More Recipients of Medicare to Be Cut From HMOs

The promise of managed care for Medicare recipients--that older Americans could receive low-cost comprehensive health coverage--was dealt its hardest blow yet when the federal government reported Monday that 933,000 older Americans will be dumped from HMO plans next year.

The figure is about 30% higher than originally had estimated by the industry, and will bring the number of seniors dumped from HMO rolls in just three years to 1.7 million. It also raises serious questions about the survival of the Medicare HMO, an innovation that just a few years ago was heralded as a way to offer more benefits while lowering costs.

“This is a real blow to the whole credibility of the Medicare HMO program,” said John Rother, director of public policy for the AARP (formerly the American Assn. of Retired Persons).

Health plans, which spent millions of dollars in the last decade wooing seniors with rich benefits and in some cases free supplemental coverage, now say they are dropping out of Medicare because the federal government is not paying enough to cover the cost of providing care.

Most have severely pulled back services in all but the most lucrative areas, or dropped the program altogether.

In California, 57,000 beneficiaries will be forced to either choose a new HMO or lose managed-care coverage altogether, and most of them will no longer be able to obtain prescription drug coverage. Hardest hit is Texas, where 185,000 seniors will lose coverage, more than half of the HMO members in that state.

In the late 1990s, government planners and members of Congress hoped HMOs could provide an effective tool to control Medicare costs. They had predicted that 25% of beneficiaries would eventually enroll in Medicare HMOs, a figure that now looks like an impossible dream.

“In the beginning, there was great promise,” said Clare Smith, executive director of California Health Advocates, a nonprofit advocacy organization for Medicare recipients. “Then, just disappointment.”

Health plans and consumer advocates alike place much of the blame for the system’s crisis on Congress and the Clinton administration: Congress for appropriating too little money, and the administration for developing a tangled method for distributing it that pays too little to cover the cost of care in some parts of the country, while fueling profits in others.

The Clinton administration has always denied paying too little, saying that the health plans were making significant profits, enrolling people who were healthier than average as a way to conserve funds.

Any discussion of increasing payments or rethinking the distribution system, meanwhile, has bogged down in partisan bickering.

Karen Ignani, president of the American Assn. of Health Plans, called on Congress and the Clinton administration to commit more money to the faltering program, which health plan lobbyists say needs $15 billion more per year.

In late June, the trade association representing HMOS estimated that its members would cancel coverage for 700,000 people enrolled in Medicare HMOs, complaining that payments by the federal government were inadequate.

“The fact that almost 1 million Medicare beneficiaries will be affected . . . reinforces the magnitude of this crisis and the need for action now,” Ignani said. “It’s time for Congress and the administration to put aside partisan politics.”

For its part, the Clinton administration seized upon the numbers to push a pet plan of its own: prescription drug coverage for the nation’s 39 million Medicare recipients. That, a top official said, would ensure that seniors are spared one of the most devastating impacts of losing their HMO--the lack of coverage under traditional Medicare for prescription drugs.

“The volatility of the Medicare managed-care market underscores the need for Congress to enact the president’s legislative proposal to modernize and strengthen Medicare,” said Nancy-Ann DeParle, head of the Health Care Financing Administration, which runs Medicare. “That way, all 39 million beneficiaries would have access to a voluntary, affordable prescription drug benefit.”

The sense of betrayal--and terror of high payments--for seniors who are dropped is palpable, said Smith, whose organization advises seniors on health-care decisions.

Most seniors who signed up for Medicare HMOs cannot afford the high premiums and prescription drug costs associated with the traditional plan, which was created in 1965 and reflects what health plans looked like at that time--paying for hospitalizations only and requiring a 20% co-payment on all medical fees.

Over the years, a crazy-quilt system of Medicare supplement plans has sprung up, but they are expensive, costing up to $3,000 per year. Some seniors cannot even afford the most basic one, which covers visits to the doctor.

“It’s total chaos here,” said Wen Daniels, who advises seniors in Los Angeles and Orange counties for California Health Advocates.

One client, Antonio Martinez of Long Beach, is a transplant recipient who relies on his Cigna HMO to pay for $725 worth of prescription drugs each month, along with the doctor visits necessary to make sure his body does not reject the new kidney.

Martinez, a 39-year-old carpenter who qualifies for Medicare because of his disability, will be able to choose another HMO in the area next year after Cigna exits the market. But he finds the process unnerving and confusing.

“I have no idea what’s going to happen to me,” he said in Spanish. “I’m most worried about the medicine for the transplant--the medicine that keeps me from having a reaction.”

Daniels reminded seniors that the cuts won’t go into effect until next January, and that they do have the right to either switch to another plan or demand coverage from a company that provides Medicare supplement insurance.

Part of the problem, said several industry executives, is that managed-care plans competed so fiercely for members in the late 1980s and early ‘90s that most offered zero premiums and free pharmaceutical benefits. “We no longer can sustain the business with these premium wars,” said Katherine Feeny, senior vice president for Secure Horizons, which is owned by Santa Ana-based Pacificare and is the nation’s largest Medicare HMO.

If Medicare managed care is able to stay alive, Daniels and other experts said, it likely will cost consumers more, offer fewer benefits and require a huge infusion of cash from the federal government.

But just what form the program will take is difficult to say. Most of the remaining plans have decided to implement premiums and co-payments and cut back coverage for drugs. But that makes their plans look more like the expensive Medicare supplement programs, which, despite their high cost, offer members more freedom than HMOs, including the right to see any doctor they wish and go to any hospital.

Both Pacificare and Blue Shield, which implemented such payments last year, lost members as a result. Blue Shield, for example, charged seniors in several Northern California counties $75 per month in the form of a premium last year. The money was necessary, the nonprofit HMO said, to combat high medical costs in the Bay Area and Sacramento. But with competitors charging much less, all but the sickest members switched to other plans, and Blue Shield lost two-thirds of its membership in the region.

One intriguing but perhaps long-shot possibility is that there will be an increase in a different sort of managed-care plan, known as a preferred provider organization. These plans cost less than traditional indemnity plans but offer wider networks of doctors and hospitals than most HMOs, and one has been approved for operation next year.

“Managed Medicare in some form or fashion will be here,” said Feeny at Secure Horizons. The staggering number of dropouts over the last three years, she said, is a “call to action,” not only for Congress but for doctors, health plans, consumers and pharmaceutical companies, all of whom must pay a little more or charge a little less if the system is to survive.

“We need to have everyone pitch in to help us make it work,” Feeny said.