Some thoughts about Medicare Advantage and Medicare HMO’s

This op-ed originally ran in The Seattle Times in July 2000.  At that time, the Medicare HMO’s were being dumped in droves.  When thinking about changes in Medicare now and the Medicare Advantage program–the same thing is going to happen.  As part of Medicare Part D act, insurance companies were paid subsidies by the federal government to get them back in the Medicare market.  They were even paid the subsidies before the companies were enrolling Medicare members.  So, what is going to happen to ‘fix’ Medicare Advantage is the subsidies will be cut.  When that happens, there go the Medicare enrollees back onto the regular Medicare.  So before we rush into action, it might be wise to look at what happened last time. 

Cut Off:  HMO’s Trim Elders for Profit

It’s simple economics. Medicare HMOs (Health Maintenance Organizations) are not making enough money. They whine they can’t make money given what Medicare pays. So, they dump seniors and try to con the governor and others into suing the Health Care Financing Administration (HCFA) that oversees Medicare to get better rates.

But these plans knew the rates from the get-go.

First Choice is dropping 3,200 seniors. PacifiCare will ditch 1,500 in Walla Walla, but keep its other 61,500 members. Premera will toss 6,000 in Western Washington, but keep 13,000 seniors in Eastern Washington. Aetna will drop 10,700 members and Regence Blue Shield, 8,000.

Only Group Health announced no changes for its 62,000-member HMO.

Nearly 30,000 Washington seniors have to find new plans – more than 700,000 nationally.

Here’s why:

Medicare HMOs used to be managed care’s cash cow. In the 1980s, HMOs promised the government they could reduce Medicare costs. HCFA would give the plans a flat fee each month for every senior who enrolled. In return, the HMO would manage all the Medicare benefits plus whatever additional benefits they wanted to include. The plans got 95 percent of the fee-for-service rates in their communities. The HMOs would see that seniors got Medicare Part A and B services. They could keep any savings they made.

Touting they could manage Medicare better than the government, plans across the country threw virtually irresistible packages to gobble up the lucrative senior market: zero premiums, prescription drugs, whatever it took.

And, sign up they did. But, now they are being as quickly dumped for lack of enrollment.

In King County, each Medicare HMO is paid roughly $492.23 per person each month for Medicare Parts A and B, or nearly $6,000 per year per person depending on age, gender or disability. Group Health or PacifiCare, with about 60,000 seniors each, receive nearly $360 million a year.

The trick is having enough members. That’s where Regence, Premera, First Choice and others got caught. First Choice had the fewest members at 3,200 and gets about $20 million a year. But, it doesn’t take too many cancer and chemo cases at roughly $100,000 each to run up the tab and eat up the profit. It would take many such cases to use up the annual $360 million a Group Health or a PacifiCare receive. They can absorb the costs of a few very sick members and not lose money, much less their shirts.

But, Medicare HMO members are healthy: 84 percent say they have no limits on their daily activities. Nearly 81 percent of all Medicare HMO members report excellent health; only 20 percent say their health is poor or fair.

Medicare spending per person has remained pretty constant. Only 5 percent have costs in excess of $25,000 per year. In fact, HCFA spends $1,000 or less on 52 percent of all beneficiaries each year. This 52 percent represents 45 percent of all Medicare spending.

So, while the HMOs are getting the cream of the crop in terms of health, they somehow cannot make money? Our HMOs now say they aren’t getting paid as much as other states. Foul. They knew this all along.

Yes, rates vary. In King County, a Medicare HMO receives about $492.23 each month. In Pierce County, its $465.97; in Walla Walla $442.01 and in Spokane, it’s $477.10. So, now it’s easy to see why Premera kept Spokane and PacifiCare dumped Walla Walla.

That Dade County, Florida, plans get $809.90 or LA plans get $673.86 per member per month has nothing to do with what our plans accepted. They knew these differences when they signed their contracts. Medicare HMOs are optional programs. No one forced them to do this. Some just didn’t get enough members.

That’s the bottom line. Calling out the guard in a proposed lawsuit against HCFA is a straw dog. These plans don’t have enough members to make enough money. It’s that simple.

What this public/private partnership tells us is that partnerships work as long as they make money.

The problem is structure. Medicare is more than 30 years old – an entire generation. Life expectancy when Medicare began was 65, the age of eligibility. Medicare A and B cover hospital costs and outpatient care. They don’t cover prescriptions; long-term nursing home care; adequate home health care; as well as many other things. When it was created in the ’60s, Medicare focused on the disabling medical costs seniors faced then: hospital costs. But our health landscape changed.

Few could have anticipated our longevity burst. The current Medicare generation experienced one of the largest explosions in life expectancy in world history – virtually a 20- to 30-year addition to the previous generation. We have been trying to make a horse-and-buggy benefit design keep pace with unprecedented medical and technological advances that enable us to live longer with more chronic care needs. Now, the average Medicare beneficiary is a 75- to 80-year-old woman with three or more chronic diseases.

The original model can’t meet today’s needs. But, instead of facing that issue head on, we design experiments that work as long as the private sector makes money. And, we create reams of rules to assure consumers are not being fleeced, yet ignore the health-status demographics of our society. Present policies simply chart new directions for a sinking ship.

What we must do as a community and a society is define what we want a health-care system to do. We cannot count on Congress or HCFA to call the shots and make decisions for the good of country or community. They are locked into meeting local constituent needs.

That means it’s up to us. We have to tell our elected officials not just what does not work. We have to tell them what we want.

And that is? A health-care system that supports the health and well-being of all Americans, that provides a safety net for those who need it, that assures an aggressive oversight and appeals process and a system of care that is not dependent on the latest payment fad. We deserve this not only for our seniors, but for all Americans.

Medicare HMOs are the canary in the coal mine. As Medicare goes, so goes the nation. Because of its size and influence, whatever it does will be copied by the commercial plans that follow the path of least resistance.

And, don’t listen to anyone who says, “who’s going to pay for it?” We are all paying for it now. Just ask any senior who has to change plans. Unless and until we say what we want – a system that supports the health and well-being of our seniors and the health and well-being of our communities and our nation, then we will remain stuck with a crippled system that is more concerned about cash than care.

If there were ever a time to start a community dialogue about what a health-care system should do and how to marshal existing resources to make it work, now is that time.

This discussion will be more profitable and less expensive than yet another tax-supported lawsuit against yet another tax-funded agency to fiddle with yet more complicated formulas. Better ways exist.

But, without goals, health care will remain a mess.

Kathleen O’Connor, MA, is a health care industry analyst, consultant, speaker and writer, based in Seattle, WA. She served as one of the first Medicare HMO marketing directors in Washington State

About Kathleen

Kathleen O’Connor: 30+ year health care consumer advocate, non-profit executive and author. For more information about Kathleen, please see "About" on the main content bar above.
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