MEDICARE+CHOICE: Pullouts, Implications And Reax

      Reverberations from the Health Care Financing Administration's decision not to allow a re-adjustment in Medicare HMOs' rate structures for next year continues to ripple through the Medicare HMO market, as more plans across the nation withdrew from numerous counties, citing unacceptably low reimbursement rates. The Wall Street Journal reports that Oxford Health Plans will terminate Medicare HMO coverage in four New York, nine New Jersey, six Connecticut and five Pennsylvania counties that contain 26,600 -- or 17% -- of its Medicare membership. The move represents the final straw in a long series of setbacks that began in June, when the Norwalk, CT-based company "suspended marketing and most enrollment of new Medicare members." In August, CEO Norman Payson said that Oxford "was losing 14 cents for every dollar of Medicare revenue in counties outside New York City -- and that was before accounting for administrative costs" (Winslow, 10/5). In Colorado, QualMed Health Plans, Blue Cross Blue Shield of Colorado and United HealthCare Corp. announced plans to drop 3,700, 1,500 and 11,000 Medicare HMO members, respectively, the Rocky Mountain News reported (Conklin, 10/3). The announcements "didn't surprise state regulators." All three plans blamed insufficient "reimbursement rates ... to cover the costs of senior health care." A spokesperson for QualMed said, "In some counties, it makes more economic sense to stay, and in others, it doesn't" ( Denver Post, 10/3).

Electoral Impact
      The New York Times reports that the political ramifications of the pullbacks continue to unfold. In the metropolitan New York area, where Oxford was by far the largest Medicare HMO provider, "politicians organized meetings and forums to look for solutions and allow subscribers to vent their anger, while state and volunteer agencies prepared a huge mailing to explain the options to Oxford subscribers, and braced for a flood of phone calls on Monday morning." The Times reports that "[t]he current confusion is a gift to the Democratic politicians throughout the nation who have tried this fall to make an issue of their plans for tighter regulation of HMOs." Sen. Christopher Dodd (D-CT) criticized Oxford for not personally notifying the members affected by the pullbacks. He said, "Certainly the companies can act more responsibly. This wasn't a lottery, where these companies ended up in these markets. They made financial assessments and went out and recruited these people" (Allen, 10/5).

Whither Medicaid?
      Last week's pullbacks are expected to have both an immediate and long-lasting effect on the federal government's efforts to improve Medicare's financial viability through managed care cost-cutting. The Washington Post reported Sunday that in addition to those who are directly affected by the loss of their plan, the move may "sou[r] attitudes toward managed care among the millions of elderly people who will be asked within the next two years to choose between the traditional fee-for-service arrangements and newer kinds of health plans" such as HMOs, PPOs and Medical Savings Accounts (Hilzenrath/Goldstein, 10/4).

Lackluster Results
      The New York Times reported Sunday that the Medicare reforms enacted in the 1997 Balanced Budget Act have achieved far less success than was originally hoped, and that unintended consequences have actually made Medicare more expensive. Despite original predictions that Medicare+Choice would save the finances of the beleaguered Medicare program, the new Medicare options "will actually add $2.5 billion over five years" to the plan, because "younger, healthier people are likely to congregate in the new Medicare-financed options, leaving traditional fee-for-service to bear the burden of sicker, older people." In addition, providers are not jumping into many of the new programs. Of the five new Medicare+Choice options contained in the BBA -- medical group- and hospital-sponsored HMOs, POS, PPOs, MSAs and private fee-for-service -- there have only been two applications submitted by health plans nationwide. Combined with the rash of Medicare HMO withdrawals, government officials are "[s]crambling to explain choices that barely exist." The Times cited four reasons why organizations have shied away from offering the new Medicare+Choice plans:

• Insurance companies claim that burdensome federal regulations have made MSAs "difficult to market;"
• Hospitals and medical groups fear that if they offer their own managed care plans, "HMO companies would boycott hospitals and doctors ... seeing them as competitors;"
• "There may also be fundamental flaws in the economics" of provider-sponsored HMOs, because the best plans attract the sickest, and thus most expensive, patients;
• Providers are resisting making changes that they charge would make them insurance companies (Freudenheim, New York Times, 10/4).