Medicare HMO exodus: system correction or prediction? - Health Policy Update

Medicare provides coverage to 38 million beneficiaries, 6.5 million through managed care. In October 1998 several managed care plans withdrew from the Medicare market in selected counties and states throughout the United States. This action forced more than 400,000 recipients to scramble for health coverage. As many as 45,000 of these individuals also lost the option of receiving their care through any managed care plan. (1)

Even more disconcerting is the loss of equivalent coverage for an even larger number of Individuals for such important expanded non-Medicare benefits as prescription drugs, dental care, and eyeglasses. Out-of-pocket costs to seniors and the disabled will also increase, causing further impediments to care. These withdrawals were the result of health maintenance organizations' (HMOs) concerns about increasing costs, reduced reimbursement, and increased regulatory activity.

How did we get here?

Financial uncertainty in a changing market is dramatically affecting the managed care industry on a national basis. This is occurring despite the growth of managed care. The federal government has implemented policy decisions that have encouraged managed care in the Medicare market. Predictions suggest that eligible beneficiaries in Medicare managed care will rise from 15 to 30 percent over the next five years. (2) Despite these forecasts, concerns remain over the future of Medicare managed care because of recent changes in reimbursement policy.

Each year managed care plans evaluate their desire and ability to participate in the federal managed care program. This assessment includes whether to ask the Health Care Financing Administration (HCFA) to allow them to adjust their benefits or premiums, change their service areas, or leave the program (nonrenewal). Plans that decide not to participate can leave the entire program, by state, or by individual county.

Several HMOs had asked the HCFA to allow them to either increase the cost to consumers through co-payments and deductibles or reduce benefits. The HCFA denied this request because they could not do a review of all of the parameters in time to issue new rates for 1999. In addition, there was deep concern about the effect these policy decisions would have on Medicare beneficiaries in general, who would suffer increased costs and decreased benefits.

These issues play out in an environment where the HHS believes that many HMOs have been overpaid--a major area of contention by the managed care industry. (3) Medicare capitation rates were originally set at 95 percent of the fee-for-service payments in each county. Recent analysis by the HHS Inspector General indicated that Medicare was paying up to 8 percent more than under fee-for service because less costly Medicare beneficiaries chose HMOs. The Balanced Budget Act of 1997 introduced corrections to the reimbursement system, reducing payments and slowing rate increases for plans in several areas.

Additional factors that impact the decision of these plans Include:

* The consolidation of the managed care industry nationally with more strategic positioning of plans with retrenchment from markets that are not as profitable, and the consolidation of plans in more profitable markets;

* The move to "health status/risk adjusters' in the payment methodology for the year 2000;

* The adoption of a defined numerical quality improvement standard of 10 percent;

* More rigid regulations concerning provider-plan relationships; and

* The addition of new competition by non-HMO plans through the new Medicare+Choice program.

What will happen to beneficiaries?

Individuals will not lose their Medicare benefits--they have two options. They can return to traditional fee-for-service Medicare or select another HMO program. Individuals choosing to return to fee-for-service plans may have higher out-of-pocket costs for deductibles and coinsurance, as well as lose additional non-Medicare benefits that were covered under their HMO.

Individuals who want to stay in an HMO may find their choices of plans narrowed and, in some counties, that there is no HMO program. Medigap policies are available to fill gaps in coverage, but they are expensive. "The most popular type costs about $1,200 a year." (4) Beneficiaries who are involuntarily terminated from Medicare managed care have the right to obtain Medigap coverage if they return to regular Medicare. Federal law prohibits Medigap insurers from discriminating against seniors in the pricing based on health status or excluding them because of preexisting conditions. However, individuals with disabilities who are not age 65 may not be eligible for Medigap if such coverage was not available before.

Administrative action

President Clinton announced several steps to be taken in response to this crisis. (5) The Department of Health and Human Services will expedite the review and approval process for health plans seeking to enter the markets left vacant by exiting health plans and intensify efforts to educate Medicare beneficiaries about their rights and options. He directed HHS Secretary Donna Shalala to craft new legislation to protect Medicare beneficiaries from precipitous HMO withdrawals in the future and to increase HMO participation in the Medicare program. He also called upon Congress to reauthorize the Older Americans Act. The programs covered under this act help seniors obtain needed information about health care coverage.

Representative Benjamin Cardin (D-MD) introduced H.R. 4862, The Medigap Access Protection for Seniors Act, to allow seniors the ability to enroll in a Medigap policy that offers prescription drug coverage if their HMO drops from their service area. Legislative action on this and other approaches will need to be followed closely by the medical community.

Because of increasing concern about the utilization of a risk adjustment methodology for payment, the HCFA is considering delaying implementation beyond the January 1, 2000 target date and phasing in this requirement. Additional regulatory proposals are being reevaluated by the HCFA to better understand their impact on the industry and ensure stability in the managed care market. (6, 7)

Conclusion

Policymakers at all levels will be searching for solutions to this disruption in health care delivery. Events such as this demonstrate the critical relationship between the financing of health care and service delivery. Physician executives will need to ensure the continuity of patients' provider relationships whenever possible and that care is not denied to patients making the transition between systems of care. 1999 will be a busy year for health policymakers as they craft corrections to the Medicare payment system.

References

(1.) Reichard, J. (Editor). Clinton announces stops to prevent HMO pullouts, Medicine & Health. Vol. 52, No. 40, 1998.

(2.) Reichard, J. (Editor). HCFA actuary sees Medicare risk enrollment maxing out at 25-30 percent of seniors. Medicine & Health, Vol. 52, No. 37, 1998.

(3.) Medicare HMO exodus leaves physicians and patients in pinch, AMA News, Oct. 19. 1998.

(4.) Health care choices confuse elderly. The New York Times, Oct. 30, 1998.

(5.) Press statement, "President Clinton announces new initiative to help Medicare beneficiaries dropped by HMOs: Takes steps to prevent it from happening again." The White House. Oct. 8. 1998.

(6.) Reichard, J. (Editor). HCFA signals delay in HMO risk adjustment, Medicine & Health, Vol. 52, No. 41, 1998.

(7.) Reichard. J. (Editor). And other concessions. Medicine & Health, Vol. 52, No. 41. 1998.

Georges C. Benjamin, MD, FACP, is the Maryland Deputy Secretary for Public Health Services in Baltimore. He can be reached at 410/767-6510 or via fax at 410/767-6489.

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