Floored by Health-Insurance Backups

Question: I’ve enclosed two advertisements--one a full-page newspaper ad for Maxicare and the other a direct-mail pitch from FHP Inc. They seem pertinent to Medicare participants who may be seeking more reasonable health-coverage costs and who do not have any other supplements to cover those things that Medicare does not pay for.

The enclosed health information describes plans that seemingly offer full coverage without any need for a supplement and at no further medical cost to me, since I’m a Medicare enrollee. I presently have both hospital and medical coverage under Medicare deducted from my small Social Security check (for wages earned prior to government service). In addition, as a retired federal government employee I am also covered by Kaiser Permanente.

My Kaiser monthly premium has risen to about $29, not including the additional amount the federal government pays toward my Kaiser coverage.

But the question really is: Do these plans really offer total health coverage, or coverage at only 50% of what Medicare deems appropriate? If so, it seems to me that I would still need supplemental coverage and should keep the Kaiser plan. Do either of these plans offer sufficient coverage so I can drop the Kaiser plan and save $29 a month, a sizable outlay for me?--M.V.

Answer: We took your question to semi-retired, 74-year-old Jules Klowden, a former Mutual of New York executive, who has become Southern California’s most visible expert on Medicare supplemental insurance.

In recognition of the fact that the average senior citizen is just about as equipped to read the blueprints for a nuclear submarine as he is to cope with the tiny type in an insurance policy, Klowden annually takes on the chore for Senior World of California, the El Cajon-based monthly publication aimed at the 55-plus market. For the eighth year, Klowden’s eight-page supplement comparing the costs and features of 33 Medicare supplement policies being offered in the area has been published by Senior World.

Included in the comparisons: premium or subscription charges, registration fees, policies on pre-existing medical conditions, deductibles (if any) on hospital entry for the first 60 days, co-payment policies on the next 30 days, co-payment policies on the next 60 days, maximum periods of coverage for any one benefit, policies on skilled-nursing facilities, deductibles (if any) for blanket medical care, policies on outpatient care (for such things as X-rays, lab fees, radiation), policies on prescriptions, renewability of the contracts, travel restrictions out of the area and (where applicable) those portions of the state where the plan is available or, by omission, not available.

(Reprints of the 1985 “Comparison Guide to Medicare Supplement Insurance and Health Maintenance Organizations” are available at $2 each from Senior World Reprints, P. O. Box 1565, El Cajon, Calif. 92022).

The rationale behind all supplemental insurance, of course, is simple:

As indispensable as it is for Social Security recipients, Medicare has wide, gaping holes in its coverage of both hospital costs (known as “Part A”) and other medical costs (“Part B”). Example: Medicare covers all of the hospital costs for the first 60 days, but there’s a $400 deductible that the individual has to pay on admission. For the next 30 days in the hospital, Medicare pays the cost of everything over $100 a day, but the individual pays the first $100 per day.

And under Part B (medical), Medicare pays 80% of “reasonable fees and charges” for outpatient care, but “reasonable” doesn’t necessarily translate as “prevailing” fees and charges. For example, your doctor may perform an office procedure for which he bills you $150. But Medicare, in its wisdom, has deemed that a “reasonable” fee for this service is $80. It, therefore, pays 80% of the $80 ($64), which leaves you stuck with $86 to pay yourself . . . which is 57% of the cost, not 20%.

The two coverages that you have seen advertised--Maxicare and FHP Inc.--are both HMOs (health maintenance organizations, which are medical/hospital providers in which services are normally performed at central locations--clinics or hospitals--by either staff personnel or personnel who are under contract to the HMO). Fourteen other HMOs are covered in Klowden’s study. FHP, Maxicare and one other, whose mailing list you’re not on yet (United Health Plan), are different, however, in one major respect.

FHP and Maxicare, at least, make much of the fact that they are “free.”

Fee Is Being Paid

And, Klowden said in a telephone interview, while this is technically true--in the sense that you don’t pay a monthly or quarterly premium as you do for the other policies--the fee is being paid by someone: the “someone” being Medicare.

“It’s part of a pilot program,” Klowden said, “that Medicare started about three or 3 1/2 years ago under which it entered into a contractual agreement with about 29 HMOs around the country.”

Under this contract, he continued, Medicare agreed to pay the participating HMOs 95% of the monthly premium of $15.50 that it deducts from each enrollee’s Social Security check each month to pay for Medicare Part B (medical) coverage. The deduction is automatic for every Social Security recipient signed up for Part B.

“It was based on studies,” Klowden continued, “showing that--depending on your part of the country--actual medical costs (not those necessarily covered by Medicare) average about $200 to $250 a month.”

Logically, it would seem that none of these insurance companies under contract with Medicare should be able to offer any better coverage than Medicare itself offers. But, by averaging the costs, Klowden said, they do succeed in exceeding Medicare’s allowable costs in several key areas. For instance, under Part A (hospital), Medicare has the $400 deductible on admission mentioned earlier--and both FHP and Maxicare pick this up. Under Part B (medical), Medicare has a flat $75-a-year deductible. Both FHP and Maxicare absorb this, too. Medicare (Part B) has no allowance for outpatient prescription costs--both FHP and Maxicare have a co-payment plan for filling and renewing prescriptions at a flat $2 a throw. (Although with Maxicare, this falls under its “high-option” plan, which costs $90 a quarter).

So, what are the disadvantages of these two highly advertised Medicare supplement plans? Essentially, Klowden says, they’re the same disadvantages inherent in any HMO--they represent what might be called the “clinical” approach to health care where the services are available at specified locations only, and where the medical personnel treating you are those on the HMO’s staff or are under contract with it. Other than that, the services (and limitations) offered by both FHP and Maxicare are pretty comparable to the other 15 HMOs studied by Klowden

If you are used to Kaiser, of course, then you are already conditioned to the HMO approach. So it might well pay you to compare Kaiser with FHP and Maxicare. (Unfortunately, Kaiser--for its own reasons--consistently declines to provide Klowden with the necessary information making it possible for him to include that old and well-established HMO in his annual study. So you are on your own in trying to make such a comparison.)

FHP, we might add, is one of the smaller HMOs, and you may find their facilities inconvenient for you. So far, it serves only the Anaheim, Long Beach and San Pedro areas.

Maxicare, on the other hand, is one of the largest HMOs in the country, Klowden pointed out, and is available in Los Angeles, Orange, Riverside, San Diego, San Bernardino, Santa Barbara, Ventura and a number of Northern California counties as well.

But, of course, even here, the nearest Maxicare facility to you may not be all that handy.