Medicare Changes Would Hit State Hard

A House committee late Thursday approved a major change in Medicare that would slash projected payments to Southern California health maintenance organizations for their elderly enrollees by more than $400 million a year.

The new payment formula has been discussed before, but its size was disclosed for the first time in a committee staff study obtained by The Times.

The proposal, which helps implement the balanced-budget plan agreed to by the Clinton administration and the GOP-led Congress, would shift large amounts of money away from urban HMOs to rural ones.

The reductions in projected spending could force California HMOs to make drastic changes in current policies under which they provide free prescription drugs, eyeglasses and physical exams. Such benefits are not covered in the regular Medicare program. Supporters will try on the House floor to restore some of the money but they face a difficult fight.

If the proposal becomes law, the federal government in 2002 would pay $687 a month for each Medicare beneficiary enrolled in an HMO in Los Angeles County, compared with projected spending of $752 a month under current law, according to the staff study.

Orange County outlays would be trimmed to $657 a month, compared with projected spending of $707 under current law. Spending in San Diego County would be $589 instead of $650.

The developing Medicare legislation would impose a “double hit,” on urban areas, said Rep. Henry A. Waxman (D-Los Angeles), a committee member.

Medicare’s payments to HMOs already are being trimmed as part of the general plan to save $115 billion in Medicare outlays over the next five years. These savings from the massive health program are a key part of the balanced-budget accord.

In addition to the cuts that all HMOs will face, the proposed legislation seeks to narrow the gap between the reimbursements offered to high-cost urban areas and those provided rural counties.

The government currently pays 95% of the average cost of caring for a person in traditional Medicare--which, unlike HMOs, allows unrestricted choice of doctors and hospitals--in the county in which an HMO recipient resides.

The House Commerce Committee also passed amendments that would base the reimbursement formula on a 30-70 system--70% of the payment would be linked to the county cost system and 30% would be dependent on the national average of such costs.

HMOs in California, Florida and New York, where health care costs are particularly high, would face some of the deepest cuts under the proposal.

The impact would be especially heavy in Southern California because HMO penetration rates among Medicare recipients are high. Medicare, which serves people over 65 and disabled people of all ages, has about 12% of its beneficiaries nationwide enrolled in HMOs. But in Los Angeles, Orange and San Diego counties, HMO participation exceeds 40%.

On another front in the balanced-budget effort, the House Ways and Means Committee also was working into the night Thursday, hoping to finish work on legislation providing $85 billion in tax cuts over the next five years--another key element of the budget agreement.

The debate’s starting point was a proposal unveiled Monday by Ways and Means Chairman Bill Archer (R-Texas) that provided $500-per-child tax credits for families, a gradual reduction in estate taxes, capital gains and corporate tax cuts, expanded individual retirement accounts and an array of education-related tax breaks. Archer announced that he was revising his plan in response to complaints from fellow Republicans--and from the influential small-business lobby--that the initial proposal failed to provide enough estate tax relief.

The new plan would increase the amount of inheritance excluded from estate taxes from $600,000 now to $1 million in 2007--seven years sooner than Archer first proposed.

Archer also dropped a controversial plan to abolish the alternative minimum tax for corporations, a tax law designed to ensure that all corporations pay some taxes to the federal government. Fellow Republicans complained that the proposal would make the GOP vulnerable to Democratic charges that the bill is excessively friendly to big corporations.

Democrats on the committee planned to introduce an alternative tax-cut plan. They want more money for education tax breaks and more narrowly focused capital gains and estate tax cuts.