Health Insurance: Is AARP Looking Out For You?

Last Updated Nov 3, 2009 4:26 PM EST

While a ferocious debate rages in Washington over the future of health care, you have a more immediate problem: how to pay your medical bills without going broke — better yet, without having to give up your tennis club membership. For anyone not covered under an employer's policy, the answer usually lies in the search for an affordable health insurance plan, and, as you age, Medicare supplemental insurance (or Medigap) and long-term-care insurance.

Anyone over the age of 50 (over 65 for Medigap) is eligible to buy these three products through AARP, the advocacy organization, which is also a major player in the insurance industry. The organization collects $400 million a year in fees for lending its name to various private policies, but since AARP’s financial products haven’t always lived up to the group’s mission of looking out for its 40 million members, MoneyWatch.com has investigated how good these policies are.

After talking to nearly a dozen experts and comparing quotes from more than 50 companies, here’s our conclusion: AARP health policies, while rarely the least expensive, are competitive, and might be the best plan for you if you have health problems. Its long-term-care insurance deserves checking out because of its low rates and the financial strength of its partner, Genworth Financial.

However, it’s hard to say whether any one insurance policy is absolutely the best one for you for two reasons: Whether you’ll be able to buy these types of policies, and at what price, often depends on your health. Also, each state has its own regulations on the type of coverage insurers can offer and how they can choose which customers to accept.

AARP Health Insurance

Affordable health insurance has been part of AARP’s mission since the group began more than 50 years ago. Ethel Percy Andrus, AARP’s founder, was appalled that retired teachers had inadequate health care coverage. “Getting health insurance for seniors was the driving force behind the organization,” says David Mathis, AARP Service’s senior vice president for health products and services. But there have been missteps along the way.

After Sen. Charles Grassley, R-Iowa, raised questions in 2008 about whether AARP’s health policies mislead customers into thinking they offered more coverage than they did, AARP suspended sales. Today AARP sells plans with three traditional PPO (preferred provider organization) versions from Aetna for people 50 through 64 and their dependents. These policies are available in 31 states (Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Delaware, Florida, Georgia, Idaho, Illinois, Indiana, Louisiana, Maryland, Michigan, Mississippi, Missouri, Nebraska, North Carolina, Ohio, Oklahoma, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia, West Virginia and Wyoming) and Washington, D.C. In a PPO, the insurer contracts with selected hospitals and doctors to furnish services at a discount. You can seek care from outside the network, but you then pay more.

The Premier Plans resemble standard workplace policies. They cover 80 percent of the cost of preventative care, prescription drugs, doctor visits and hospitalization within the network, after you have covered your deductible. You can buy policies with different levels of annual deductibles: $1,500, $2,500 or $5,000 for singles and $3,000, $5,000 or $10,000 for families. You pay $20 to $35 for routine doctor visits; 40 percent of the bill for out-of- network services after meeting the deductible; 20 percent for hospitalization and lab tests. These comprehensive plans are the most expensive, and tend to be best for AARP members who want coverage for their dependent children.

High-Deductible Health Plans compatible with tax-sheltered Health Savings Accounts (HSAs) offer lower premiums but place more financial responsibility on the insured. They come with deductibles of $3,000 or $5,000 for singles; $6,000 or $10,000 for families. You pay the full network cost of doctor visits, lab tests and hospital admissions up to the deductible. So you’re basically trading lower premiums for higher routine costs. These plans are best for the self-employed, who may benefit from the tax advantages of an HSA, and people in good health who generally visit the doctor only a few times a year.

Preventative and Hospital Plans are the most affordable, because they provide coverage only for hospitalization and outpatient surgery. Deductibles are $1,250 or $3,000 for singles; $2,500 or $6,000 for families. You pay the full network costs for doctor visits and prescriptions (other than generics) out of pocket; they don’t count against your deductible. And you pay 20 percent of the bill after the deductible for hospital admissions and lab tests. These plans are best if you want to keep premiums down, but still have coverage for catastrophic care. They aren’t a substitute for comprehensive health insurance.

These health plans have four features worth noting:

  • Unhealthy Conditions: Although AARP/Aetna asks you all the medical questions other insurers do, you’re more likely to get affordable coverage than with competitors if you have high blood pressure, high cholesterol or are overweight. That’s because AARP is more forgiving. “We have made accommodations around those common medical conditions,” says Ann Bryan, an Aetna vice president who manages the AARP program. As the comparison below shows, a healthy person won’t necessarily pay more with AARP than with other insurers, however.
  • Medical History: AARP/Aetna looks into your medical history for pre-existing conditions over only the past five years, not the industry-standard 10 years. This can be advantageous if you, say, had a heart attack more than five years ago and are fully recovered.
  • Dependents: AARP/Aetna lets AARP members insure their dependents even if they don’t buy coverage for themselves. This can be handy if your employer doesn’t offer family coverage.
  • Preventive Care: All the plans, including the high-deductible and preventive hospital plans, cover an annual physical, a prostate exam for men and a mammogram and gynecological exam for women, as well as flu shots for a low $20 to $40 co-pay, depending on the plan. Normally, high-deductible and preventative plans require policyholders to foot the whole bill. Aetna also waives the deductible for a colonoscopy once every 10 years in its Premier plan, and even the high-deductible plans charge just a 20 percent co-pay for the procedure.

For our price check below, working with eHealthInsurance.com, we compared the three types of AARP/Aetna policies against competitors for a healthy married couple in their mid-50s, living in Georgia with a child in college. We chose Georgia because many insurers sell PPO policies there. (Remember: these are only base rates; before a health insurer issues a policy, it will review your medical history and set rates accordingly.)

AARP/Aetna wasn’t always the least expensive, but was generally among the lowest-priced options. One important note: Comparing the base rates of health plans is just a starting point. Every plan in these head-to-head comparisons put its own twist on co-pays, doctor visits and prescriptions. “The problem with health insurance is that it’s not enough to just look at the premiums, the deductibles and the doctor visit co-pays,” warns Mila Kofman, Maine’s superintendent of insurance. “You can’t do an apples-to-apples comparison unless you see if the benefits and policy limits are the same.”

Premier Plan

AARP/Aetna was among the least expensive $5,000 and $1,500 deductible plans, but middle of the pack for the $2,500 plan.


Provider

Deductible

Monthly Premium
AARP/Aetna
$5,000
$2,500
$1,500
$511
$731
$882
Aetna
$2,500
$1,500
$711
$959
Blue Cross
$5,000
$2,500
$1,500
$596
$837
$1,037
Celtic
$5,000
$2,500
$1,500
$509
$658
$777
Cigna
$2,500
$653
HumanaOne
$2,500
$681

High-Deductible Plan

Here, AARP was the one of the least expensive in both the $5,000 deductible and $3,000 deductible categories.


Provider

Deductible

Monthly Premium
AARP/Aetna
$5,000
$3,000
$520
$621
Aetna
$5,000
$3,000
$477
$600
Blue Cross
$5,150
$3,500
$777
$1,000
Cigna
$5,000
$3,500
$2,500
$529
$587
$702
HumanaOne
$5,000
$615

Preventive and Hospital Plans

AARP had the lowest premiums and deductibles, a rare twofer, among the plans that provide the least amount of coverage.


Provider

Deductible

Monthly Premium
AARP/Aetna
$3,000
$1,250
$344
$500
Aetna
$5,000
$521
Celtic
$5,000
$509
Cigna
$5,000
$498
HumanaOne
$5,000
$448

Medicare Supplemental Insurance

Supplemental insurance is designed to cover you in areas where Medicare falls short. There are 13 federally standardized plans — Plans A through L. They provide increasingly more coverage as you work your way through the alphabet, with Plan F being the most popular because of its benefits and price range. In essence, Medigap is a commodity: You get the same benefits regardless of your state or insurer. Although the benefits are identical from carrier to carrier, there are dramatic differences in price and customer service. “If you’re selling a commodity product where price is a determining factor, you have to compete on other features,” says Susan Morisato, president of Ovations Insurance Solutions, the division of UnitedHealthcare that manages the AARP Medigap program.

Premiums for AARP/UnitedHealthcare’s Medigap policies, in some places, are among the lowest for the most popular type of Medigap plan. And AARP has staked out its turf in a few other important ways:

  • Broad acceptance: Last year, AARP/UnitedHealthcare approved 99.94 percent of applicants. The only medical reason it denies coverage is chronic kidney disease. By contrast, many of AARP’s competitors base premiums on your age and your health, so you may be rejected or charged more if you have a pre-existing condition. “For many people with health issues, AARP is the insurer of last resort,” says Bonnie Burns, a policy specialist with California Health Advocates, a nonprofit advocacy organization for people covered by Medicare or who have family members in the system.
  • Customer service: AARP operates a 24-hour toll-free line (888-543-5630) staffed with reps who can tell you about hospitals and caregivers in your area, and advise you on what to ask your doctor about potential procedures. AARP/UnitedHealthcare also says it pays 98 percent of claims in 10 days.
  • Community rating: Unlike most Medigap insurers, who set premiums based on your current age (attained-age rating) or your age when you first buy the policy (issue-age), AARP/UnitedHealthcare uses community rating everywhere it’s sold. That means it charges the same premiums to all policyholders, regardless of age, gender or health. “A community-rated policy may cost you a little more when you’re younger,” says Burns, “but it often costs less when you get older.” You can learn which ratings system insurers use in your state by typing in your ZIP code on the Medicare site.

The bottom line, says Burns, is that the AARP/UnitedHealthcare Medigap plans “can be a good deal, and they’re more likely to be a good deal for older people who have health conditions.” In states where most insurers use attained-age rating, AARP becomes price competitive by offering a loyalty discount: Members who become policyholders between age 65 and 67 get a 30 percent discount that shrinks by 3 percent a year for 10 years.

For this price check, we compared AARP/UnitedHealthcare Plan F premiums with the highest and lowest insurers for nonsmokers in Maine (a state that requires community rating) and New Hampshire (one allowing attained-age rating).

In Maine, AARP/UnitedHealthcare cost $158 a month, a little pricier than the least expensive Globe Life ($147) but much less than high-priced United Teacher Associates ($277).

In New Hampshire, at age 65 there was a $69-a-month gap between low-cost United of Omaha ($118 a month), and AARP/UnitedHealthcare ($187). But AARP/Aetna was far from the most expensive; that was Combined Insurance Co. of America ($231). By age 70, the gap between United of Omaha and AARP/UnitedHealthcare had narrowed to $20 a month, and by age 85, AARP/UnitedHealthcare was the cheapest.

AARP health and long-term-care insurance can be bought online, through the mail, or by phone at 866-894-6032 (health and Medigap) or 866-660-4117 (long-term care). Call the number to see whether there’s a local agent who can meet with you.

Long-Term-Care Insurance

In a comparison of long-term-care policies, AARP comes up strong.

These policies are designed to cover, or at least reduce, the potentially devastating financial cost of a nursing home stay or assisted-living care. As MoneyWatch has written, the best time to buy this type of policy is when you’re in your 50s and healthy enough to get good rates.

Genworth, the No. 1 seller of long-term-care insurance, has a solid A- rating from Standard & Poor’s. In addition to being financially sound and having sold such policies since the mid 1970s, Genworth has a history of keeping rates stable for policyholders. The company asked state regulators for its first and only rate increase — about 8 percent — in 2008. Genworth says it has no plans for a rate increase in the future.

To compare long-term-care premiums, we put AARP/Genworth up against four insurers selling policies in California, where consumer protections are strong. The four have solid financial ratings and a history of stable rates and reliable payouts to customers. We priced policies for someone in his mid-50s looking for $100 in daily benefits for three years (the average nursing home stay), with inflation protection. AARP/Genworth was the second-least expensive and nearly $1,000 cheaper than the priciest, Northwestern Long Term Care. As a mutual insurer, Northwestern returns a portion of premiums to policyholders each year, however.


Insurer

Annual Premiums
AARP/Genworth
$1,597
John Hancock Life
$1,541
New York Life
$2,083
Northwestern Long Term Care Insurance
$2,504
Prudential Insurance Co. of America
$1,953

Burns, however, is a fan of New York Life, even if it may sometimes be more expensive than many competitors. “They are the strongest insurer in the market, they have never had a rate increase and they often pay a dividend back to their customers at the end of the year,” she says.

AARP/Genworth policies and premiums are almost identical to Genworth’s own products, so deciding to buy the AARP version depends partly on whether you want to support the organization. (If not, speak to a Genworth rep instead; 888-436-9678.) But AARP has two other advantages: It guarantees premiums won’t change for five years, and the AARP customer service line is excellent. When MoneyWatch called, the rep offered sound advice on the right amount of coverage to buy. She suggested deducting the amount of Social Security payments we’ll receive from the amount of coverage we purchase. “If you’re getting Social Security and going into a nursing home, you’re not going to have anything else to spend the money on. Why pay more for insurance?” she asked. Good question.

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  • Bob Trebilcock

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