MEDICARE HMOS: Cigna Latest to Flee Medicare
Citing low government reimbursement rates and competitive pressures, the Cigna Corporation announced Friday that it would exit most of its Medicare HMO markets next year, terminating coverage for about 104,000 Medicare beneficiaries in 11 states, the Associated Press reports (Galewitz, 6/2). The move, effective Jan. 1, may mark the beginning of a mass exodus from the Medicare program by the nation's major for-profit HMOs. According to Banc of America securities analyst Todd Richter, Cigna's withdrawal "could be a big foreshadowing of what is to come." He noted that "hundreds of thousands" of Medicare recipients insured by HMOs could be forced to find new plans or return to traditional fee-for-services coverage, which often provides fewer benefits. ABN Amro analyst Peter Costa predicted that some companies will remain invested in Medicare markets, but "if the program continues as structured, most HMOs will eventually be forced to exit or cut back benefits to the point that there is no reason to join," he said. By law, HMOs serving Medicare patients must provide the same benefits as the government plan, although many companies offered additional coverage, such as a prescription drug benefit, to boost enrollment. However, increasing drug costs in recent years have forced many plans to drop prescription coverage for patients. "While private sector Medicare HMOs are paid more than enough to provide the basic Medicare benefits, the payment formula set forth by law doesn't always pay enough" to cover added benefits or generate a profit, HCFA Administrator Nancy-Ann DeParle, concluded (Bennett/McGinley, Wall Street Journal, 6/5).
Withdraw in Disgust
Earlier this year, mass exodus Aetna Inc., which covers 676,000 Medicare beneficiaries, announced plans to pull out of some of its markets, and other HMOs are lining up behind them at the door, the New York Times reports. Robert Dondes, president of Health Central in Harrisburg, Pa., has already decided to withdraw from Medicare next year. "We have a mission to serve seniors, but it is impossible to reconcile our costs with the reimbursement we are receiving from Medicare," he said. While Clinton administration officials maintain that HMOs are overpaid for the patients they treat, government numbers indicate that Medicare "spends less" on HMO patients than its fee-for-service patients in many areas, and "the gap is growing." Karen Ignagni, president of the American Association of Health Plans, added that HMOs "would not be leaving Medicare if they were overpaid." According to Chris Jennings, White House health policy coordinator, the exodus will likely continue in greater numbers next year. "The number may be greater than we've seen in the past. We don't have a stable marketplace for managed care," he said.
Can the Tide Be Turned?
Despite early warnings, the Clinton administration initially denied problems with HMOs, although in recent weeks officials have contacted companies to discuss ways to keep them in the Medicare program. Jennings argued that Congress should pass the President's plan that would provide prescription drug coverage to all Medicare recipients to prevent HMOs from leaving Medicare. He noted that companies would receive a "direct subsidy" for the benefits they provide (Pear, 6/3). Aside from questions surrounding a prescription drug benefit, managed care companies also complain about low reimbursement rates that have not "kept pace" with rising medical costs (Wall Street Journal, 6/5). Rep. Nancy Johnson (R-Conn.) remains "distressed" about the recent HMO pullouts. "It's a crime that the federal government has been so oblivious to this problem," she said, adding, "Medicare has smothered HMOs with regulation and starved them with low payments." Federal officials contend, however, that pressure from Wall Street may be spurring HMO cutbacks. Deutsche Banc Health analyst Gary Frazier noted, "Investors have rewarded managed care companies that stayed away from Medicare" (New York Times, 6/3).