People who buy a Medicare supplement to fill the gaps in Medicare (also known as Medigap insurance) go to the doctor too much. Therefore, people who buy Medigap insurance should pay a surcharge to Medicare because they are going to use the health care system too much. That is the conclusion President Obama and his advisers have reached as they seek out ways to reduce Medicare costs and cut government spending. Here is a letter I’m sending to the President.

Dear President Obama:

As an insurance broker working with Medicare-related products, I think your plan to impose a surcharge on seniors who purchase Medicare supplements is a bad idea. You seem to think everyone who buys Medigap insurance has lots of money, and you seem to think most seniors can afford to pay more of their health care costs.

Just yesterday, I met a woman who lives in a double-wide trailer in Tucson, Arizona and is thrilled to be turning 65 so she will once again have health insurance. Laura (not her real name) has numerous health issues that have received limited treatment because she has been without health insurance since she took early retirement from a large, well-known company. Once Laura gets her Medicare coverage, she will get an operation she needs on her thyroid. Then she will address a long list of other medical issues .

Laura makes too much money to qualify for help with her Medicare costs or Part D drug coverage because she has Social Security and a small pension that totals $1,600 per month.  The cost of a Medicare supplement plus a Part D plan premium each month will severely strain her budget, but the co-pays that come with a Medicare Advantage plan could add up to thousands of dollars each year.  Fortunately for Laura, she has a daughter who wants her to get a Medicare supplement and will help with the premiums – even though the daughter doesn’t have a lot of money herself.

Laura’s daughter wants her mother to get a Medigap plan so she won’t have to worry about whether or not she can afford to see a specialist, get the operation she needs, or get physical therapy for her bad knees.  Laura’s daughter has seen her mother suffer with health issues and put off care because she has not had insurance – and she wants that to stop.

Mr. President, I think you are listening to advisers who have no clue about people on Medicare and how many struggle to pay their Medicare supplement premiums or the co-pays that come with Medicare Advantage plans.

In looking over my Medicare supplement client list I see mainly lower-middle class seniors who are conservative about their planning for the future. Most of them are not sickly – they are just planners who have chosen to get the best coverage possible for their future needs. I also have clients like Laura who have serious health problems -  and serious concerns that they will be refused medical treatment in the future because they can’t afford the co-insurance.

What kind of country treats its seniors this way? And how do you calculate how much money each senior can afford to pay – or should pay – for their medical care? If seniors are getting too many tests and too many knee replacements, whose fault is that?  Seniors don’t decide to seek tests and treatment on their own – they listen to their doctors!

Mr. President, the idea of pushing more costs onto seniors is called “consumer-driven heath care”. This is a system where more and more costs are pushed onto patients – so they get to “ration” their own care.  I worked for a large insurance company and this was their mantra. I don’t know if you realize it, but your policies are right out of the insurance industry book – and will push more people into Medicare Advantage plans (which you have campaigned against).

There are other ways to control the Medicare budget without forcing seniors to ration their care based on ability to pay. I ask again, “What kind of country treats its seniors this way?”

The  never-ending discussions on reducing government spending are targeting Medicare. Seniors must pay more for their medical care, or they will use the health care system too much. Several plans have been proposed to force seniors to pay more and rely less on Medicare supplement insurance (a.k.a. “Medigap”).

About 50% of people on Medicare have some form of Medicare supplement insurance, through an employer retirement plan (31%) or an individual Medicare supplement policy (19%).  Another 21% of Medicare beneficiaries are enrolled in Medicare Advantage. These figures are based on 2008 data from Medicare.

Medicare supplement policies fill the gaps in Medicare and pay some or all of the co-insurance and deductibles that are built into Medicare.  The most popular Medigap plans are plan F, which fills all the gaps, and Plan C, which covers everything but the excess charges.  So seniors with these plans pay their monthly Medicare premium and their Medigap premium, and don’t have to worry about medical bills when they get sick.  New rules being proposed for Medigap plans would not allow this kind of  “first dollar coverage”.

Apparently, some actuary has determined that seniors should expect to pay out between $3,000 and $5,000 per year in medical costs.  So they should not be allowed to protect themselves from those costs with insurance. For example, a person who pays $150 per month for a Plan F Medigap can figure that $150 x 12 months = $1,800 per year to cover their medical expenses. This is a lot less than $4,000 or $5,000 that is part of several proposals being considered in Washington.

As an insurance agent, I recommend a Plan F Medigap, but I guess I am part of the Medicare budget-busting problem.  Some of my clients live in gated communities and can certainly afford their Medigap premium, or an extra $5,000 each year for medical expenses.  But most of my Medigap clients  live very modestly, and I don’t know if they can afford to put out $5,000 every year for medical bills.

I recently read that about half of Americans who are over 65 have less than $50,000 in savings.  The millionaires who serve in Congress think these seniors with very limited savings will be able to find extra money for their medical care. I guess they should know.  These ideas on deductibles and higher co-pays slowing down the use of the health care system are straight from the for-profit insurance industry. It is called “consumer-driven heath care”. What it means is that the government doesn’t ration the care people get – seniors will ration their own care based on how much they are willing or able to pay. What a system!

Medicare does not require seniors to pay enough of their health care costs. Seniors go to the doctor too much.  Medicare supplement insurance makes these problems worse and contributes to out-of-control Medicare spending. These are the conclusions in a recent opinion piece in the Wall Street Journal titled, “Why Medicare Patients See the Doctor Too Much”.

The authors also say the “Obamacare” changes to Medicare, which provide more free preventive care services to seniors, are bad because  they “further insulate seniors from costs and will drive up spending even more”.

According to the authors:

Medicare utilization is roughly 50% higher than private health-insurance utilization, even after adjusting for age and medical conditions. In other words, given two patients with similar health-care needs — one a Medicare beneficiary over age 65, the other an individual under 65 who has private health insurance — the senior will use nearly 50% more care.

In the opinion of the authors, the answer to Medicare’s problems is:

Since private health insurers are much better at controlling utilization and reducing fraud, why not turn to the private sector to resolve Medicare‘s excessive utilization? That’s what House Budget Committee Chairman Paul Ryan was trying to do with his premium-support model that would eventually shift Medicare beneficiaries into private health plans.

The authors favor more choice for seniors, such as high-deductible health insurance options and plans that are more like those in the under-65 market. But the authors don’t mention that these high-deductible plans are designed for young, healthy people who are betting they won’t get sick and have to pay that $3,000 or $5,000 deductible before their insurance kicks in. That’s probably a good bet for a 30-year old. But what about a 70-year old?

What are the chances a 70-year old will need to spend several thousand dollars on medical services each year? And what are the chances a senior will put off care because he has to pay 100% of the cost until he meets his deductible? Is it a good idea for seniors to put off care because they can’t afford it – or are too cheap to pay co-pays and deductibles? Is this a choice we want seniors to make? And is this good public health policy, or will it lead to sicker seniors and bigger medical bills for seniors and Medicare?

Note:  I would have linked to the Wall Street Journal article, but the article is not accessible for free.