Variations in ‘Medigap’ Fees Anger Elderly

Elderly people in California, Texas and Florida have been hit by staggering 75% increases this year in the premiums charged for the supplemental health insurance policy of the American Assn. of Retired Persons. New England residents are not paying a penny more than last year for the same coverage.

In California, a Blue Shield plan for the elderly costs $83.50 a month in San Francisco and San Jose but $123.40 in Los Angeles, Anaheim and San Diego. Blue Cross offers similar policies with uniform rates throughout California.

Such are the vagaries of “Medigap” policies, the insurance purchased by millions of people over 65 to pay for hospital and doctor bills that the federal Medicare program does not cover.

“I had to spend two hours explaining to my mother who lives in New Jersey why she got an increase,” said William Matusz, a vice president of Prudential, the insurance carrier for AARP. “I couldn’t just say: ‘Trust me mom, I’m your son.’ ”

The inexorable climb in medical expenses, changes in government regulations and different styles of insurance marketing and medical practice have combined to produce a strange and inconsistent pattern of insurance bills.

The practice of medicine “is more aggressive in Southern California than Northern California,” said Dr. William Moncrief, director of medical policy for California Medical Review Inc., the organization that reviews Medicare bills for the federal government. “Doctors in Southern California just do more with the patient. I’m not sure if they do more for the patient.”

An average hospital stay is seven days in Northern California, eight days in the southern part of the state.

Squeezing Hospitals

The federal government is squeezing hospitals through a strict system of predetermined Medicare reimbursement rates for elderly patients with particular conditions. Consequently, much care has moved out of hospitals into clinics and doctors’ offices, where spending is much harder to control. Nationally, Medicare outlays are rising at a 13.6% rate for doctors’ services, compared to 4.5% for hospitals.

And as the population grows older, its medical needs grow disproportionately. “As you get older, your need for medical care increases dramatically,” said Dr. Edward Schneider, dean of the Andrus Gerontology Center at USC. Medicare spends $1,300 a year for the average 65-year-old, $2,500 for the average 85-year-old.

“It’s not the expensive operations, the special high technology that drives up the costs,” said Schneider, former deputy director of the National Institute of Aging. “The very old need more routine care, they get sick more often and they make more visits to the doctor.”

Prudential saw an explosion in activity last year. The number of claims that it processed soared from 230,000 a week in January to 340,000 a week at year’s end.

At the same time, state insurance commissioners across the country adopted a uniform standard, requiring that at least 75% of the premiums collected in each state be paid out for medical services within the state.

AARP previously had a single national rate and was charging $15.95 a month for a basic supplemental policy. In effect, the elderly in states such as Massachusetts and Vermont, with relatively low health-care costs, had been subsidizing people in such high-cost states as California and Florida.

Changed Billing

When the state insurance commissioners insisted that local rates reflect local spending, the AARP had to change its billing. New England policies continued at $15.95 a month, while the rate jumped to $27.95 a month on Jan. 1 for California, Nevada, Texas, Louisiana, Mississippi and Tennessee. The rate also climbed to $27.95 for Florida, but state officials required that the increase be applied in two six-month stages.

The AARP’s top plan, which covers all doctor bills not paid by Medicare and includes drug coverage, rose 19% to $104.95 in the most costly states. It remained at $87.95 in New England.

The AARP, which insures 3 million persons, received 300,000 phone calls from agitated members after sending out notices of the massive increases in certain states.

The pain will not be repeated in doses this large, according to Prudential’s Matusz. After 1989’s “big bump,” future AARP premium increases will be limited to inflation. “If costs rise 10% in California, there will be a 10% increase,” he said.

Even with the price hikes, “we still feel we are very competitive,” said Susanne Bowman, manager of the AARP insurance program.

Blue Cross and Blue Shield, with separate plans throughout the country, had small rate increases in most states this year, “on the order of 8% or less,” said Peter Lopatin, senior consultant for product development at the Blue Cross and Blue Shield Assn.

In California, however, Blue Shield, which has been running a special program to encourage better exercise and diet practices among its members, paid out 5% less in claims last year than the year before and was able to roll back its premiums by $2 a month.

About 13,000 of the 60,000 Blue Shield members in California were enrolled in a special “senior healthtrac” program, which uses questionnaires and surveys about alcohol, fat and salt consumption and the frequency of exercise to reinforce good health habits.

Blue Shield sells a basic supplemental plan for $42.20 a month for the region from Bakersfield north and for $52.25 in the southern part of the state. The top-of-the-line version, which includes drug coverage, goes for $83.50 in the north and $123.40 in the south.

‘Costs More’

In Southern California, said Blue Shield spokesman Mike Odom, “it costs more to stay in a hospital and more for outpatient care. You want to base the rate of health coverage more closely on the use of the benefit by the age and where they live.”

Blue Cross of California takes a different approach, charging a single rate from Eureka to Escondido.

“We know the cost of a day in the hospital is different in San Diego and San Jose,” said Mark Weinberg, senior vice president for individual and small group services. “But we don’t want to do it on senior plans. We want simplicity. We want to say to customers: ‘Here’s the rate, period.’

“What we do is look at the flow of costs statewide and make sure the premiums cover the costs,” Weinberg said. Blue Cross, with 200,000 members in California, has policies from a basic $20-a-month plan to a package for $120 offering prescription drug coverage.

The system’s spending for physicians rose between 15% and 20% last year, Weinberg noted, because “people are going to the doctor more often and having more service rendered.” But having boosted rates in 1987, Blue Cross has not had to raise them since.

Group Plan

The AARP and the Blue Cross and Blue Shield plans sell to individuals, who search out their own physicians. By contrast, Kaiser Permanente is a group plan whose members go to doctors who treat mostly Kaiser patients.

A prepaid group practice, Kaiser has had considerable success in keeping costs under control. The hospitalization rate of Kaiser enrollees has been flat for 10 years and the use of outpatient doctors’ services has grown very slightly.

There are separate plans for Northern and Southern California, with the dividing line at Bakersfield. Each had negligible price increases this year. The southern plan costs $40.28 a month, the northern version $38.23.