What to Do if Your Current Medicare Plan Won't Exist Next Year

Q. I had a letter from my Medicare plan saying it will not be available in 2012. Is this the result of the new health reform law? What should I do?

A. Don't panic. Your Medicare benefits are not being taken away and you will still have choices. And no, your plan wasn't a victim of the new health care law. But you will need to make some decisions — depending on whether the "plan" you're talking about is a Medicare Advantage health plan, a "stand-alone" Medicare prescription drug plan, or a Medicare supplemental insurance policy, also known as medigap.

See also: What you need to know about Medicare plans in 2012.

Medicare Advantage health plans

These plans — mainly HMO and PPO managed care plans — are offered by private insurers as an alternative to the traditional government-run Medicare program. (To see the differences between the two, see this previous Q&A.) Since these plans began more than a decade ago, some have pulled out of Medicare and new ones have joined. All plans are free to make this business decision each calendar year. Medicare officials say that 185 Medicare Advantage plans that were offered in 2011 will not be available in some areas in 2012. However, nearly all beneficiaries will have access to health plans.

Since 2004, Medicare Advantage plans have received subsidies from the government that, on average, cost Medicare about 12 percent more for plan enrollees than if they had been receiving services in the traditional program. Citing the extra cost to the taxpayer — amounting to about $136 billion over 10 years — and the fact that this helps drive up the Part B premium for everybody on Medicare, the new health care law will gradually phase out the plan subsidies, starting in 2012. Contrary to fears that this would destroy the program or push up premiums, the average cost of premiums nationwide has fallen slightly and benefits remain "robust," according to Medicare officials, at lease in 2012.

However, private fee-for-service (PFFS) plans — a non-managed-care type of Medicare Advantage plan — did change in 2011 under a different law passed in 2008. For the first time, most of these plans were required to establish contracts with doctors, hospitals and other providers (as HMOs and PPOs have always been obliged to do) so that enrollees can be sure which providers will accept their plan. As a result, many PFFS plans chose to withdraw from Medicare in certain areas. Nationwide, the number of PFFS plans dropped from 435 to 239 in 2011 and will rise to 266 in 2012.

What you can do: If your current Medicare Advantage plan won't be available in 2012, you will still be able to choose from many other plans almost anywhere you live. (The exceptions are 28 rural counties in Colorado and one in Utah and one in Idaho, where plans have pulled out, leaving no other plan options.)

Switching to another Medicare Advantage plan: You can use the health plan finder on Medicare's website to see what other plans are available to you and compare their costs and benefits. Or you can call the Medicare help line at 1-800-633-4227 for the same information. You can join a new plan during open enrollment, which runs from October 15 to December 7, with coverage beginning Jan. 1. Coverage under your current plan will remain unchanged until Dec. 31. If you do not actively enroll in a new Medicare Advantage plan, you will automatically be covered under traditional Medicare in 2011.

Switching to traditional Medicare: This option is available to anybody on Medicare. But remember that if you change to the traditional program, you will also need to join a "stand-alone" Part D plan (see below) during open enrollment in order to get prescription drug coverage. If your current Medicare Advantage plan is going out of business or withdrawing from your area, you also have the option of buying medigap supplemental insurance that covers some or most of the out-of-pocket costs of traditional Medicare, depending on the type of policy you purchase. Provided that you are age 65 or older and apply for a medigap policy within 63 days of your health plan's coverage ending, you will have full federal guarantees and protections — meaning you cannot be denied coverage or pay more because of health problems. If you are under 65, different rules apply.

Next: Part D prescription drug plans. >>