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More HMOs Withdraw From Medicare+Choice

By Joan Szabo, Contributing Editor
Originally published in Physicians Financial News 19(15):30, 2001

The exodus of health maintenance organizations from the Medicare+Choice programs continues, with 58 health plans recently notifying the Department of Health and Human Services (HHS) that they intend to withdraw or cut services in particular areas starting in the new year. This latest round of withdrawals is raising questions about the future of President Bush’s plans to reform Medicare by giving private health plans a greater role in Medicare.

As a result of the plans’ intentions to withdraw from Medicare+Choice, over 500,000 beneficiaries will have to find another way to receive Medicare benefits. According to HHS, 38,000 of these beneficiaries would have no other managed-care plan to choose from in their areas and would be forced to return to the traditional Medicare program.

The 500,000 affected beneficiaries are half as many people as were affected last year when nearly 1 million elderly had to find other HMOs or go back to the regular Medicare program. Enrollment by HMOs in the Medicare+Choice program began to level off starting in 1999. As a result some 1.6 million Medicare beneficiaries have had to return to traditional fee-for-service Medicare or try to enroll in other managed-care plans, if any were available where they live.

Medicare+Choice was created as part of the 1997 Balanced Budget Act to encourage more managed-care insurers to offer coverage to Medicare beneficiaries. About 14 percent of Medicare beneficiaries receive coverage under Medicare+Choice.

The Medicare+Choice plans are designed to offer benefits in addition to those covered by traditional Medicare as part of their basic plan option. However, there has been a decline in the availability of some key benefits, such as prescription drugs, preventive dental coverage and hearing benefits. There also is concern that plans that remain in Medicare+Choice will continue to reduce their supplemental benefits and raise beneficiary premiums in 2002.

“It is a program that for the life of the Balanced Budget Act has been both over-regulated and underfunded,” says Susan Pisano with the American Association of Health Plans (AAHP), an HMO trade group. “In most parts of the country where there are beneficiaries who are enrolled in Medicare+Choice plans, the plans have been experiencing yearly increases in healthcare costs in the 8 to 10 to even 12 percent range, while reimbursement has been constrained to 2 percent annually.”

As a result, HMOs in many areas cannot afford to stay in the Federal program, Ms. Pisano says. “The arithmetic there is pretty simple-it is not possible to sustain a good program in the long term when increases in costs are outstripping the increases in reimbursement by that much,” she says.

According to AAHP, some of the plans that have publicly said they want to stop participating in Medicare+Choice are HMOs that serve some areas of Connecticut, Florida, Kansas, Michigan, New Jersey, New York, Washington State and Wisconsin.

In an effort to keep the program alive, Congress and HHS have already taken steps to make Medicare+Choice more attractive to health plans. Lawmakers agreed to spend more on Medicare HMOs last year, adding $11 billion over five years. In addition, Medicare began to phase in a new risk-adjustment system based on inpatient hospital stays in the previous year.

HHS also took steps to reduce some of the program’s administrative burden by allowing HMOs to offer health plans exclusively to employers for retirees and workers who stay on the job past age 65. The plan allows an HMO to sell employer-only plans in a specific market. Until this change, a uniform plan had to be offered to all people eligible for Medicare in a given county. The idea is to allow insurers to offer employers Medicare HMO plans that are similar to what they provided workers before they turned 65 and became eligible for Medicare.

Some critics believe, however, that efforts to assist Medicare+Choice should not just focus on payments or administrative changes. The quality and reliability of the Medicare+ Choice program needs to be addressed, says Diane Archer, president of the Medicare Rights Center, a consumer organization in New York City. “The question is-is it possible to get a commitment from Medicare HMOs to provide coverage to older and disabled Americans over a 10-year period, so that it is reliable?”

Ms. Archer also questions what the main objective of Congress and HHS is regarding Medicare. “If the goal is to meet the needs of people with Medicare, then it’s important to strengthen and improve the regular Medicare program, which is where 85 percent of older and disabled Americans receive their healthcare coverage.” This means, “putting a prescription-drug benefit in Medicare and capping out-of-pocket costs” in the traditional program, she maintains.

While managed care is likely to continue to have a role in Medicare, the future of the current Medicare+Choice program is not clear, say healthcare experts. The Bush Administration has set a goal of increasing Medicare+Choice enrollment, but the recent withdrawals and service area reductions by many plans-and the decrease in prescription drug and other supplemental benefits by many remaining plans-may make Medicare+Choice “a less-attractive option for Medicare beneficiaries,” finds a report from the Henry J. Kaiser Family Foundation.

In addition, it is uncertain whether enough bipartisan support exists in Congress to provide Medicare+Choice with additional funding. Representative Pete Stark (D-Calif.), a senior Democrat on the House Ways and Means health subcommittee, cites studies which have found that Medicare is already paying HMOs more than it would spend for the same patients if they were in the traditional fee-for-service program.

Nevertheless, Dr. Richard Roberts, president of the American Academy of Family Physicians, says he hopes the U.S. “can preserve some type of managed-care program for Medicare. I think it is an approach that many seniors have actually liked.” But he stresses that, “if we are going to do that, we need to do that in a way that is fair and in a way that adequately funds the program.”

But with Congress focusing mainly on the fight against terrorism, experts say, additional funding for Medicare+Choice may end up taking a back seat to the more pressing issues of the day.

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Sidebar: HMOs Cut Drug Coverage

Medicare beneficiaries make up 14 percent of the U.S. population, but account for 43 percent of the nation’s total drug expenditures, according to the Centers for Medicare and Medicaid Services. The average Medicare beneficiary filled 22 prescriptions in 1998, reports the Henry J. Kaiser Family Foundation; in that year, more than a quarter of all Medicare beneficiaries-some 10 million-had no prescription-drug coverage.

It is no surprise that one of the key attractions of Medicare managed-care plans has been the prescription-drug coverage they offered. However, the share of Medicare+Choice enrollees with prescription-drug coverage declined from 84 percent in 1999 to 67 percent in 2001, says the Kaiser Foundation. And, like health plans serving non-Medicare populations, many of those plans that do offer drug coverage have imposed stricter limits on benefits. Today, 26 percent of Medicare HMO enrollees have an annual prescription drug benefit cap of $750 or less.