If you’re part of the 80% of employers who feel responsible for educating employees about healthcare costs in retirement, now is the time to start communicating with them about Medicare, the federal health insurance program for people aged 65 or older.
Communicating with your workforce early and often about Medicare will set them up for success—not to mention it’ll create a smoother transition to retirement.
But there’s a problem: Medicare is super confusing (it is a type of healthcare benefit, after all), making it tricky to create helpful resources for your employees.
That’s why we’re here. In this post, we’ll explain everything you need to know about Medicare—from the different types to the average costs—so that you can more effectively communicate with your employees.
Understanding the different types of Medicare
OK, so the first thing to know about Medicare is that there are different types. The most commonly known one is Original Medicare, which is a fee-for-service health plan that consists of two parts:
- Part A (Hospital Insurance): Covers inpatient hospital stays, care in a skilled nursing facility, hospice care, and some home healthcare. There’s no monthly premium for Part A for most beneficiaries.
- Part B (Medical Insurance): Covers certain doctors’ services, outpatient care, medical supplies, and preventive services. There is a monthly premium for this coverage.
Original Medicare works pretty similarly to health insurance. Your employee can see any provider that accepts Medicare then, after they pay the deductible, Medicare covers its share of the amount (which is typically most of the cost, but not all).
If your employee needs help covering any remaining out-of-pocket costs, they can enroll in Medicare Supplemental Insurance, also referred to as Medigap. This helps Medicare beneficiaries cover the costs of things like copayments, coinsurance, and deductibles.
Employees can also choose to cover the cost of prescription drugs with Medicare, and that’s through Part D.
- Medicare Part D (Prescription Drug Coverage): Helps cover the cost of prescription drugs, including shots and vaccines.
To access Part D, your employee can join a Medicare drug plan in addition to Original Medicare, or they can get it by joining a Medicare Advantage Plan—which is a topic we’ll get to shortly.
At this point, You might be wondering: why is there not a Part C? That’s very confusing. Good catch! There actually is a Part C, but it’s more commonly known as the Medicare Advantage Plan (see, we told you we would get to it soon).
- Medicare Part C (Medicare Advantage Plan): Plans are offered through private companies and cover services from Part A, B, and often D. MA plans generally require enrollees to use providers who participate in the plan’s network and also set out-of-pocket limits. But they also tend to have lower out-of-pocket costs and may offer some extra benefits that Original Medicare doesn’t cover, such as vision, hearing, and dental services.
One benefit of the Medicare Advantage Plan is that there are multiple plans types for employees to choose from, based on their needs and preferences. Below are the common types, with links to the Medicare website if you’re curious to learn more about each one:
- Health Maintenance Organization (HMO)
- Preferred Provider Organization (PPO)
- Private Fee-for-Service (PFFS) Plans
- Special Needs Plans (SNPs)
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What is the average cost of Medicare?
Cost is always the biggest issue that employees have to think about when it comes to healthcare. To make sure you’re giving the most up-to-date information, let’s look at the average costs across the different types of Medicare.
When it comes to Medicare Part B, we’re seeing cost increases across the board.
- The standard monthly premium for Medicare Part B enrollees will be $170.10 for 2022, an increase of $21.60 from $148.50 in 2021.
Note: your employee’s monthly premium may be slightly different depending on their income level. This number represents the amount for people whose adjusted gross income is $91,000 or less.
- The annual deductible for all Medicare Part B beneficiaries is $233 in 2022, an increase of $30 from $203 in 2021.
Part C / Medicare Advantage Plan
There’s good news when it comes to Medicare Advantage plans, which is that costs have gone down in the past year.
- The average premium for Medicare Advantage plans is $19 in 2022, a decrease of $2.22 from $21.22 in 2021.
And now we’re back to rising costs with Medicare Part D.
- The average monthly cost of Part D coverage is $33 in 2022, an increase of $1.53 from $31.47 in 2021.
An overview of the Medicare landscape
Now that we’ve covered the basics of Medicare, let’s zoom out and look at the overall landscape. These trends can inform how you communicate with employees about Medicare.
Trend #1: Enrollment in Medicare Advantage plans is increasing
In 2021, over 26 million Medicare beneficiaries—about 42% of total Medicare enrollees—were enrolled in a Medicare Advantage plan. This represents a 10% increase from 2020.
And this growth isn’t anticipated to slow down any time soon. The Congressional Budget Office projects that the share of all Medicare beneficiaries enrolled in Medicare Advantage plans will rise to about 51% by 2030.
Why are we seeing this increase? A potential reason is due to the uptick in interest in holistic health. People recognize that there are additional benefits that come with Medicare Advantage plans, including access to vision and dental coverage, as well as support for their lifestyle needs—such as air conditioners for people with asthma and home-delivered meals for people who are immunocompromised.
Trend #2: Medicare and Medicaid are a major source of revenue for carriers
Revenue from Medicaid & Medicare plans grew from $92 billion in 2010 to $213.1 billion in 2016 for the top five insurance carriers—which include UnitedHealthcare, Anthem, Aetna, Cigna, and Humana. Put another way, these two programs account for 59% of the revenues of these carriers as of 2016.
With enrollment in Medicare and Medicaid continuing to expand—and given that the average gross margin per covered Medicare Advantage beneficiary is about double that of the individual or group market—these carriers will likely become increasingly dependent on the two programs for their growth.
This also means that “the big five” will probably continue to exit the Affordable Care Act (ACA) marketplaces in multiple states, adding to the fragmentation of insurance markets.
Trend #3: Medicare beneficiaries with employer-sponsored insurance is decreasing
Some people who continue to work past age 65 may have group health plan benefits through their employer, in addition to Medicare.
Unfortunately, it’s becoming less common for employees to have both. In fact, the proportion of Medicare beneficiaries with Employer-Sponsored Insurance (ESI) declined from 38% to 28% between 2010 to 2016.
This means that employees—especially those with low to middle incomes—may be facing financially burdensome Medicare premiums without additional assistance from their employers. If, as an organization, you can’t offer ESI to your retiring employees, the next best thing you can do is to educate and prepare them for future healthcare costs.
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Trend #4: Plan switching rates are low
Research shows that Medicare beneficiaries are very unlikely to switch their Medicare plans during the year. Here are a few statistics that support this trend:
- 7 in 10 Medicare beneficiaries did not compare Medicare plans during the 2018 Open Enrollment Period.
- In 2016, 90% of Medicare Advantage and drug plan beneficiaries did not change plans during the year.
- In 2019, KFF reported that 35% of Medicare beneficiaries overall reported difficulty comparing plans.
Low plan switching rates may indicate that Medicare beneficiaries find the plan comparison process to be complex, are unaware of the open enrollment period, or have limited confidence in their ability to choose a better plan. In other words, we need more employers like you to educate their employees about their Medicare options.
Start educating your employees about Medicare today
Medicare is an intimidating topic, but it’s one that your employees absolutely should become familiar with if they want to have a healthy, financially comfortable retirement. Start today by providing them with the education, resources, and tools they need to prepare for this next stage of their lives. If you need help with your healthcare benefits communication, we’d love to help.