Rescuing ‘Medicare Refugees’

Since the only HMO serving Medicare recipients in Merced County recently announced it was pulling out of the area, stranding 11,000 seniors, the phones at the local Area Agency on Aging office have been ringing off the hook.

For many older people already coping with ill health, it is another tough blow. Where will they get their health care next year?

The angry, sometimes tearful, callers’ chief complaint is that they will lose their prescription drug coverage, said Kathleen Reyes, a senior service worker at the agency’s health insurance counseling and advocacy program. Medicare HMOs typically cover most of the cost of prescription drugs; the traditional Medicare program pays for drugs used only while the patient is hospitalized.

The scene in Merced is being replayed in many parts of the country as a rolling wave of tension hits the Medicare population these days. Nationally, some 933,000 Medicare beneficiaries will lose their HMO coverage starting Jan. 1 as private health plans quit Medicare in droves, complaining that they can’t make enough money. Though most of those nearly 1 million people will be able to switch to other HMOs in their areas, about 150,000 people have no other Medicare health plan available in their counties.

Besides Merced County, other U.S. communities that will be without Medicare HMOs include Sarasota, Fla.; Santa Fe, N.M.; El Paso, Texas; and Walla Walla, Wash. To Medicare recipients in these and other areas, the federal government’s name for its HMO program, “Medicare-Plus choice” must seem like a cruel mockery.

(In Los Angeles, Orange and other Southern California counties, Medicare recipients still have a choice among two or more Medicare HMOs.)

Benefits Can Depend Largely on Geography

To better understand why HMOs are abandoning the Medicare program, you need to understand the role that geography plays. Government payments to HMOs are based on the historic cost of providing medical care to Medicare beneficiaries in a particular county. In urban areas, which may have a higher cost of living, an abundance of physician specialists and costly teaching hospitals, government payments are usually sufficient for HMOs to make a good profit and provide some extra services. In more rural areas, however, federal payments to HMOs are significantly smaller, and patients are fewer and farther between.

“It’s absolutely a question of geography. If you are [an HMO] in Miami, you are paid more than enough, but in parts of Montana and New Mexico, you just can’t make it work,” said Steve McDermott, chief executive of Hill Physicians Medical Group, based in San Ramon, which provides medical services for 400,000 patients, including 30,000 on Medicare, and has 2,500 doctors under contract.

After 15 years of rapid growth--and often hefty profits--the HMOs hit a wall in 1997 when Congress approved legislation that would trim government payments to Medicare health plans. The HMO managers saw their profits eroded, or erased completely in some markets, so they decided to quit less-profitable areas. The biggest casualties were rural, less-populated areas where payment rates were low, as in Merced County in Central California. Nationally, Medicare HMOs dropped more than 700,000 people from their membership rolls in 1998 and 1999, and this year that figure exploded by nearly a million more.

Could this be the beginning of the end of the HMO dream for older Americans, that health plans could deliver lower-cost, coordinated care to seniors? It’s probably too soon to say. HMOs have had a strong appeal to many Medicare recipients. In competitive markets like Los Angeles, these health plans cover the cost of co-payments and deductibles a patient pays under regular Medicare. They also provide vital extras, such as prescription drugs and eyeglasses, which aren’t included in traditional Medicare.

In California, where Medicare HMOs were pioneered, about 40% of those on Medicare have picked these private health plans to provide their medical care. Nationwide, however, just 16% of the 1 million Medicare beneficiaries--those over 65 and the disabled of all ages--belong to HMOs.

Californians, therefore, don’t have the luxury of saying that Medicare HMOs might be a failed experiment. Because of sheer numbers and dependence, their interest probably lies in making the system workable.

Yet nobody is quite sure how to do that.

‘We Need More Stability’

“We need more stability in the program,” said John Rother, director of public policy at the AARP (formerly the American Assn. of Retired Persons). “Now we have whole states without any Medicare HMOs.”

Rother favors an alternative payment method in which government payments to HMOs would be based on competitive bidding rather than the current rigid payment system.

This kind of change would be an acknowledgment that Medicare HMOs should be given more taxpayer dollars, something the industry is lobbying hard for in Washington these days. “It’s up to the government; the question is whether there will be a change in philosophy,” said Kenneth Abramowitz, senior health analyst with Sanford F. Bernstein Co., a New York-based investment research firm.

But other experts are skeptical of the industry’s claims that the government isn’t paying health plans enough to make the Medicare HMO program viable. “There is little evidence, except from the industry itself, to suggest that these HMOs are being underpaid,” said Marilyn Moon, a senior research fellow at the Urban Institute.

The next president, Vice President Al Gore or Texas Gov. George W. Bush, will have to work closely with Congress to figure out how to keep Medicare HMOs in business. Otherwise, millions more Americans will become Medicare refugees.

Meanwhile, consumers must brace for changes. Even those HMOs that aren’t leaving are sure to charge more next year, boosting premiums for coverage and raising co-payments for prescriptions.

The best words of advice: “Don’t panic.” California has a statewide network of counseling agencies known as Health Insurance Counseling and Advocacy programs. Call the central number, (800) 434-0222, for a local contact office, where a trained counselor is available. The agencies also conduct community seminars and workshops on Medicare and other health insurance topics.

The federal government also provides information through its toll-free phone line: (800) MEDICARE ([800] 633-4227). For those with a phone equipped with a hearing device, the number is (877) 486-2048. Information is also available at the government’s Web site, https://www.medicare.gov.

AARP has a free booklet, “What to Do if Your Medicare Managed Care Plan Leaves.” To order it, write to AARP Fulfillment Department, 601 E St. NW, Washington, DC 20049.

HMOs must notify Medicare recipients by Oct. 2 if they are leaving a county and must supply a list of other HMOs still operating in the community. Full coverage will continue through Dec. 31.

The other Medicare HMOs are required to accept new enrollees during a special election period from October through November.

A person who decides not to join another HMO or who finds that none is available, returns to the original Medicare program, which allows complete free choice among any participating doctor or hospital. No longer in an HMO, such a person might want to purchase a Medi-gap private insurance policy. Depending on the policy, Medi-gap will pay for things such as co-payments and deductibles as well as items like drugs that aren’t covered by Medicare.

A “Guide to Health Insurance for People with Medicare” is available from (800) MEDICARE ([800] 633-4227) or on the Web site at https://www.medicare.gov.

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Bob Rosenblatt covers health care for The Times in Washington, D.C. He welcomes your questions and suggestions about the changing world of health care. You can contact him by writing: Bob Rosenblatt, Health section, Los Angeles Times, 202 W. 1st St., Los Angeles, CA 90012, or by e-mail at bob.rosenblatt@latimes.com. Health Dollars & Sense runs the second Monday of each month.