Private Insurers Balk at Multistate Regional Plan Under New Medicare Law
The Blue Cross and Blue Shield Association and America's Health Insurance Plans have sent separate letters to the Bush administration "stat[ing] emphatically" that to entice private insurers to participate in Medicare, the federal government will have to designate 50 regions -- one for each state -- instead of larger, multistate regions "as the White House wants," the New York Times reports.
Beginning in 2006, private plans will have a larger role in Medicare by providing drug coverage to beneficiaries in the traditional, fee-for-service program and coverage to other beneficiaries through HMOs and preferred provider organizations. Congress last year "sharply increased payments" to private health plans to encourage them to increase their services to Medicare beneficiaries, the Times reports. CMS officials say that a region would need at least 200,000 beneficiaries to support a Medicare private plan. Eleven states do not meet that requirement. Larger, multistate regions would meet that minimum requirement, force insurers to expand their businesses to "historically shunned" rural areas and foster competition that could lower prices, according to the Times.
John Rother, policy director for AARP, said the debate over regional boundaries highlights "a clash between economic theory and the tradition of state-based insurance." Many insurers say that it is "not feasible for them to establish networks of doctors and hospitals" spanning large, multistate regions, the Times reports. Further, they say that a provision requiring them to charge all beneficiaries in a region the same premium "is unrealistic because costs vary widely" among states, the Times reports. Alissa Fox, policy director for BCBSA, said, "The only way to assure vibrant competition and expand choices for beneficiaries is to establish 50 state-based regions." She added, "It will be virtually impossible for most private plans to be ready for 2006."
Fox also said that because the level of financial risk increases with the size of a region, insurers will need more capital and larger reserves to operate in a multistate region. Diana Dennett, executive vice president of AHIP, said her organization also "strongly supports establishment of 50 regions," adding that private plans will be discouraged from participating in Medicare if they have to obtain insurance licenses and sign contracts with providers in states where they have never done business. Dennett said, "In many rural areas, providers are unwilling to contract with Medicare managed care plans," even at reimbursement rates paid by traditional, fee-for-service Medicare.
Michael Unhjem, president of Blue Cross Blue Shield of North Dakota, expressed interest in offering a managed care plan to Medicare beneficiaries in his state, where medical costs remain low. However, it would be much more difficult to create and sell "a uniform product with no variance in premium throughout a region" with states that have higher medical costs, he added. Deborah Bohren, senior vice president of Empire Blue Cross Blue Shield, which provides Medicare coverage in 28 of the 62 counties in New York state, said her company could work with other plans to serve the whole state of New York, but it would be impossible to expand coverage to Medicare beneficiaries in other states.
Richard Boals, president of Blue Cross Blue Shield of Arizona said his company would only be able to offer a Medicare PPO if its region was confined to Arizona. "It would simply be too cumbersome to operate a Medicare PPO across state lines," Boals added (Pear, New York Times, 8/22).