Medicare and Droppage by HMOs

(4/12/07)-There are about eight million Americans enrolled in Medicare Advantage plans run by private companies out of the total of 43 million who are eligible for Medicare. Representative Pete Stark (Dem.-Calif.) held a hearing last month investigating whether Medicare Advantage providers are overpaid after the Medicare Payments Advisory Commission (MedPAC) reported that the government spends 12% more to insure beneficiaries in the Advantage program compared to the regular Medicare program.

MedPAC (to find out more about MedPAC see our Helpful Web Sites article) is a nonpartisan advisory commission that advises Medicare about cost items in the program.

In spite of this finding the CMS announced that preliminary payments to companies that run Medicare Advantage programs would rise 3.5% for 2008. This represents a slight decrease from last year's 3.9% increase.

The 2008 payment rate mainly serves as a benchmark against which companies will offer their services, rather than a final payment amount. Companies typically offer to provide Medicare benefits for less than the benchmark because they get to keep a portion of the cost difference. The remaining savings go back to the federal government.

(1/24/07)- Medicare Advantage insurance companies received a substantial subsidy increase under the new prescription drug law written in 2003. With the Democrats now in control of Congress, many are questioning the wisdom of that increase. Please keep in mind also that President Bush has emphasized Medicare Advantage as the key to his Medicare revamping strategy.

As of the most recent count, there were 7.6 million people enrolled in Medicare Advantage programs as of December 2006. That compares with about 6.1 million who were enrolled in the plans as of December 2005. Incidentally, there are about 44 million enrolled Medicare beneficiaries as of the end of last year.

A November 2006 report that was written by the Commonwealth Fund, a private nonprofit foundation that supports health research, concluded that, on average, the government is spending about $922 more each year for every Medicare beneficiary who is in the Advantage program, than for the beneficiaries in the regular Medicare program. That comes to a total cost of about $5.2 billion.

The main author of that report was Former House Democratic aide Brian Briles. MedPac, the independent panel that advises Congress on Medicare issues concluded that the government is paying substantially more for Medicare Advantage beneficiaries than it is for regular Medicare beneficiaries.

"There are precious few areas where we can save money. Medicare Advantage is a prime target to pick up a few dollars," said Rep. Pete Stark (Dem.-CA) who heads the House Ways and Means panel's health subcommittee. The House Ways and Means Committee, and the Senate Finance Committee are the respective panels from which legislation pertinent to Medicare arises from.

(11/18/05)- As of October 2005 there were 458 Medicare Advantage policies available nationwide compared with just 300 last December, according to Mathematica Policy Research, a research firm. Under traditional Medicare, beneficiaries starting in 2006 will pay a $110 annual deductible and 20% of the bill for each doctor visit. For a hospital stay there is a $952 deductible starting in January 2006 before coverage begins to pay for a beneficiary's stay. Buying one of the new prescription drug plans costs an average of about $32 per month.

With the government subsidizing the HMOs it may pay for many of the Medicare beneficiaries to join one of the new Medicare Advantage plans in your area. Many of the health-insurance companies are adding extras like vision benefits and gym memberships in an effort to sigh up new members. Included in this group are Humana Inc., PacifiCare Health Systems, UnitedHealth Group Inc. and Aetna Inc.

Please keep in mind that the HMOs are notorious for having dropped out of the Medicare program for beneficiaries in certain areas because they feel they are not profitable enough for them to continue being part of the system.

(3/25/04)- President Bush's administration will increase Medicare payments to HMOs and other private health plans by a record 10.6 % in 2004 in an effort to persuade them to enter the Medicare market or enhance the benefits for the elderly who are already members of the HMO. We think Representative Pete Stark, the senior Democrat on the House Ways and Means Subcommittee on health said it best when he said: "Medicare HMOs were already substantially overpaid relative to what it would cost to serve the same beneficiaries in Medicare, even before this significant rate increase."

It has now also come to light that federal payments to private health organizations could far exceed what Congress assumed when it passed the new prescription drug act recently. Richard S. Foster, the chief actuary of Medicare provided Congress with documents showing that the new law will increase Medicare payments to private health plans by a total of $46 billion over the next 10 years, not the $14 billion assumed by Congress when the law was passed. Mr. Foster stated that the officials of the Bush administration knew about this estimate, and held back the information from Congress.

The extra payments were provided for in the recently enacted Medicare prescription drug payment law. The new law not only created a new prescription drug benefit but also gave private health plans a larger role in the program. A complex new formula was devised in the law to determine the extent of the increase. The actuarial estimates also show that enrollment in the traditional government run Medicare program will decline from 2006 to 2009. Payments to health care providers will also decline in this period of time.

The documents that have now come out in the open show that payments to doctors will decline each year from 2006 to 2012. We still have fresh in our minds the increase that was given to medical professionals when the formula called for a cut in their payments. We have no doubt that the same thing will happen in 2006 as did happen in 2003, when the payments were increased because of the loud outcry from the medical field.

Spending for in-patient hospital services and skilled nursing homes under the traditional government-run program will decline in 2006 and 2007. Just imagine that outcry that will be heard in connection with this cut.

The Bush administration hopes that the increase, which is five times as large as the typical annual increase in recent years, would reverse the exodus of private plans from the Medicare program. From 1999 to 2003, health plans dropped more than 2.4 million Medicare beneficiaries. About 4.6 million beneficiaries or 12% of the 41 million people enrolled in Medicare are now in private plans. Mr. Foster provided Congress with documents that estimated this number would grow to 32% by 2009.

The government said that it expects managed care membership to triple to about14.7 million members in the next three years. If it does, and we would be very surprised to see this happen, managed care companies would cover about one in three elderly people by 2007. Medicare officials have announced that health care companies have filed applications with the government to set up new health maintenance organizations or preferred provider organizations in 18 communities. This compares with the 411 local plans that dropped their 2.4 million Medicare members in the last few years.

A study by Mathematica Policy Research Inc., a health policy research firm, says that the Medicare law gives the HMOs 7 percent more, on average, than the per capita spending for traditional Medicare.

The Bush administration hopes to increase the number of Medicare beneficiaries who join HMOs, so the advertising campaign will now take place to entice senior citizens into these organizations. The private Medicare plans, known as Medicare advantage plans generally aren't as flexible as Medicare is about the choice of doctors and hospitals. Medicare Advantage plans are offered in most major cities, but many sparsely populated areas do not have them. As of this date about one-third of the counties in the U.S. do not have any Medicare Advantage plans.

Beneficiaries in traditional government-run Medicare can switch to a private plan any time, provided that there is a Medicare Advantage plan in the area where the beneficiary lives. Once 2006 rolls around this will not be so, since the Medicare beneficiary will have to stick with the plan that he/she has enrolled in for one year. To find out what is available in your area call 1-800-MEDICARE, the government's Medicare hotline.

Beneficiaries in Medicare Advantage will pay the same premium that regular Medicare beneficiaries pay, namely $66.60 a month this year. Beneficiaries in the private plans pay set co-payments of between $5 to $35 instead of the 20% of the bill that beneficiaries pay under regular Medicare. If dropped by a Medicare HMO a beneficiary can reenroll in regular Medicare, and the beneficiary is guaranteed coverage with no extra premiums under certain Medigap plans for 63 days. If the beneficiary leaves the plan on their own because of dissatisfaction with the plan, it may be a problem getting Medigap coverage.

The additional money will be paid to the HMO's and private plans starting in March of 2004. The Bush administration hopes to have 35% of eligible beneficiaries enrolled in such plans by 2007. Private plans will be able to use the additional money to enhance benefits, to reduce premiums or co-payments paid by the members, or to increase payments to doctors and hospitals. Based on past history the administration is going to be sorely disappointed in how the money is used by the HMOs. According to Rep. Stark, the money would have been better spent improving the prescription drug benefit plan established under the recently passed law.

The deadline has passed for health plans to submit details of changes in premiums and benefits to the government in connection with how they will use the increases that they will be receiving from Medicare. If Medicare officials approve the changes, they will take effect on March 1, 2004. Some health care companies announced that they would return to some of the markets that they previously had abandoned.

Aetna said that is would lower premiums or enhance benefits, including drug coverage for many Medicare recipients in New York, New Jersey, Pennsylvania and Connecticut. Empire Blue Cross said it would reduce its $140 premium to $22 in Nassau and $62 in Suffolk County. Health Net, one of the nation's largest managed-care companies, said it would lower co-payments and reduce or eliminate premiums for Medicare beneficiaries. Oxford Health Plans said that the annual limit on brand-name drug coverage under two of its plans, now $250 or $500 would rise to $1,200. Once again we repeat it remains to be seen what happens in a year or two if the health care companies claim that they are not making sufficient profits from their Medicare members, will they revert to what they did in the past by dropping coverage to these same members?

The Congressional Budget Office estimates that the extra payment to private plans will slightly exceed $500 million this year, $800 million next year, and will total about $14 billion by 2013. The 10.6% figure is an average figure so that some areas of the country will see the payments to the HMOs and private plans exceed even this percentage.

The mass exodus by HMOs from Medicare finally will slow to a trickle in 2004 as shown by the new data from the American Association of Health Plans. After the number of Medicare beneficiaries peaked at 6.3 million in 1999 (16%), the number of people in such plans dropped to 4.6 million in 2003 (11.5%). The HMOs will drop 39,000 Medicare beneficiaries in 2004, but still this means the droppage continues. HMOs that intended to withdraw coverage for Medicare beneficiaries for the year 2004 had to notify the government of such action by September 9th

HMOs dropped 407,000 Medicare beneficiaries in 1999; 327,000 in 2000; 933,000 in 2001; 536,000 in 2002 and 198,000 in 2003. Thus a total of 2.4 million beneficiaries were dropped by their HMOs from 1999 to 2003 even though Medicare payments to the HMOs were increased in those years. Under the prescription drug bill passed by the House, Medicare payments to the HMOs would be increased significantly to cover the prescription drug benefit, while the Senate version of the bill contained provisions for a smaller amount to be paid to the HMOs for such coverage.

Medicare beneficiaries who are dropped by their HMOs can either find a new HMO that will cover them or else have the option of rejoining the traditional Medicare coverage.

Frequently, even if the Medicare beneficiary can find a new HMO to enroll in, the beneficiary will find that there are cutbacks in benefits, including drug coverage, and increases in premiums and co-payments. The average monthly premium for a Medicare HMO rose to $32 in 2003, from $23 in 2001, according to Mathematica Policy Research. There are now about 4.6 million people still enrolled in HMO plans out of the total of 41 million Medicare beneficiaries.

The Bush administration has announced that it will institute a new option for Medicare beneficiaries on a trial basis in 23 states for a three-year period of time. Enrollment for the new option started in November 2002, and coverage began in January of 2003.

At least 150,000 people are expected to sign up for the 33 new private Medicare plans offered by preferred-provided organizations (PPOs). The new plans will be available in selected counties in Ala., Ca., Ill., Md., N.J., and N.Y. and several other states. The new option does not require legislative approval for it to become operational.

Administration officials said they expected the PPOs to afford prescription drug coverage to its members. The new PPO plans will allow Medicare beneficiaries to see doctors outside of the plan's network, unlike the more restrictive HMO model. There will be a slightly higher premium charged to the participants to be entitled to use this option. About 79 million people under 65 in the private insurance market use PPOs.

President Bush had requested a 6.5% increase for Medicare H.M.O.'s in the 2003 federal budget. The administration also wanted payments to Medicare H.M.O's to be raised to 100 % of spending for traditional fee-for-service Medicare, instead of the current 95 % in high-cost areas like New York, Florida and Southern California.

The Medicare Payment Advisory Commission, which advised Congress, supported the 100% figure when it was presented to Congress for approval. According to Glenn M. Hackbarth, chairman of the commission, the increased burden on Medicare H.M.O members was a result of "the backlash against managed care" as health plans were pressed to offer wider choices of doctors while the government squeezed their budgets.

Effective January 1, 2002, members of HMOs will no longer be able to switch in and out of them on a monthly basis. They will be able to make a change only once in the first 6 months of the year. The annual open enrollment period will begin in November, at which time all Medicare beneficiaries may make a new choice for the coming.

On January 1, 2002, 536,000 elderly people were dropped from their HMOs that will be curtailing their participation in the Medicare program. 933,600 were dropped in 2001, 327,000 were dropped in 2000 and 407,000 were dropped in 1999.

Congress has increased Medicare payments in each of the last 2 years to try to curtail and even reverse this exodus from the program by the HMOs. Congress is once again considering increasing payments to the HMOs even though investigators from the General Accounting Office found his has had "little effect on the number of beneficiaries with acess" to managed-care plans.

On top of the increases from the federal government the average premium for a Medicare HMO participant increased $16 in 2003. It is expected that both the premiums paid and the co-payment amounts paid by the average participant in the Medicare HMO plans will increase substantially in 2004.

Thomas A. Scully, administrator of the Centers for Medicare and Medicaid Services (CMS) announced that attempts would be made to double the enrollment of Medicare beneficiaries in HMOs within the next 4 years. We would like to ask Mr. Scully why he thinks history won't repeat itself in connection with the HMOs and droppage of Medicare beneficiaries as detailed in our article? We say to Mr. Scully to look at the past performance of the HMOs and see the hardship and anxiety that they have caused when they drop coverage for Medicare beneficiaries. In the last 4 years the HMOs have dropped coverage for over 2.4 million Medicare beneficiaries.

In his first public remarks after being confirmed on May 25th, Mr. Scully said he hoped to have 30 % of elderly patients in managed care by 2005. According to the latest figures available there are 4.6 million Medicare beneficiaries who are covered by the HMOs. In a speech given at the U.S. Chamber of Commerce he said that the Bush administration would reduce federal regulation of most health care providers. The number of Medicare beneficiaries covered by HMOs peaked at 6.4 million in 1998.

Instead of the past policy of neutrality in connection with making recommendations to the beneficiaries concerning joining the HMOs, the administration would take a proactive stance in favor of joining. Remember we had previously pointed out that Mr. Scully was a former lobbyist for investor-owned hospitals, and we think he is letting his bias interfere with history. Just look at the facts as stated below and see what you think on this matter.

Congress increased Medicare payments to the HMOs by $11 billion in 2000 to be spread over the following 5 years. When the House passed the original legislation in October 2000 they specifically stated that the money was to be used for only 4 purposes:

During the lame duck session of the 106th Congress the Benefits Improvement and Protection Act of 2000 was passed and signed by then President Bill Clinton. This act however included a provision that agreed to allow the HMOs to use the additional money to increase payments to doctors and hospitals. The additional financing was needed according to the health care industry because of the severe damage that has occurred as a result of the cutbacks imposed by the Balanced Budget Act of 1997. The then President Clinton had already announced his opposition to the amount of the increase saying that he felt it was excessive, but nevertheless he signed the new law. Medicare spent about $214 billion in fiscal year 2000, which ended September 2000.

January 18th, 2001 was the deadline for the HMOs to inform the government how they would use the first installment of the money that they would receive under the act. Most of the HMOs decided to use the money to increase payments to doctors and hospitals. Only 5 health plans indicated a desire to come back into the Medicare plan. Representative Pete Stark (Dem.-Cal.) stated " We were flimflammed by the HMOs.... We were induced to support this legislation after being told that the extra money would be used for the extra benefits or lower co-payments."

Of the 118 HMOs that pulled out of Medicare, for the year 2001,in 464 counties and 34 states only 4 of those HMOs announced that they would return to the program. Those 4 HMOs renewed services to 240,000 people in 11 counties and 4 states. Many of the HMOs that remained in the program hiked premiums and cut benefits for 2001. According to Karen Ignagni, president of the American Association of Health Plans, on average 70% of the extra funds went to pay the network of hospitals and doctors in the HMOs. The vast balance of the rest of the money went to reduce the physicians and hospitals cost sharing.

Now as if to add further insult to injury, HMOs serving at least 475,000 elderly and disabled people will pull out of Medicare next year. The HMOs are again claiming that the HMO payments are inadaquete to cover their costs. Since January of 1999, HMOs have dropped more than 1.5 million Medicare beneficiaries. Several of the HMOs that said they would stay in the program announced premium increases or cuts in benefits.

According to Representative Pete Stark of California, numerous studies found that Medicare was already paying more that it would spend for the same patients if they were in the traditional program. Studies have found that it is usually the healthiest Medicare beneficiaries who opt for HMO coverage.

The number of Medicare beneficiaries who will be dropped from coverage by their HMOs continued to escalate over the last 3 years. Congress and the president have both indicated that they favor increasing payments to HMOs, which were severely impacted under cutbacks made under the Balanced Budget Act of 1997.

Eighteen large HMOs pulled out of Medicare in areas where they serve 711,055 Medicare recipients in 2001. About 14% of Medicare's 40 million beneficiaries or 5.6 million of the beneficiaries are in managed care plans. About 734,000 Medicare beneficiaries were dropped by their HMO's in the prior 2 years. There were about 6.2 million people covered by the Medicare HMO program in 1998.

Medicare must be notified 6 months in advance whenever an HMO intends to drop out of the program, reduce their service area, or change their benefits and premiums package. We refer you to our prior article, What to Do if Dropped by Your Medicare HMO Plan

HMO executives claim that the reason for the discontinuance is because of inadequate payments made to them under the Medicare program. Rep. Nancy Johnson (Rep.-CT) announced her distress over the "droppage" matter. In an interview she stated " Medicare has smothered HMOs with regulation and starved them with low payments."

Federal auditors found however that Medicare overpayment not underpayment to HMOs takes place because beneficiaries who join these organizations tend to be the healthier of the elderly. Incidentally, the formula for determining the amount of payment is 95% of the average amount spent for beneficiaries in the standard Medicare program. Nancy-Ann DeParle, former administrator of the HCFA, which runs Medicare, has pointed out several of the studies that show that the HMOs are being fairly compensated for their coverage.

Payments to the HMOs are determined under a complex formula that varies county by county. Urban areas generally receive higher payments than do rural area. Medicare generally spends less on an HMO patient than on a fee-for-service patient in the same area, and the gap is growing.

In responding to a survey from the American Association of Health Plans the HMOs indicated that about 1.5 million of the elderly were assessed higher premiums for their coverage in 2000. The increase was anywhere from $20-40 per month. Prescription drug coverage under the HMO plans was sharply curtailed. About 60% had prescription drug benefits curtailed and 70% saw a sharp rise in their premiums covering prescription drugs.

The HMOs claim that they do not receive adequate reimbursements for seniors in Medicare HMOs. They specifically point to loses they claim they are incurring as a result of their prescription drug benefits. President Clinton did propose in has Medicare reform program to increase payments by $7.5 billion over 10 years to help with Medicare cuts that resulted from the regulations associated with our old friend the Balanced Budget Act of 1997.

Once again many of our senior citizens will be forced to go through the aggravation of either finding an HMO in their area that will cover their needs, or rejoining Medicare. We must put an end to this yearly farce. What we suggest is that the period of non-droppage be increased to a 2-year or even a 3-year period of time. A new member should have a choice in regards to whichever period of time he chooses to be a member of the HMO. The member should have the choice, not the HMO, if the member wants to withdraw at the end of 1 year.

As an inducement to the HMO to sign up members, the HMO would be granted the option of increasing the group's premium by a percentage tied into to the medical rate of increased cost plus a slight premium. If the premium increase is too great the member could either join another HMO or rejoin Medicare.



Allan Rubin
Updated April 12, 2007

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