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Health Dollars & Sense

Rescuing 'Medicare Refugees'

August 14, 2000|Bob Rosenblatt

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.

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