01-13-2001

HEALTH: Year-End Gift a Mixed Blessing for Seniors

Barely more than a month ago, Congress passed, and President Clinton
signed, a bill to give health maintenance organizations an extra $11
billion over five years to care for seniors enrolled in Medicare. Now the
Medicare HMOs are facing a Jan. 18 deadline to decide whether the new
money will be enough for them to expand, or to continue, their programs
for seniors.


Early indications are that the new money will be enough to offer some hope
for angry seniors whose HMOs have been abandoning Medicare altogether or
raising premiums and shrinking benefits. But don't expect the HMOs to
change course too drastically. Much of the help is short-term; HMO
executives say they're unsure whether the new money will offset mounting
costs beyond a few years.


The good news is that some health plans are expected to reinstate some
lost benefits, reduce swollen premiums, and pay unhappy doctors and
hospitals more. The extra money might also slow the flight of HMOs from
Medicare. But uncertainty about the bill's longer-term impact is causing
some HMO executives to delay deciding whether to re-enter markets they've
already left, or to expand into new ones.


"The money will be helpful in stabilizing the current group of health
plans participating, but I'm not sure it will attract new ones," said
Michael Hash, who, until his departure in December, headed the Health Care
Financing Administration at the Health and Human Services
Department.


Karen Ignagni, president of the American Association of Health Plans,
which represents most HMOs, is optimistic that the bill will prompt health
plans to open their doors to more seniors in rural areas. The bill set
higher monthly minimums that the government must pay HMOs per Medicare
patient, amounts that could make rural HMO plans more profitable. Still,
Ignagni is already pressing a request in Congress for more assistance this
year. "Large cities are going to need attention in 2001 where other
areas received attention in 2000," she said.


The bill that passed in December was meant to help rectify the impact of
the Balanced Budget Act of 1997, which reduced Medicare spending by
significantly more than Congress had intended. HMOs said the government
reimbursement was inadequate to cover their costs, and they began pulling
out of markets. As a result, nearly 2 million older Americans lost their
managed care plans during the past three years, and most seniors remaining
in HMOs are paying higher premiums to get fewer benefits.


Seniors were initially drawn to Medicare HMOs because they charged low-or
no-premiums, required minimal co-payments, and offered benefits that
regular fee-for-service Medicare did not, such as coverage for
prescription drugs, eyeglasses, and hearing aids. Today, though, only a
handful of zero-premium health plans remain, and the ones that exist have
rising co-payments and few extra benefits. Indeed, Medicare HMOs charged
an average premium of $84 a month in 2000, up from $34 a month in 1998,
according to Hash.


Although many HMOs have already reported their intentions to dramatically
cut benefits and to leave markets during 2001, the new law gives them
until Jan. 18 to change their minds. The law provides cash incentives to
do so. Instead of providing $415 per month for each senior, the government
will now pay at least $475. And in counties with more than 250,000 people,
it'll pay at least $525.


As an added incentive, Congress raised from 2 percent to 3 percent the
annual minimum adjustment that HMOs can charge the government this year to
offset medical inflation. For 2001, HMOs that offer Medicare services in
counties that haven't had an HMO since 1997 can get a 5 percent bonus
payment (and 3 percent in subsequent years).


Jack Friedman, the executive director of Providence Health Plans, a major
HMO provider based in Portland, Ore., says he'll make some changes, but
that seniors shouldn't expect any decisions yet about whether Providence
will re-enter markets it has left. Providence serves 37,000 seniors in its
Medicare HMOs.


Last year, the federal government paid HMOs in Portland about $450 a month
for each Medicare enrollee. But squeezed by medical inflation, Providence
decided before the December law's enactment to end services in 2001 in
four Oregon counties. That decision dropped about 7,500 seniors from
Providence health plans. Moreover, Providence raised its premiums from
$34.50 to $69.50, increased co-payments for specialty physician visits
from $10 to $20, and for emergency room visits from $50 to $100.


Faced with monthly premiums of almost $70, more than 4,000 additional
Medicare enrollees dropped Providence in December, even though many
seniors would lose extra benefits by returning to traditional
fee-for-service providers. "We don't lose members typically,"
Friedman said. "A lot couldn't afford the coverage, so they went back
to fee-for-service Medicare." Of course, seniors in fee-for-service
can purchase private supplemental insurance, but at a cost of around $150
a month.


The December law raised monthly government payments to Portland HMOs by
about $75 per person, and that's "very significant," according
to Friedman. In March, when Providence will start getting the larger
monthly payments, it will lower premiums and co-payments, and pay higher
fees to doctors and hospitals, he said.


Still, health plan executives complain that some important provisions in
the bill won't last long enough, and that their costs are rising faster
than the government payments. "There's some glee in my voice for 2001
and 2002," said Friedman. "As we get into 2003, 2004, and 2005,
we may face another round of benefit reductions and premium increases
because we can't get [enough] money to meet medical trends." And, if
you look at the pace of technological change in medicine, biotechnology,
chemotherapy, and diagnostic imaging, those higher costs are not being
reflected in payments to HMOs from the federal government, Friedman
said.


Even if government payments grow by 3 percent a year, HMOs note that their
costs are climbing by 4 percent to 8 percent, mainly because of increases
in the cost of providing prescription drug coverage that are averaging 12
percent to 20 percent.


The December legislation is only "a short-term benefit," said
Dan Miller, project manager for public relations at PacifiCare Health
Systems of Santa Ana, Calif., one of the largest Medicare HMOs in the
country. The new federal money isn't enough to get PacifiCare to make any
changes in benefits or premiums, or expand into additional counties in
2001, according to Miller. For now, the health plan will use any extra
money it gets to cover rising costs and to pass along more money to the
doctors and hospitals that care for its enrollees.


Currently, about 15 percent of Medicare beneficiaries use HMOs. But,
because HMOs have been reluctant to expand into new markets with the
current ones barely profitable, that number has remained stagnant for
several years. Still, many analysts view managed care as the future for
Medicare. Republicans in particular, including President-elect George W.
Bush, want to see more private-sector choices for seniors in
Medicare.


Although the HMO industry would like Congress to pass another assistance
bill this year, chances are slim, industry observers say. Action, though,
may come as part of legislation to create a prescription drug benefit and
to reform the Medicare system. Although Bush has said this reform is a top
priority for him, members of Congress say that bill will most likely have
to wait until 2002.


Bush has also said he wants to pass legislation to help low-income seniors
with prescription drug costs, and to provide some help to other seniors
wanting to purchase a prescription drug policy. But he first wants to give
states money to fund their own prescription drug assistance programs. The
idea is to give seniors an immediate "helping hand" through
state programs for about four years. Then, a targeted federal benefit
would kick in.


But prospects for passing a prescription drug bill anytime soon are shaky.
And all of this means continued uncertainty for managed care executives
who are trying to plan, and who are already cautious in their enthusiasm
for the bill passed in December.


"In some areas [the December bill] could mean the difference between
plans staying in a market or going out," said Dean Rosen, senior vice
president for policy and general counsel of the Health Insurance
Association of America. But he added: "When people are making
business decisions about whether or not to enter a contract with the
federal government, it's hard when you're working on a year-to-year
basis."


Alan Mittermaier, president of HealthMetrix Research, an Ohio company that
advises seniors about Medicare HMOs, said that without more certainty
about prescription drug coverage, the bigger companies will have no
confidence that the government reimbursement picture will improve over the
long term for them, and few new companies are likely to enter the Medicare
market. Seniors will have to be patient patients.


What's Happening to Medicare HMOs


Approximately 1.7 million seniors have lost their HMOs in the past three
years, as companies have pulled out of the program.


Medicare HMOs have raised premiums from an average of $34 a month in 1998
to $84 a month in 2000.


The share of Medicare enrollees in HMOs has been stuck at around 15
percent for several years, as companies leave unprofitable
markets.


Government payments to Medicare HMOs have risen by only about 2 percent a
year during the past several years, even though HMOs' costs are rising by
about 4 percent to 10 percent.


Marilyn Werber Serafini

National Journal