The Graying of HMOs : Medicare Recipients Are Wooed as a Source of Revenue
Led by Southern California’s big players, health maintenance organizations are spending millions of dollars to sign up Medicare recipients--and thereby assure themselves a steady flow of revenue, whatever the results of the tumult over health care reform.
Medicare is not likely to change much amid the reform efforts. By contrast, the health plans HMOs offer through employers are approaching the saturation point in the Southland, even before the first reform bill has been passed.
That’s why Fountain Valley-based FHP and its Cypress-based competitor, PacifiCare Health Systems Inc., are spending heavily to woo seniors--through television, radio and print advertisements, billboards, telemarketing, direct mail and in-person visits from salespeople.
Executives won’t say how much they’re spending on promoting their plans. But some analysts suggest that as much as 12% of the Medicare premiums HMOs receive from the federal government go to marketing.
“It’s no accident that FHP and PacifiCare are so large,” said Kimberly A. Purvis, a health care analyst with the brokerage Donaldson, Lufkin & Jenrette in New York. “They have devoted hefty resources to the product.”
FHP and PacifiCare, which offers the Secure Horizons senior plan, are far and away the leaders in the field.
With 316,000 members in its Senior Plan, FHP boasts the largest Medicare membership in the nation. PacifiCare, with 311,000 members, is No. 2. In California, FHP and PacifiCare together account for almost 60% of the 760,000 Medicare recipients enrolled in the state’s HMOs.
Though the big marketing budgets cut into profits, the money is well spent, HMO officials say. “If you aren’t in the Medicare business, you aren’t in the medical business,” said FHP administrator Marguerite O’Toole.
Such programs are attractive to managed care companies because for each Medicare member they sign up, the firms receive a set monthly payment from the Health Care Finance Administration, the federal agency that oversees Medicare.
Even with FHP and PacifiCare’s big numbers, the elderly represent a virtually untapped resource for managed care companies. HCFA figures show that only 10% of Medicare recipients nationwide belong to HMOs.
To sign up seniors, managed care companies have sought to demonstrate the advantages of their individual programs--no easy feat, given that all plans operate on set budgets and are federally mandated to offer certain services.
HMO officials admit as much.
“Benefit for benefit, there really is very little difference between the plans,” said Tracy Tellefson, a sales representative for Secure Horizons.
Proponents of managed care say HMO plans are advantageous to older patients--and the federal government.
For their part, Medicare recipients can go to a single office for most of their health care needs without having to pay deductibles or a percentage of treatment costs, compared to the 20% co-payments they face in conventional insurance plans.
The government, meanwhile, spends an average of $400 a month for each Medicare patient enrolled in an HMO, compared to the $421 cost under conventional plans.
But with the heavy emphasis on marketing, advocates for the elderly and other critics have questioned whether the HMOs are tempted to misrepresent themselves.
FHP was sued in 1991 by three elderly San Fernando Valley women who alleged that sales representatives did not fully explain the benefits provided by the company or the limits of the HMO plan’s coverage. That same year, two investors filed a lawsuit against FHP alleging that the company padded its Medicare enrollment figures.
The investors’ suit was settled out of court, and a settlement of the women’s lawsuit is being negotiated, said Kurt Eggert, the plaintiffs’ lawyer.
The two cases spurred the federal government to investigate FHP. The probe found no evidence of wrongdoing, but questions about the potential for abuse prompted the Group Health Assn. of America--the Washington-based organization that oversees the nation’s 335 HMOs--to issue strict guidelines for advertising and sales pitches.
Nor is FHP the only company whose strategies have been questioned.
In a report last year, the Medicare Advocacy Project said that many elderly people are “extremely vulnerable to misleading marketing by HMOs.” The report by the Los Angeles-based group suggested that some HMOs might cut care to increase profits. It said the federal and state governments should play a stronger role in protecting Medicare recipients.
“Given the competitive nature of the HMO industry . . . and the rapid expansion of Medicare HMOs to new areas, the potential for future marketing abuse continues to exist,” the report said.
Geraldine Dallek, executive director of the project, said she still has some concerns. But larger HMOs such as FHP and PacifiCare have matured to the point that there are few, if any, complaints against them now, she added.
As such issues are resolved, health care analysts say, HMOs can concentrate on expanding their business and increasing their profits. One popular strategy of late is to add members through mergers and acquisitions.
Hoping to expand its Medicare membership in Northern California and Colorado, FHP tried--unsuccessfully--to purchase TakeCare Inc., a Concord, Calif.-based HMO that has a strong presence in each of those areas. PacifiCare also has reportedly made an offer for TakeCare.
Expanding into the Medicare business can be an expensive proposition for HMOs.
The needs of the elderly are much different than those of younger patients, said Doug Sherlock, a Philadelphia health care analyst who publishes Pulse, an industry newsletter.
Refitting clinics to accommodate wheelchairs, contracting with home health care agencies and hiring doctors with geriatric experience can make such ventures money losers, he said, at least in the short term. But once a company passes the 50,000-member mark, he said, the profits begin to show.
Nevertheless, the number of players is growing.
In California, Kaiser Permanente, Health Net, Aetna, Care America, QualMed and Foundation Health are among the managed care companies that have started Medicare HMO plans in the past few years. So far, most have enrolled only a few thousand members.
Mike Lombardi, administrator for Secure Horizons, said the new competitors face a daunting task catching up to FHP and PacifiCare, given those companies’ head start in marketing.
Secure Horizons, he said, “does a nice job” of identifying potential customers and putting on social events that draw crowds of retirees, some of whom are sure to enroll. It has also developed a network of “ambassadors”--members who volunteer to help enroll other elderly people.
On Valentine’s Day, PacifiCare sponsored a “sweetheart breakfast” at St. Joseph Hospital in Orange for more than 30 attendees. While a saleswoman gave a presentation and answered questions, Clarence Leonardo, 70, stood at the door and welcomed guests.
A retired controller for a local concrete firm, Leonardo has been a Secure Horizons member for four years. He offers his services to the company for free, he said. “It gets me out of the house,” Leonardo said, adding that he believes in the plan.
At least four people signed up on the spot.
California Stronghold
In 1982, Medicare recipients were given the option of switching from fee-for-service providers to health maintenance organizations. The latter choice is becoming increasingly popular, especially in California, where HMOs have established a stronghold. Medicare recipients’ membership in the top five HMOs:
Southern California:
PacifiCare: 226,882
FHP: 204,444
Kaiser Permanente: 127,077
Aetna: 48,556
CareAmerica: 17,239
United States:
FHP: 316,352
PacifiCare: 311,300
Humana: 274,255
Kaiser Permanente: 219,104
United Health Care: 89,216
Western Membership
The Health Care Finance Administration’s western region--California, Arizona, Nevada and Hawaii--has the nation’s highest concentration of Medicare HMO members, and 80% of them are in California. Since 1991, the number opting for HMO membership in the region has increased 91%.
1994: 927,000
Source: Health Care Finance Administration; Researched by JANICE L. JONES / Los Angeles Times
