500,000 Seniors to Lose Medicare+Choice Insurance

Published October 1, 2001

Health care costs that outstrip federal reimbursements by a 6-to-1 margin are mostly to blame for the health insurance industry’s decision to drop 500,000 seniors from their Medicare+Choice health insurance plans next year, according to Karen Ignagni, president of the American Association of Health Plans (AAHP).

Ignagni, who held a press conference on September 21 to address the erosion of the federal Medicare+Choice program, said the number of seniors who will be affected by the withdrawal of health plans from the senior market in 2002 is roughly half the number affected in 2001.

She said there are still “fundamental problems” with the Medicare+Choice program. “Beneficiaries were promised a program of choice,” she said, “but they are finding that choice elusive.”

Congress created the Medicare+Choice program as part of the Balanced Budget Act (BBA) in 1997. It offers seniors the opportunity to enroll in HMOs that provide prescription drug benefits; traditional fee-for-service Medicare provides no prescription drug coverage.

Health plans blame the BBA for handcuffing them with an unprofitable annual cap of 2 percent on reimbursement increases. This cap is considerably less than the current medical inflation rate of 11 percent.

Congress did temporarily increase the reimbursement rate cap to 3 percent in some regions of the country this year, in an effort to stem the rising tide of health insurers defecting from the market. But Ignagni noted the rate will revert back to 2 percent in 2002 unless Congress intervenes.

Hardest hit by the health plans’ flight from the Medicare HMO market will be seniors living in the Northwest and Southwest, regions of the country where reimbursements remained capped at 2 percent.

While some health insurers have declined to discuss plans to exit the market, PacifiCare, the largest Medicare HMO with 995,000 members, has said it will drop more than 26,000 patients in eight Western states. United Healthcare has said it will abandon Arkansas entirely and close some programs in Ohio, Florida, and Illinois, affecting nearly 57,000 members.

Even for the approximately 5 million other seniors who will not be dropped by their Medicare HMOs, the news is not much better. According to Ignagni, many of these beneficiaries will face benefit changes and higher premiums as a result of a federal funding shortfall that threatens to cripple the program.

Vicki Lankarge is a health insurance reporter for Insure.com The Consumer Guide.