GOVERNMENT & MEDICINE

Seniors will pay more for less; who's to blame

The administration points to market forces and HMO business decisions for benefit cuts and plan withdrawals from Medicare, but HMOs fault government payment changes.

By Geri Aston, AMNews staff. Oct. 11, 1999.

Washington -- Seniors enrolled in Medicare managed care plans will see their premiums increase and their benefits -- particularly for prescription drugs -- shrink next year, Vice President Al Gore warned at the AMA's recent grassroots conference.

"Many of our seniors in HMOs are now finding themselves shut out of affordable prescription drug benefits," said Gore, who released a Dept. of Health and Human Services report highlighting troubling Medicare managed care trends. "Across the nation co-payments and premiums are going up, while benefits are going down."

For example, the report found that:

• All Medicare HMOs will charge prescription drug co-payments in 2000 -- the first time all plans will levy such charges. Now, more than 1 million of the 6.3 million seniors in Medicare managed care live in areas where HMOs charged no co-payments for prescription drugs this year.
• Only 4% of seniors living in rural areas will have access to prescription drug coverage through a Medicare HMO next year, compared with 23% today.
• About 207,000 beneficiaries will live in an area where their Medicare HMO premium is above $80 in 2000. That figure was 50,000 this year.
• 77% of seniors will live in areas where they have access to a Medicare managed care plan charging no premium in 2000, down from 85% today.

The report also details the number of seniors affected by two waves of health plan Medicare withdrawals. This year HMO exits touched 407,000 beneficiaries, and they will impact 327,000 seniors next year.

The administration blames several market forces affecting both private and public managed care products for the increased Medicare plan premiums, reduced benefits and plan withdrawals.

Fierce competition for enrollees, health care cost inflation and rising prescription drug costs combined to eat away at plans' profits in the late 1990s, the report explains. So plans have begun to increase premiums.

The report points to increases in premiums charged to people enrolled in the federal workers' insurance program as evidence that rising costs aren't unique to Medicare. Federal workers' average premiums went up 7.2% last year and 9.5% this year.

Plans' decisions to drop out of Medicare were also driven by such business considerations as their market share and their ability to maintain adequate provider networks, according to the report.

Noticeably absent from HHS's list of reasons for Medicare managed care's woes are changes in government HMO reimbursement wrought by the Balanced Budget Act of 1997 that clamped down on payment increases.

"Contrary to assertions by some industry sources, the level of payments to organizations does not appear to explain the decisions by [Medicare HMOs] to withdraw from ... the program," the report states.

HHS notes that plans are primarily exiting from counties where monthly payments will be in the mid-range of $451 to $500 next year.

Plan payments will rise an average of 5% next year, with increases ranging from 2% to 18%. Counties receiving some of the largest increases under the budget act's payment changes will experience the most disruption, according to the report.

Plans galled by Gore's "chutzpah"

But managed care groups argued that the payment changes are largely to blame for the plan withdrawals and shrinking benefits. The industry warned of benefit changes and HMO exits last year and again this year, months before the government released its report.

"The administration seems to have discovered a problem that we have been talking about for over a year," said Susan Pisano, spokeswoman for the American Assn. of Health Plans. She criticized the administration for attacking plans for cutbacks in prescription drug benefits while promoting the payment policies causing the reductions.

The Health Insurance Assn. of America echoed that complaint.

"It takes a lot of chutzpah for the president and vice president to criticize private Medicare HMOs for having to pass along cost increases exacerbated by the cuts in payments contained in the Balanced Budget Act, which the president signed into law with much fanfare," said HIAA President Chip Kahn.

Chief among plans' beefs is the way the administration structured a portion of the budget act that requires the size of HMO payments to be tied to beneficiaries' health care risks. The program drafted by HHS would cut plan payments by $11 billion over five years by paying plans less for healthy seniors.

The managed care community had expected risk adjustment to be budget neutral, meaning it would simply shift existing funds rather than cut the payment pot.

The risk adjustment program, coupled with a $22 billion payment increase slowdown instituted by the budget act, will cause plan payments to lose ground in some counties compared with fee-for-service Medicare and eventually will erode HMOs' ability to compete with the traditional program, according to managed care groups.

Others, including the AMA, side with the government on the risk-adjustment issue. In testimony submitted at a recent congressional hearing, the AMA noted that Medicare has traditionally overpaid plans because they tend to enroll more healthy, less expensive seniors.

"A budget-neutral risk adjuster would continue that disparity, diverting money that might be better spent in across-the-board program improvements," the testimony states.

But the HMO community's message seems to be gaining ground on Capitol Hill as lawmakers respond to the concerns of beneficiaries whose health plans have left the program. Several lawmakers are promoting proposals that might be included in a budget act fix Congress currently is discussing.

Among the proposals are one by Sen. William Roth Jr. (R, Del.), chair of the powerful Senate Finance Committee, to further slow the risk adjustment implementation schedule; another by Rep. Frank Pallone Jr. (D, N.J.) to boost the minimum yearly plan payment increase; and a bill by Florida Reps. Michael Bilirakis (R) and Peter Deutsch (D) to make risk adjustment budget neutral.

Although several policy experts agreed that payment is a factor in Medicare managed care's troubles, they also noted that some of the other factors listed in the government report play a role.

For example, some Medicare HMOs are having difficulties maintaining their provider networks as physicians begin taking tougher negotiating stances. Physicians' frustration with low payments, the clout they're gaining as they form large groups and the growing backlash against managed care in general are fueling that trend, policy analysts said.

In addition, mixed signals from the administration regarding its desire to see Medicare managed care survive also weaken plans' bargaining power with doctors and hospitals, said Marsha Gold, senior fellow at Mathematica Policy Research Inc.

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