Runs from January 1, 2018 – February 14, 2018

What You Can Do

  • Cancel your Medicare Advantage plan, and return to original Medicare
What You Cannot Do
  • You cannot switch from one Medicare Advantage plan to another, just because you feel like it
  • You cannot switch from one Prescription Drug Plan to another, just because you feel like it
Not So Fast
It is already obvious that “timing matters.” It is a tired, over-used phrase. The phrase that is largely unknown? “The ORDER matters.” That is the case here. You should not cancel your Medicare Advantage plan before being accepted into a Medigap plan FIRST. The fly in the ointment is that Medigap enrollment may require medical underwriting, which has become more difficult in the very recent past. It bears repeating, the rationale for how this has occurred was stated last week, and is restated here.Medigap Carriers Can Deny Your Application
If you are greater than 65.5 years, or do not qualify for a Special Enrollment Period that allows Guaranteed Issue under Medigap Protections, then Medigap carriers can deny your applications. It gets worse from there.

Anecdotal Evidence Exists That Underwriting Has Notably Tightened
Most would not know, I am just a guy. But, that guy happens to have global market bond-trading experience. And the simple exercise is to compare red delicious apples to golden delicious apples to granny smith apples, over and over and over. The weather changes, the demand changes, the prices change slightly. Sometimes the prices get closer together, and sometimes a particular version gets more expensive versus another. From the observed data, the reason is inferred, it is not explicitly stated why.
What in the world does any of this mean, and what is it doing in this Newsletter about Medigap?
Price Competition is Brutal 
Put on your common sense hat, and put yourself in the shoes of the sellers (health insurance carriers). The individual health insurance market is just now profitable after a bruising few years during adjusting to the Affordable Care Act. When the ACA was first announced, policyholders complained (wait, I thought the President said “If you like your insurance, you can keep your insurance,” something that I found IMPOSSIBLE to believe, and worse, equally impossible that the President did not understand this, yeah I am calling “Pants on Fire” to President Obama). There is a reason that Medicare Advantage has become some much more competitive and there is reason that the health insurance companies are merging: Medicare is the only reliable market. Medigap is a standardized contract, the species of apple is precisely the same, the competition is based on price alone.
Health Insurance Companies Aren’t Gamblers
Whenever I hear the comment that “Well, we don’t know the future, it’s like gambling.” WRONG. WRONG. WRONG. If that were the case, how is it that 7 carriers are offering Medigap to 65-year olds, within the same zip code, within $5 a month of each other?Does this sound like “gamblers” who have randomly agreed on the same price? NO WAY. Someone is calculating, not guessing. Does this sound like collusion? Let’s calm down, the carriers are required to spend 80% of premium dollars on claims, or they must rebate the balance to existing policyholders.
When Brutal Competition Exists, Farmer Fred Wants to Avoid Losses
So now you are Farmer Fred, selling apples. Your neighbors have the same weather, the same soil (for the most part), the same access to fertilizer and buyers. How does Farmer Fred make money? Farmer Fred has a way, and that way to avoid losses. Ask him, ask yourself, it’s self-evident. How do health insurance carriers avoid losses when the price competition is this difficult? The same way. How does this occur? Avoid applicants that they are allowed to refuse, within the rules that govern them.If You Have Understood Up to Here, Then…
It’s clear. If you are the seller (health insurance carrier), and the price competition is this difficult, and yet you want to stay alive, you avoid losses. If avoiding losses means that you are a tougher grader, i.e. apply more difficult health underwriting standards, then so be it. And that is what I am reporting right here: it is clear to me that health insurance carriers have tightened underwriting standards to combat the brutal price competition. That is the only logical conclusion, and it is supported by the anecdotal evidence we have seen.

“Fair” Is A Place Where You Judge Pigs and Cattle
Consumers may think this seems unfair. The sellers, the calculators would reasonably think just the opposite. A prostate cancer patient, newly diagnosed at 64.9 years old, can enroll in a plan for $150/month, AT MOST, in most locations around the nation, and have $0 copays and deductibles for the year ahead. Farmer Fred would not sell a single apple to this person, not one. But, the rules tell Farmer Fred that he has no choice, no way that he can deny this applicant, and no way that he can avoid paying the bill that is certain to arrive. By the way, if that applicant has enrolled in the same carrier that you have your policy? Your premiums are paying for his claims, and all else equal, your premiums are going higher in the future because the risk of the entire policyholder pool has increased. So let’s step back from the idea of “It’s not fair.” I digress.
The point here is that if you are the buyer and the rules are enormously in your favor at a particular point in time, then it has always been the case that you should take full advantage, immediately. Of all financial contracts available, Medicare is alone at the top of that list, bar none..

If You Still Want Medigap, What?
First, you can apply for Medigap, and find out the outcome. Then, and only then, you can enroll in a standalone Prescription Drug Plan (Part D), using the Medicare Advantage Disenrollment Period SEP, which will automatically eject your MAPD. Voila. Looks obvious right? Don’t get me started….