3 Firms to Drop Some Medicare Coverage

From Bloomberg News

Foundation Health Systems Inc., Aetna Inc., Cigna Corp. and a number of other health maintenance organizations on Thursday said they'll drop Medicare coverage in certain California counties and elsewhere where they're having trouble making money.

The companies' announcements follow a similar one Wednesday by PacifiCare Health Systems, the No. 1 operator of Medicare HMOs. Santa Ana-based PacifiCare also said its HMO members may be charged higher premiums and co-payments, while others may have their benefits reduced.

Thursday was the deadline for U.S. health insurers to inform the government of changes in their Medicare coverage effective Jan. 1. About 250,000 consumers nationwide are expected to be affected by the market exits of insurers.

The 1997 federal balanced-budget law reined in growth in Medicare reimbursements to shore up the finances of the government health program for the elderly. Now, health insurers are saying that payment increases for the program aren't keeping up with medical costs, leading them to withdraw from some markets and often change benefits in remaining markets.

"Forget about enrollment; we don't worry about growth anymore, it's margin," said William McKeever, a PaineWebber health-care analyst. "It also sends a political signal to Washington to address this issue."

The American Assn. of Health Plans, a health insurance industry group, estimated that at least 250,000 Medicare recipients will be affected by the Medicare HMO withdrawals planned for next year. Analysts estimated that at least 200,000 senior citizens will be affected.

In New York Stock Exchange trading, Foundation shares rose 50 cents to close at $15.50; Aetna fell 81 cents to close at $88.63; and Cigna fell 13 cents to close at $88.88. On Nasdaq, PacifiCare fell $1.81 to close at $70.13.

Woodland Hills-based Foundation plans to withdraw its Medicare coverage in 32 counties in five states. In California, Foundation is leaving Mariposa and Merced counties, affecting about 190 people. In addition, the company is withdrawing Medicare coverage in certain counties in Colorado, Connecticut, New Jersey and New York. In all, the withdrawals will affect about 5.6% of the company's 283,000 Medicare HMO members.

Aetna, the No. 1 U.S. health insurer, plans to leave Ventura County in California and four counties in Ohio, where it operates HMOs serving customers on Medicare. Almost 1,700 members will be affected, less than 1% of Aetna's 546,000 Medicare HMO customers.

Philadelphia-based Cigna plans to leave certain counties in 12 states, including rural San Diego County. The exits will affect about 39,000 customers, about 20% of Cigna's Medicare HMO enrollment.

More than 6 million Medicare recipients have signed up with HMOs as an alternative to the program's traditional fee-for-service option, which doesn't offer coverage for prescription drugs or certain other benefits.

Medicare HMO payments are adjusted in each county to account for regional differences in health costs, causing some markets to be more profitable than others.

This year, more than 400,000 Medicare HMO enrollees were forced to find new coverage after dozens of plans scaled back business. The Clinton administration, however, has said that HMO withdrawals from Medicare markets this year had more to do with competition than cuts in the growth of program reimbursements.

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