What to do about the reputed Medicare Supplements Plan F death spiral

Insurance agents have to walk a tightrope to serve our clients and the interests of the insurance companies. These interests are often at odds and most recently came up when Medicare Supplement legislation surrounding Plan F and C changed in 2020.

When “The Medicare Access and CHIP Reauthorization Act of 2015”, also known as MACRA, was passed, agents were warned not to predict a “death spiral.” Yet, seasoned agents knew that MACRA would negatively impact our Medicare Plan F clients on most plans, in most states. In simple terms, if no new Plan F business could be sold, existing Plan F blocks would experience higher rate increases than plans that could be actively sold to new, healthy and younger members.

We agents were admonished not to move our clients from Plan F to Plan G, even though that is exactly what we should have done when the rate climate warranted it. Moving healthy members from F to G only accelerated the price increases on Plan F. As usual, smaller carriers had more trouble maintaining attractive Plan F rates than many of the larger companies. As 2021 rate increases were announced, Plan F outpaced Plan G, sometimes by a large amount.

The law only changed on 1/1/2020, so we’ve just begun to start to feel the results of MACRA.

Rate increases on Plan F are hefty and will only get worse year after year as no new clients are coming into those blocks of business. Will this cause more clients to move to MAPD? Yep. Ask yourself how long you could endure double digit rate increases on a fixed income?

But agents need to be careful of moving large amounts of carrier or face termination. As much as this is a secret in our industry, it is reality that many companies punish agents for putting the clients first. One large SGA wrote a lot of Medicare Supplements with X company. When X took larger rate increases than the rest of the industry, the SGA moved all his clients (that were healthy enough to move). X promptly terminated his contract and place a Do Not Recontract (DNR) on his contract for life.

The SGA didn’t care that he was terminated. Agents are usually flippant and very short sighted about these situations. The conventional wisdom goes like this, “I don’t care that X terminated me, they aren’t competitive anyway. It’s not a loss to me.” Fast forward 5 – 10 years and X is now very competitive! The SGA wants to sell for X but he can’t because of the DNR that was placed on him 5-10 years ago. The lesson here is never burn a bridge with an insurance company. Agents can’t serve their clients if they have no products to sell. It will almost always come back to haunt you if you lose access to a carrier, so protect those relationships and always be thinking long term with your career.

Which brings us back to MACRA and what to do in the face of Plan F rate increases. Hopefully you spread your business out among several carriers, but if not, it’s too late to spread the risk. If you don’t take care of your clients, many will leave you for a MAPD 800# they see it on TV. But if you move all your Plan F clients to a MAPD, you risk losing your contracts. This is a topic no one likes to talk about, but agents should consider their behavior from the point of view of the insurance companies before moving large blocks of clients—even when it is in the best interest of the clients.

Sylvia Gordon, JD is president of Gordon Marketing, a national Medicare FMO. Together with her sister, Rebecca Gordon, they host a weekly YouTube show, The Wednesday Wrap Up. She is a frequent national speaker on digital marketing for insurance agents. [email protected]