HMOs Like GOP’s Medicare Reform Proposals : Health care: California firms are well-positioned to benefit from a move to put more seniors in managed plans, analysts say.
If PacifiCare Health Systems executives could have drafted federal legislation to their liking, they could not have done much better than the Republican proposals to reform Medicare.
Republican reform plans would move millions more Medicare recipients from traditional fee-for-service health plans into managed health care, such as PacifiCare’s Secure Horizons, the nation’s largest Medicare health maintenance organization. By one estimate, the GOP plans would push as many as half of the 37 million Medicare recipients into HMOs or other tightly controlled health networks by 2002, up from 10% today.
Investment analysts and industry officials say California-based HMOs are well-positioned to prosper from such Medicare reform. The state is home to some of the nation’s largest and most experienced Medicare HMOs, including that of industry pioneer FHP International.
Years of intense marketing efforts by these health plans have helped push 33% of California Medicare recipients into cost-conscious HMOs, more than three times the national average. In San Diego, about 50% of all Medicare beneficiaries have opted for HMOs.
“No one is better positioned than Secure Horizons to take advantage of the opportunities,” boasts Craig Schub, PacifiCare’s senior vice president of government programs.
Russell W. Johnson, an analyst with Piper Jaffray in Minnesota, said the reform proposals would give the biggest boost to HMOs with lots of experience in Medicare. Besides PacifiCare, FHP and Foundation Health in California, other managed-care firms to benefit would be Humana Inc., United HealthCare and U.S. Healthcare, analysts said.
Last year alone, enrollment in Medicare HMOs grew by about 27%, to 2.8 million nationwide. PacifiCare, with 481,000 Medicare enrollees in California, Oregon, Washington, Texas and Oklahoma, says enrollment in its Secure Horizons program has been growing roughly 25% annually for five years.
Many seniors are switching from fee-for-service Medicare to HMOs, attracted by reduced out-of-pocket costs, low-cost prescription drug benefits, preventive health care and less paperwork. By joining HMOs, Medicare patients give up the right to see any doctor they want; they instead must choose a physician from the HMO’s network.
The Republican proposals would encourage more Medicare beneficiaries to choose HMOs by making it more costly for them to remain in fee-for-service programs. The GOP goal is to save $270 billion over seven years by slowing the growth of Medicare spending from 10% a year currently to 6.5%.
Patrick Burns, a spokesman for the Washington-based National Council of Senior Citizens, said statements by Republican leaders and other supporters that reform will expand access to health care for seniors are erroneous.
“Forcing seniors into HMOs doesn’t expand choices, it contracts them,” Burns said “ . . . I think the Republicans will try to make it financially impossible for large numbers of low-income seniors to stay in fee-for-service, because their out-of-pocket costs and deductibles will rise to a point where they can’t afford it.”
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While HMOs provide attractive services for many seniors, Burns said, these plans “are very imperfect for seniors with chronic or critical health problems. Seniors don’t need a doctor of the day, they need continuity of care. And HMOs do a lousy job of providing continuity of care.”
HMOs, on the other hand, are “absolutely thrilled” by the GOP proposals, which got a big boost this week when the influential American Medical Assn. announced it would endorse a House Republican plan.
“I think the industry will be hard-pressed not to embrace the program,” one HMO executive said. “It pushes lots of bodies [into HMOs] with large price tags on their heads. And the Republican leadership threw the industry some major bones by brushing off some consumer protections” contained in amendments proposed by Democrats.
One amendment proposed by Rep. Pete Stark (D-Hayward) would have given consumers expanded rights to drop out of HMOs and protections against higher rates.
One provision of the Medicare reforms that is strongly favored by the HMO industry is the so-called 50-50 rule, which prohibits HMOs from selling Medicare plans in new markets until they have first established programs for private commercial members. That restriction is likely to be lifted under the GOP plan, industry officials said.
Those restrictions have slowed the expansion of Medicare HMOs because of the costs and delays involved by the requirement to first establish commercial operations. Also, Medicare programs tend to generate higher profits for HMOs than commercial plans.
Elimination of the 50-50 rule “would be extremely beneficial to PacifiCare,” Schub said. It would allow PacifiCare to market its Medicare programs in cities where competition for commercial members is relatively stiff but where there is much less competition for Medicare patients.
One area of concern for HMOs in the House GOP proposals are changes in antitrust laws that would enable doctors and hospitals to form their own health plans. That would let them sell their services directly to employers, bypassing the insurance industry.
