The Medicare insurance market is experiencing a perfect storm.  To begin, the “tsunami” of aging Baby Boomers coming onto Medicare, combined with the erosion of traditional employer retirement benefits, is expanding the retail Medicare insurance market almost exponentially. 


Concurrently, the transition onto Medicare requires learning a new language to navigate a complex change from traditional health insurance.  Even though the financial stakes are high, there are few available decision support tools, and the tools that are available only tell part of the story.  Finally, the digital revolution, already changing the retail process for commodities like books, travel and electronics, will increase the fluidity and expand the Medicare insurance market.

    The end result of these factors is a market experiencing radical change.


Influx to Medicare

          With baby boomers aging in, the Medicare program is experiencing a wave of growth.  The Kaiser Family Foundation (KFF) projects that Medicare will grow by 30 million beneficiaries over the next 18 years, to a total of 78 million by 2030.  This means that an average of 3.5 million new beneficiaries are coming to the program annually for the next 10 years. At the same time, because of cost concerns and accounting requirements,  employer-provided retiree medical benefits are disappearing.  According to the Employee Benefit Research Institute  (EBRI) in October 2012, fewer than one in six private-sector workers will have access to retiree medical benefits.  Factoring out dual eligibles (Medicare and Medicaid), we estimate this confluence means that more than 2 million are poised to enter the retail Medicare insurance market annually.


A Changing Market

Choosing optimal Medicare coverage is a complex decision for the fixed-income retiree. Unexpected out-of-pocket expenses could devastate retirement plans. Available resources and support for retirees making complex Medicare choices are fragmented, confusing and cumbersome. Frequently, resources are not written in simple English and lack easy-to-understand answers.  


Just as important, in this age of computerized decision support tools, there are few single places a retiree (or retirement planner) can go to get a personalized “all-in cost.”  The user is essentially forced to calculate their projected financial exposure manually using multiple sources.


Finally, with the digital revolution and emergence of new technologies, e-commerce is changing retail commodity purchase behavior. Sites such as Orbitz and Travelocity have captured about 50 percent of the domestic travel market in the past 10 years, resulting in a change in the role of the travel broker. Amazon has taken almost 30 percent of the retail book market, forcing chains like Borders out of business. Boomers represent the first generation of consumers aging onto Medicare that have a familiarity and comfort with using these sites.  Concurrently, in a move to cut administrative overhead, insurance carriers are moving more of their functionality online. 


         These combined factors are contributing to changes in the retail retirement health insurance market.  In response, Retiree Health Choices (RHC) created, an innovative solution designed to address this dynamic market.

Transitioning to Medicare

Transitioning from conventional health insurance to Medicare is complicated.  At its most basic level, the consumer is left to cobble together coverage from the alphabet soup that is Medicare: Parts A, B, C and D, plus Medigap Plans A through K, PDP, and MA.  In Cook County, Illinois alone, there are about 200 permutations of benefit plans offered by 40 different carriers. 


Figuring optimal coverage requires learning a new language.  Instead of simply stating what a consumer will pay for doctor visits, available information stated by the Center for Medicare & Medicaid Services (CMS), in its publication, “What Are Medigap Basic Benefits?” is highly complex. When reviewing Medicare Supplement Plans C and F, there’s a statement that says, “Medicare Part B…pays $0 until $140 Part B deductible is met. Plans C & F pay Part B deductible.”  Can any new retiree truthfully understand this?


The complexity is compounded because:

 ·      The consumer is often on their own to make decisions.  Unlike employer-based health insurance, the insured no longer has a human resources professional or website to guide them in making the best decision.


·      Available information is fragmented, complex and confusing, or is so simplistic that it provides no real support. For many, the CMS guide, “Medicare and You,” is overwhelming, with 120 pages of small print.


·      Carriers and brokers, who supply much of the information, have a financial interest in the outcome.  For example, Medicare Supplement Plan F, the most popular plan, also happens to be the most profitable plan for many carriers and generates the highest broker commission for Supplement insurance.


·      Existing web tools only tell part of the story.  These sites do not allow users to understand the impact of their specific health status and/or catastrophic events, and most do not provide the consumer with an all-in cost estimation to fully understand potential financial exposure.  The majority of the sites are just premium based and/or provide a very general categorization for consumers to enter health status, whether good, fair or poor. 


Consumers are often forced to wade through information from multiple sources on their own, or turn to friends and family to help them with this important decision. Retirees are not clear about how Medicare works and how much of their healthcare expense is actually covered. 


The website (Financial Planners Association) states  “Enrollment into Medicare itself is pretty straightforward…but (we) should not assume that people know what to do.” The New York Times on Oct. 6, 2012 wrote, “Most people don’t realize that Medicare covers much less than employer plans.”  A study published by Nationwide Insurance Company in May 2012 found that only one in five people surveyed who expect to retire by 2020 have confidence in their knowledge about Medicare. 


     The potential financial consequences of decisions about retiree health coverage are significant.  A 2013 article in the Journal of Financial Planning by Amy Butrell stated, “Transitioning to Medicare from employer-based coverage or individual insurance has become a process fraught with costly pitfalls.” 


The article concluded, “…a major out-of-pocket medical expense can result in tens of thousands of additional costs…wrecking retirement planning.” 


According to EBRI (October, 2012), the current all-in out-of-pocket retirement health costs including Part B premiums for a married couple over their lifetimes could be as high as $400,000 depending on health status, life expectancy and the level of coverage.  For those planning to retire at 65 in 2020, the estimate rises to almost $700,000. The Kaiser Family Foundation in 2005 found the average per capita Medicare spending per beneficiary was $6,531.

Market Expansion


Market expansion and the digital revolution are increasing the complexity of this market.  One emerging trend is middle-aged children caring for retired parents.  Depending on the study, it is estimated that between 20 and 66 million members of the workforce are actively caring for parents. 


A Bureau of Labor Statistics (BLS) study in September 2006 on the “sandwich generation,” found that one third of all women between 45 and 64-years-old are caring for both children and parents. These women tend to be married and have a higher income than the general population. According to BLS, 57 percent of this group spends 500 hours or more annually helping their parents. 


The American Association of Retired People (AARP) confirmed that adult offspring caring for elderly parents is a significant issue.  Its June 2010 study estimated there are 66 million parental caregivers (men and women) in the workforce.  At this time there are few resources available to this computer-savvy, well-educated population.


         Consumer stability has traditionally marked the Medicare market.  Traditionally, when a senior reached their early-70s, they tended to stick with their insurance, unless an incident forced them to reevaluate their coverage.  This dynamic appears to be changing.


The presence of an easy-to-use, consumer friendly web tool to provide decision support for the Medicare selection and purchase process has the potential to increase the fluidity of the existing Medicare market.  A recent survey by Extend Health in October 2012 found that almost 60 percent of seniors who buy Medicare insurance on a health exchange will re-evaluate their coverage during open enrollment.  According to the survey, key drivers include evaluating premiums and out-of-pocket expenses, and confirming the best coverage.  Seventy percent say they are doing this because it is easier to use the exchange.  This becomes even more important with the advent of insurance reform: there will be an increasing number of consumers coming onto Medicare who are comfortable using exchanges to purchase their coverage.


The market as a whole is becoming increasingly computer savvy. 


According to CMS estimates and the Pew Trust, 20 percent of Medicare beneficiaries actively shop on the Internet, and there is every reason to believe the purchase of insurance will follow this trend.  This is the first generation of Medicare beneficiaries who spent most of their working careers with computers as a common feature in the workplace. This is also the first cohort that has been exposed to digital purchase sites such as Amazon, Orbitz and Ebay. 




Traditional tools such as Medicare booklets and charts are frustrating because many of the explanations are not in plain English.  On the other hand, existing web tools are limited in what they allow users to do. 


To address this dynamic market and help clarify the confusion and complexity about Medicare, Retiree Health Choices is developing a consumer friendly website, This new site is an online selection and purchase tool for Medicare insurance to facilitate the comparison, analysis and purchase of Medicare plans.  By answering a few simple questions, the website provides the consumer with an easy way to get more than a traditional insurance quote. 


The website features the Personal Health Calculatorã (patent pending) which allows consumers to compare the plans they selected.  Based on personalized utilization projections, visitors to the site are provided with an “all-in cost” and can model potential health-event scenarios to understand the impact of their decisions. This way, retirees can determine the best fit based on savings, monthly income, expected utilization and risk tolerance. 


No other site offers a consumer facing, integrated decision-support resource that allows users to model their decisions, and enables the customer to make an online purchase.


The future of Medicare decision-support tools is here.

 About The Authors


Dale Yamamoto — President, Founder
Dale has more than 35 years of actuarial experience, including 16 years at Hewitt Associates, many of them serving as Head Health Care Actuary. As a nationally recognized authority on retiree health and Medicare issues, Dale has testified before Congress frequently on both topics. He literally “wrote the book” on retiree healthcare, Fundamentals of Retiree Group Benefits. He holds leadership positions in all of the major actuarial associations and currently serves as Chairman of the Joint Committee on Retiree Health of the American Academy of Actuaries.


Allen Steinberg, J.D. — Founding Investor and Consulting Counsel
Allen has been a practicing attorney and a consultant specializing in benefit plans for over 30 years, including 25 years as an attorney and partner with Hewitt Associates. Allen has provided employers with advice and support in the design and delivery of their employee benefit plans. He received his J.D. cum laude from Northwestern University Law School.


Ellen Glassman is a founder of Retiree Health Choices.  Ellen has 20 years of research and development experience as a professor of design and as an independent consultant for private sector institutions and clients.  She received her Ph.D. from Northwestern University.



Jayme Soulati

Soulati Media, Inc.

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