A team of health economists just released an utterly fascinating paper that looks at default automatic enrollment, active choice and attention shocks in Medicare Part D. This is important as there is a long standing question of how to design choice structures. Do we use paternalistic nudging to make the default anywhere from not too bad to pretty damn good for the non-chooser? Or do we use an absolutely hideous default to create a negative attention shock? The Center for Medicare and Medicaid Services (CMS) had proposed to use a negative attention shock by moving people who were in zero premium plans to non-subsidy eligible plans on the automatic renewal in order to force an active choice. This would have created mid-October letters where people would see that their projected premium if they did nothing would have gone from $0 a month that they were paying to hundreds or perhaps even thousands of dollars per month. That proposal was eliminated from the final rule for the 2020 plan year.
Medicare Part D has a wide array of plans and a wide array of caveats, carve-outs, add-ons and special groups. Individuals who receive a Low Income Subsidy face automatic enrollment and re-enrollment as the default. The initial assignment is random among a set of zero premium plans. Some of those plans are likely to be pretty good for an individual. Some of those plans are likely to be “MEH” and some of those plans are likely to be really bad.
11/ What if your default is really bad? We rank the plans you could have been assigned by how well they cover your preexisting drug patterns. What if you get randomly assigned to the worst 1/5th of plans for you? Lose 12.4% of consumption instead of 4.4%! pic.twitter.com/CISwGrT2Sk
— Zarek Brot-Goldberg (@zarekcb) January 11, 2021
If we think that attention shocking people with a bad choice to get them to make a good choice works for this population, we would expect a lot of movement between plans in the second or third year after some learning has occurred. If we think that people are going to be fairly sticky, then making good default choices, although paternalistic, may be a good thing!
4/ Buys us three natural experiments. Experiment 1: What happens when they turn 65 and enroll for the first time? A: Only 16% make initial active choice, 84% randomly assigned! After five years (age 70) only 45% have *ever* chosen a plan. Defaults matter. pic.twitter.com/4CmXV4sLAk
— Zarek Brot-Goldberg (@zarekcb) January 11, 2021
In Medicare Part D, people are pretty sticky to their initial plan even if the initial plan is not good for them compared to the other available options.
This is challenging. We have an ideological dogma that choice is inherently good. We have used that dogma for our last two major health coverage reform systems (Medicare Part D as part of the Medicare Modernization Act of 2003 and the ACA of 2010 for individual markets). We know that health insurance is an inherently complex product and we also know that it is confusing. And yet, we expect active choice to provide market discipline instead of reflecting on FUD and confusion.
I’m probably going to be chewing on this paper for a while as it is likely to be policy relevant this year. There has been soft chatter among the nerds about the possibility of automatic enrollment and smarter defaults for ACA plans for the situation when tax records suggest that someone is eligible for a zero premium plan. Some of those zero premium plans are not too bad (Alfalfa County, Oklahoma BCBS Gold plans) to some have very narrow networks and extremely high deductibles so it would be hit by a meteor/cancer diagnosis insurance. Figuring out the right default is going to be challenging if we think that portions of the ACA individual market will respond to a default placement in the same manner as individuals in the Medicare Part D LIS market segment.
Another Scott
Thanks for this.
I have two related mantras when evaluating things like this:
1) Cui bono?
2) Follow the money.
The Teabaggers of course want to impose expensive, complicated, sticky defaults because they want the MotU to have all the money (for hookers and blow, naturally). They would make no other choice.
It’s why they love complicated tax codes that they write for the MotU to game as well (while making enforcement against those with the money nearly impossible). Someone working 3 minimum wage jobs isn’t going to claim home business and oil depletion allowance and capital gains and … deductions.
It would be nice to live in a world where you and your colleagues didn’t have to prove that setting your hair on fire wasn’t actually as sensible as a haircut, wouldn’t it? Maybe those days are coming!
:-)
Thanks as always for what you do.
Cheers,
Scott.
Jerry
Related: might we finally see Medicare expansion in North Carolina?
Mudbrush
Idaho has Medicaid expansion but North Carolina doesn’t. That just seems wrong. Also, thank you Another Scott, you just said everything I was thinking, only with better snark.
Butch
The answer is that the program is so complex that most of us can’t figure it out. I didn’t even realize I didn’t have Medicare Part D. I have drug coverage somehow, but it isn’t Part D.
Ohio Mom
Butch: Are you in a Medicare Advantage Plan — aka Plan C?
Advantage plans include Parts A, B and D.
Butch
@Ohio Mom: I do, but I get confused about Advantage versus the supplemental plans. I will confess, I guess, that I signed up for Medicare in the midst of a really unpleasant separation from a longtime employer and probably wasn’t giving it my full attention.
Ohio Mom
The way I choose a Part D plan is go to the Medicare site’s Part D page, type in my Zip Code and the full list of my prescribed medications and see what plan pops up — which for my second year was the same as my first. That might look like inertia to an outside observer.
The most important part of this process for anyone in Traditional Medicare is crossing your fingers really hard that mid-year you don’t have to start taking anything that isn’t on your plan’s formulary.
The second most important thing for me was not renewing anything once I hit the donut hole late in the year. I was extremely careful with dosing RA eye drop so that the several hundreds of dollars (for three months) was paid in January and applied to my deductible and not paid in December into the abyss of the donut hole.
Fortunately I still have had manual dexterity to regulate how big each drop is. Not sure how that will work for me in 20 years, should I make it that far.
dnfree
@Butch: if you have an Advantage plan, drug coverage is included in that. The whole thing is confusing. The rest of us have Part B, and Part D, plus in my case a supplement plan. The supplement plans are defined by the government, and identified by letter. Whatever insurance company one has for a supplement, all plan G, for example, must cover the exact same things.
But not everyone is automatically assigned to a Part D plan when they sign up for Medicare. We know people who didn’t sign up for Part D when they retired because they didn’t need any medications. Then when they went to sign up some years later, they found out they were hit with a permanent cost penalty that applies if you don’t sign up when first eligible. I understand the reason for the penalty (to keep the insurance from covering only sick people), but I don’t understand the premise of this study in that sense, since I know people who did not sign up and were not automatically assigned coverage.
The whole thing is far too complicated for even educated and well-informed people to navigate.
J R in WV
For many years I had relatively good health insurance through my employer, the state of West Virginia. Public Employees Insurance Administration (I think) provided me what seemed to be great health insurance. I retired in my late 50s thanks to the rule of 80, [age plus years of work service (including military service!)] and kept things just as they were, paying for my insurance out of a pension deduction.
Then when I turned 65 I signed up for Social Security benefits and Medicare, and used the PEIA recommended supplemental plan, which was provided by the same insurance outfit that managed the PEIA coverage for employees. Except for a couple of drugs my doctor recommended that suddenly leaped 6,000% in cost due to MotU buying a successful generic and working to become a billionaire o that one small investment, it’s worked out well.
I’m not sure how anyone could justify auto-selecting a plainly terrible insurance plan ethically. It is clearly immoral and unethical and in my mind would be a tort against whomever (all the members of a committee, also, for that matter) made that decision. And if someone died as a result of that shitty plan? Manslaughter looking for a place to roost, ethically. These are people’s lives we’re talking about.I don’t comment often, but sometimes, just wow!!
Thanks for all you do, David!!!
Ohio Mom
Butch:
If you want to double-check your Medicare choice and better understand your options, one thing to do is contact your local Council on Aging and ask about getting a Medicare consult.
We met with a volunteer (no charge to us) who gave us a crash course in how Medicare is structured, and how to take into account our specific circumstances when choosing a plan. Gave us lots of booklets and websites to take home.
He didn’t tell us what to do but gave us information to make a better informed choice.
As far as I know, every state has a similar program. A person’s options for adjusting their Medicare choices can narrow over time so best to get more information sooner than later.
Really though, my feeling is that whatever you do, the insurance plan comes out ahead. It’s fixed against you.
dnfree
@Ohio Mom: You hit the nail on the head on both counts, or maybe even more. Some years I have the same plan and sometimes a different plan each year, based on my medications.
In 2019 I navigated my plan selection for 2020 based on one very expensive drug. (If you see it on TV all the time, it’s an expensive drug.). Then in January a doctor replaced a generic I was taking with another drug you see on TV. I blew through the donut hole and right into catastrophic coverage by August. I feel very fortunate that I can afford what I’m paying.
Alex
We should dispense with this “choice” administrative burden, especially anything that will penalize people who do not have the time or skills. It’s just indefensible after that recent study from Johns Hopkins/Federal Reserve that shows Medicare recipients’ credit ratings declining 6 years before official dementia diagnosis. Sure, asking for high-stakes, in-depth research and decision-making from tech-savvy 65 year olds just retiring is one thing. Expecting it from people like my ninety-something grandparents, blind, hearing impaired, never learned to use a computer, and with early dementia? That’s just cruel.
Butch
@Ohio Mom: I really appreciate all the input from everyone. An issue for me is that I live in a part of the country that most people have trouble even finding on a map, and as a result of the isolation and low population our choices are often pretty limited, as are the options for assistance. (Younger spouse is covered under an ACA plan, and we can “choose” between Blue Cross and no coverage…..)
Lacuna Synechdoche
David Anderson @ Top:
One could argue that setting bad default choices is sadistic. And I think it’s probably better to be viewed as paternalistic rather than sadistic.
Seriously, I’m surprised there’s even a discussion over this. Setting bad default choices will just discourage and anger all the people affected by them, and create a general impression that the gov’t is out to screw people over. We have enough of that kind of thinking already.
Another Scott
@Ohio Mom: Thanks for telling us about the insanity you have to go through with the current system. :-(
It would be nice if Biden’s HHS team were easy to contact to let them know about issues like these. I have to assume that they’re tracking [/silverman], but the noisy wheel gets the grease…
Cheers,
Scott.
Jess
OMFG. Punishing old folks for inertia? Old folks who are struggling with health problems, insomnia, depression, poverty, etc.? Adding one more thing to worry about for the families who are frantically trying to care for their parents as well as their children, in a system that that does not support family leave? What clueless, cruel nitwit would even consider doing this? And how can I direct a lightening bolt in his direction?
burnspbesq
I enrolled in a Medicare Advantage plan (with United, my last employer’s insurer), to avoid having to mess with Part D. I had to change brands of insulin to get into the formulary, and they don’t pay for my CGM equipment. I can handle that, but I know I’m in a small minority who can.
Insurers’ stance on CGM is perplexing. The overwhelming evidence is that it helps type 2 diabetics manage their sugar better, but it’s an incredible hassle to get it paid for. Pisses me off as a type 2 diabetic; pisses me off even more as a Dexcom shareholder. ?
Leumas
Thank you for the article. I am a CPA, and prepare tax returns for a living, some of which are very complex. I recently became eligible for Medicare. Part A, Part B, and the supplement were understandable. I still don’t understand Part D. I started with a high premium plan, figuring that it would cover the one expensive med I am on. It didn’t. Changed to a cheaper, but not the cheapest Part D plan last fall, and it covers the same drugs at the same cost as the more expensive plan. It is not our country’s highest priority at the moment, but the whole Medicare system needs to be analyzed and improvements made.
sam
@dnfree:
LOL. The reason (and the only reason) for the penalty is to ensure a guaranteed income to the insurance companies.
sab
@Ohio Mom: When Plan D first started my dad intercepted all the mail and went to the sales meetings all by himself. He has never been competent to make such decisions. He always sucked at any sort of business decision.
We found out slightly before Thanksgiving that he had done that. I spent hours and hours researching various plan D options. I presented my suggestions, but when it came down to it my mother made the decision because she was herself and that is how their marriage worked. I don’t think it was a good choice, but it wasn’t dreadful. I think she was in her early eighties at the time.
Five years later she was still mentally intact but she couldn’t talk clearly anymore. He was in full fledged dementia and deaf as a post. By that time it was pretty much impossible to change the plan. Neither of them could talk on the phone. Difficult paperwork. I had a health care power of attorney but insurance companies wanted reams of paperwork to even talk to me.
That is why these plans are sticky. Really old people cannot “physically” jump through the hoops to change plans, and there is no other way unless they have clearly relinquished all legal control of decisions to children or guardians. And who does that as they start to decline in their eighties?