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Commentary

. . . Yes, But for a Reason

Health care: The Balanced Budget Act of '97 forced some HMOs to pull out.

October 23, 1998|CRAIG SCHUB | Craig Schub is president of Secure Horizons, USA

Conventional wisdom holds that, given a choice, most people would be happy to see the last of health maintenance organizations. We've all read the news reports, watched Jay Leno's late-night shows and sat in movie theaters as audiences cheered anti-HMO sentiments. And now President Clinton has gotten into the act, blaming HMOs for "abandoning" seniors.

Why? Because a strange thing is happening all over America: One Medicare HMO after another is announcing plans to pull out of some 300 counties in 22 states. Many of the estimated 400,000 seniors affected by these changes are complaining loudly because they don't want to lose the added value that HMOs bring, such as prescription drug benefits, annual checkups and disease management programs that simply aren't covered by traditional Medicare.

Unfortunately, as things stand today, HMOs have no choice but to leave areas where the cost of providing care to seniors outstrips government payment rates. These difficult decisions are an unintended consequence of the Balanced Budget Act of 1997.

Medicare HMOs can and do work well; they enjoyed patient satisfaction rates of 90% or more. Even Consumer Reports points out that senior HMOs offered strong value. That is, until the Balanced Budget Act took effect.

The Balanced Budget Act of 1997 seemed like a good piece of legislation at the time. Congress sought to extend the life of the Medicare program and expand health care choices. In addition to traditional fee-for-services medicine, seniors would be able to choose a variety of options including medical savings accounts, Medigap policies and two managed care options--HMOs and HMO-like organizations run by doctors.

Congress and most health care executives hoped that these reforms would bring real choice and support market competition. But it didn't work that way.

The new regulations are filled with onerous reporting requirements and burdensome mandates that go beyond the original legislation. These new requirements are taking away dollars that are vitally needed for patient care and diverting them to support bureaucratic requirements, forcing HMOs to take action.

For instance, both of the Medicare HMOs in Utah, including Secure Horizons, are folding up shop because the cost of treating patients was up to 40% more than the government's payment rate.

Regulations affecting HMOs are being phased in over several years, beginning in 1998. During this time, health care costs are projected to double by 2007, and costs for prescription drugs are rising by 15% each year. Against this backdrop, HMOs face hard choices. And rather than provide substandard care or suffer severe financial losses, many Medicare HMOs have opted to leave unprofitable markets.

At the same time, physician groups faced with the same troubling equation are canceling HMO contracts and returning seniors to more expensive fee-for-service medicine.

The real loser in this scenario is the Medicare beneficiary Congress sought to serve. As HMOs cut back, many seniors will find they have fewer health care options, increased medical costs, decreased benefits and higher premiums.

If the outcry over HMOs' planned exits are any indication, seniors want to keep their Medicare HMOs. And, HMOs are committed to providing health care to seniors. In markets with adequate payment rates and strong doctor networks, HMOs are flourishing.

The answer is a simple one. Medicare HMOs were working until the government changed the rules. Medicare needs to maintain the stability that existed prior to the enactment of the Balanced Budget Act by offering predictable payment rates and reasonable rules for all Medicare plans. Congress and the Clinton administration should go back and look at the intent of the legislation and roll back these burdensome mandates.

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