current environment of choices."

[See Medicare Drug Premiums Won't Rise in 2012.]

"In standard economic theory, more choice is better for consumers," the study said. "More choice improves the likelihood of matching products to consumer preferences and fosters competition based on price and quality. Empirically, however, more choice may be detrimental if there are too many or overly complex options, particularly in high stakes decisions that involve health or money."

In areas with 15 or fewer Medicare Advantage plans, consumers tended to switch to lower-cost plans. However, the study found, "enrollment in Medicare Advantage remained steady or decreased when beneficiaries had to choose from 15 to 30 or more than 30 plans, respectively."

"Our findings raise particular concerns for beneficiaries with reduced cognitive ability—a group that will grow substantially as the Medicare population ages," the study added. "Medicare Advantage plans currently compete for enrollees through the benefits they offer and the premiums they charge, but elderly beneficiaries with low cognitive function were not responsive to changes in these features."

The solution, the researchers say, is a significant reduction in the number and complexity of Medicare Advantage plans. However, the outlook for 2012 insurance decisions may actually turn out to be more complicated than in the recent years, not less.

[See Get Ready for 2012 Social Security, Medicare Changes.]

The government has tightened its rules for the annual open enrollment period during which new Medicare coverage decisions are made. Open enrollment this year begins October 15—earlier than in the past—and ends December 7. It also offers only limited ability for consumers to change their minds about coverage at a later date.

By the time open enrollment begins, 2012 monthly premiums for basic Medicare will not yet be known. They are changed annually and linked to annual increases in the Social Security cost of living adjustment (COLA). The COLA for 2012 will not be known until the third week of October.

At the same time, the government has been rolling back Medicare Advantage subsidies, and the Affordable Care Act further reduces these subsidies. Consumers thus may be seeing significant changes in the cost and coverage choices among Medicare Advantage plans.

Twitter: @PhilMoeller