What the Medicare HMO pullout means for you

What the Medicare HMO pullout means for you

Senior HMOs are stranding thousands of patients withouthealth insurance. You can help them find replacement coverage--but steerclear of plans that squeeze your bottom line.

By Ken Terry, Managed Care Editor

Two years ago, 15 percent of seniors belonged to managed care plans,and 90,000 more were joining each month. It seemed likely that the majorityof Medicare patients would eventually sign on with HMOs. It doesn't lookthat way anymore. Today, only 16 percent of the 39 million Medicare beneficiariesare HMO members, and the monthly enrollment rate has dropped by half.

One of the main reasons why the program's growth has flattened is thatHMOs are leaving unprofitable markets. On July 1, nearly 100 plans announcedthey would either withdraw from the Medicare program or reduce their serviceareas at the end of the year. About 327,000 beneficiaries will be affected,on top of the 407,000 who had to choose other options when plans pulledout of Medicare at the end of last year. Virtually all Medicare HMO memberswill receive fewer benefits next year or pay higher premiums--or both.

What happened? Insurance companies blame the Balanced Budget Act of 1997,which limited annual HMO payment increases to 2 percent in markets whereMedicare's historical costs were relatively high. While HCFA says it willboost HMO payments across the country by an average 5 percent next year,that average factors in bigger raises to be awarded in many rural countieswhere few or no HMOs operate. Not surprisingly, the latest round of HMOdefections is focused on big cities like Cleveland, Dallas, Milwaukee, Philadelphia,and San Diego.

HMOs' marketing tactics have also contributed to the problem. To lureseniors, plans offered benefits not provided by Medicare, coupled with zeropremiums. Since their administrative costs are far higher than those oftraditional Medicare, the only way they can finance prescription drug andother extra benefits is to cut payments to doctors and hospitals, noteshealth economist Uwe E. Reinhardt of Princeton University.

Because senior HMOs are paying less than traditional Medicare in someareas, they're finding it increasingly difficult to recruit physicians inthose places. That, in turn, has caused some plans to pull out.

Seniors will need your guidance

The coming and going of Medicare HMOs is not only costly but frustratingto doctors, says Owen Dahl, a New Orleans-based practice management consultant."If a lot of your patients have joined a senior HMO, you've got a problemwhen the plan says it's going to drop out. It adds a tremendous burden toyour employees, who have to inform the patients of their options and checkon their eligibility every time they visit."

HMO pullouts can also create bad feelings between doctors and patients,adds Dahl, "because the doctor gets blamed for a lot of the inconvenienceto patients." One way to minimize this, he says, is to send lettersto patients telling them which other Medicare plans you participate in.

HMOs were required to inform HCFA by July 1 of their intentions for nextyear. But that doesn't mean they had to tell you. So check with your seniorHMOs before one of your patients asks a question you're not prepared for.

HCFA also encouraged exiting HMOs to send patients brief letters by theend of July. However, it doesn't appear that all plans did. HCFA doesn'trequire plans to mail patients detailed letters explaining their optionsuntil Oct. 15.

That will give seniors about 10 weeks until the end of the year to decidewhat to do. If they don't want to switch HMOs, they'll return automaticallyto traditional Medicare on Jan. 1. But if they wish to get their Medigapinsurance back, regardless of their medical condition, they must apply forit within 63 days after their HMO coverage ends on Dec. 31. To prevent alapse in coverage, they should try to enroll in a Medigap plan before theend of the year.

Patients who do want to join another HMO shouldn't disenroll from theircurrent plan before checking the enrollment policy of the new one. Whilesome plans will sign up seniors at any time, they don't have to. HCFA requirescontracting HMOs to enroll new members only once a year, in November.

This can be a confusing process for seniors, so expect many to ask youfor help. You have to tread carefully, notes Dahl, to avoid violating HCFAregulations that prohibit you from marketing for HMOs you participate in.So you can't tell the patient which HMO you prefer. All you can say is whichplans serve the area and which you contract with.

Don't let an anti-managed care bias show, because it puts patients onthe defensive, cautions Judy Capko, a consultant with The Sage Group inNewbury Park, CA. "All the patients know is that they'll get more fortheir money and less out-of-pocket expense if they join a senior HMO,"she says. Therefore, she adds, you should identify both the benefits andthe risks of Medicare HMOs, including the restrictions on choice of providersand the possibility that a health plan might pull out of your area. (Tofind out which Medicare HMOs are available locally, call HCFA at 800-MEDICAREor check its Web site: www.medicare.gov)

It's time to re-evaluate contracts both old and new

Doctors will have to make important choices about their senior HMO relationships,too. David C. Scroggins, a consultant with Clayton L. Scroggins Associatesin Cincinnati, still sees many doctors jumping into Medicare HMOs simplybecause they fear being left out. In markets where the plans are payingless than traditional Medicare and don't have major penetration, he advises,physicians might do well to steer clear of senior plans.

"You know they're going to pinch and squeeze you," he says."So why should you help them become successful? You're going to getnone of the payoff and all of the pain, so take it slow. Even if it's apotentially strong market, with good reimbursement for the carriers anda good senior population, I don't know that you need to sign up immediatelyunless a lot of seniors belong to HMOs. You won't lose anything at first;and after the plans get a critical mass of patients, they'll need more doctorsto serve that critical mass."

What if one of the plans you contract with leaves town? Of course, ifthat's the only senior HMO you participate in, you'll lose any patientswho change plans. But whether it's worthwhile to join additional seniorplans depends on your market. "In New Orleans, we've got about sevenMedicare plans," says Dahl, "and the HMOs are really popular withpatients. So, here, I'd recommend that a doctor be involved in more thanone plan. If there were just two or three plans in a market, and one weregoing out, then I'm not so sure. It would depend on the other plans' reimbursementand their hassle factors."

If you already participate in a senior HMO, you should periodically reviewhow well it pays, and whether you can afford to drop it if it's a dog.

Will Medicare managed care go away?

That looks unlikely, even though HCFA concedes that HMO penetration ofthe Medicare market might have reached a "saturation point" fornow. Both the rejected reform plan associated with Sen. John Breaux (D-LA)and the proposal recently put forward by President Clinton depend to someextent on competition among private health plans to save Medicare. If insurancecompanies flee the program en masse, the government will have to raise taxesto cover galloping Medicare costs. So it will have a strong incentive tobring back the HMOs.

On the other hand, say some observers, the 2 percent cap on reimbursementincreases and other negative factors will make Medicare managed care increasinglyunpalatable to insurers. One of these factors is HCFA's new risk-adjustmentmethodology, which will reduce the total amount paid to senior HMOs overthe next several years. Another is the Clinton administration's bid to coverprescription drugs under the traditional Medicare program. If Congress approvesthat, there will be less reason than ever for seniors to join HMOs.

Medicare HMOs will continue to expand in areas where government paymentrates and demographics favor their growth, predicts David Scroggins. Meanwhile,says Princeton University's Uwe Reinhardt, senior HMOs' troubles give mostdoctors a reason to smile: "The best financial deal for doctors andhospitals is to keep the good old Medicare. So the stalling of Medicaremanaged care is a good thing for doctors."

Ken Terry. What the Medicare HMO pullout means for you. Medical Economics 1999;18:130.