Millions of seniors enrolled in private-sector Medicare HMOs are getting a big surprise: lower health insurance premiums and increased benefits. HMOs for the elderly are offering substantial rate cuts and benefit increases in response to a $500 million boost from the federal government this year.
The new Medicare law signed by President George W. Bush in December 2003 not only created a prescription drug benefit but also gave private-sector health care plans a larger role in the program. How much to pay the private plans was one of the most contentious issues in the Congressional debate over the bill.
Pacificare Health Systems Inc., of Cypress, California, the largest provider of Medicare HMOs, announced premium reductions and enhanced benefits for most of its 700,000 enrollees in eight Western states: Arizona, California, Colorado, Nevada, Oklahoma, Oregon, Texas, and Washington.
Aetna, of Hartford, Connecticut, also announced it would use the higher reimbursement payments to help many of the company’s 121,000 enrollees in California, Maryland, New Jersey, New York, and Pennsylvania.
Health Net Inc., of Woodland Hills, California, made a similar announcement in January regarding its 171,000 participants in Arizona, California, Connecticut, New York, and Oregon. Insurers in Rhode Island also have announced plans to reduce the cost of health insurance.
The Pittsburgh Post-Gazette reported the Pennsylvania insurer, Highmark, is slashing premiums by as much as 64 percent. The rollback, effective March 1, means monthly premiums for Medicare HMO beneficiaries in the Security Blue Basic plan will drop from $56 a month to $20 a month, well below where they were in 2003.
Grace-Marie Turner, president of the Galen Institute, citing an Associated Press report describing premium cuts in Massachusetts, notes the three largest HMOs serving the state’s Medicare population plan to reduce premiums between 36 and 48 percent.
“The sharpest decrease,” wrote Turner, “will be for members of Blue Cross’s Medicare plan, where premiums will drop from $162 to $84 a month. The company said it would apply all of the new revenues it is getting from the government to lowering premiums.”
But cutting premiums isn’t the only cost savings reaction to Medicare reform. Insurers are also beefing up benefits by reducing or eliminating co-pays and deductibles, adding previously unreimbursed medical treatments, and increasing payments to physicians and other care providers who serve seniors.
Federal Reimbursement Rates Increase
The Medicare reform measure established a new formula for determining payments to HMOs, resulting in an immediate payment increase of 10.6 percent. The Congressional Budget Office estimates the extra payments to private plans under the new formula will exceed $500 million this year and will total $14 billion between 2004 and 2013.
Many Republicans–and consumers as well–say private plans are more efficient than the traditional government-run Medicare program. While Democrats insisted private insurers would not save money for taxpayers, the resulting decreases in insurance premiums suggest otherwise.
Karen M. Ignagni, president of the American Association of Health Plans (AAHP), a lobbying organization for insurers, welcomed the increase in Medicare payments. The money, Ignagni said, establishes “a solid foundation for the broader modernization of Medicare” envisioned by Congress.
“The process of stabilizing and ultimately enhancing private-sector Medicare is well under way,” Ignagni said. In addition, she noted the 10.6 percent figure was an average, explaining to the Associated Press some health plans would receive larger increases in parts of the country where Medicare has been paying less for seniors in the traditional fee-for-service program.
Ignagni mentioned other areas of the country that would receive above-average increases, including Nassau and Suffolk Counties in New York; Bergen County, New Jersey; Mercer and Delaware Counties in Pennsylvania; Jefferson County, Missouri; Riverside County, California; and Dallas, Texas.
Many of the 4.6 million Medicare beneficiaries who are enrolled in managed care plans had seen steady premium inflation and cuts in services since 1999. As many as 2 million older Americans lost their HMO coverage as insurers withdrew from the market because Medicare reimbursements have trailed rising health care costs, increasing an average of just 2 percent in 2003.
The higher government payments are designed to encourage insurers to maintain and expand their Medicare HMOs, which are intended to have a much larger role under the new Medicare law.
Step Toward Privatization?
Those opposed to the new Medicare law have said the government is providing free-market incentives to lure seniors into managed care plans as part of an effort to undermine traditional Medicare.
Representative Pete Stark of California, the senior Democrat on the House Ways and Means Subcommittee on Health, said the reimbursement rate increases are “a first step in the march toward privatization” of the Medicare program. “Medicare HMOs,” he claimed, “were already substantially overpaid relative to what it would cost to serve the same beneficiaries in Medicare, even before this significant rate increase.”
But Medicare HMO insurers and consumers disagreed, saying the higher payments were necessary because reimbursements were falling behind the actual costs of providing adequate health care.
According to Robert Goldberg, director of the Manhattan Institute’s Center for Medical Progress, “Democrats like to point out that Medicare spends less on the same services than private health plans. But private health plans have offered richer benefits and newer technologies more quickly than Medicare in a more coordinated form. So, seniors are more likely to get better access to comprehensive care at a lower total cost.”
During debates prior to the reform bill’s passage, Charles Rangel, the Democratic Representative from New York, had warned “this bill will not reform the Medicare system as we know it but rather dissolve it.” California Republican Bill Thomas essentially agreed, saying, “We certainly hope so.” AAHP responded as well, saying the higher government payments are a step toward stabilizing managed care plans under Medicare, not “dissolving it.”
Between 1999 and 2003, health plans dropped more than 2.4 million Medicare beneficiaries. Some insurers pulled out of Medicare entirely, while others curtailed their participation by withdrawing from specific counties.
Leslie V. Norwalk, acting deputy administrator of the federal Centers for Medicare & Medicaid Services, predicted the increased payments, which took effect March 1, will encourage many private plans to return to the Medicare HMO program.
About 4.6 million beneficiaries–11 percent of the 41 million people enrolled in Medicare–are in HMOs, which have customarily provided drug benefits and preventive care not available in the original Medicare program. Enrollment peaked in late 1999 at 6.3 million, or 16 percent of all beneficiaries.
The Bush administration predicted the new Medicare law will encourage people to enroll in HMOs and similar private plans called preferred provider organizations (PPOs). Administration officials estimate that by 2007, 35 percent of Medicare beneficiaries will be members of such plans.
Tommy G. Thompson, secretary of the Department of Health and Human Services, described the increased payments as “an investment in our seniors.” As a result of the reimbursement increase, Thompson said, Medicare beneficiaries will have more consumer choice and better medical services.
Conrad F. Meier is managing editor of Health Care News. His email address is [email protected].