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Read Making a Killing

home / healthcare / in the media

Los Angeles Times
Sep 16, 2000

by Sharon Bernstein and Robert A. Rosenblatt

Average HMO Medicare Rate Set to Double

Health: Premiums May Even Reach $179 a Month for Some. Little Change Seen for L.A., Orange Counties
Medicare managed-care plans--often the only way low- and middle-income seniors can afford comprehensive health care--will more than double in cost next year for millions of older Americans.

Seniors nationwide who were lured into the program over the last decade with promises of free coverage with unlimited access to prescription drugs will face premiums in 2001 as high as $ 179 a month and, in some cases, a limit of just $ 500 per year for medications. Los Angeles and Orange counties, where the federal government pays health plans more to care for Medicare recipients, will be mostly untouched by the changes.

Next year will mark the first time since health maintenance organizations began providing Medicare coverage that a majority of the members will face premiums. And for the first time, most will not have access to prescription drug coverage, according to Nancy-Ann DeParle, who heads the federal Health Care Financing Agency, which oversees Medicare.

"Premiums are increasing by a weighted average from $ 12 to $ 26 a month," DeParle said, which is on average more than double their current levels. "And the generosity of drug coverage will also decline."

More than 6 million of the 40 million Medicare recipients in the U.S. receive coverage through HMOs.

Health plans said as early as July that they would raise premiums and lower benefits, citing what they said were inadequate payments from the federal government to cover the cost of providing care.

But the actual price hikes and benefit reductions, which were released by the federal government Friday, are more dramatic than many observers expected. Only a few metropolitan areas--among them Los Angeles and Orange counties, and parts of New York, New Jersey and Pennsylvania--were spared, because the federal
government pays more to cover Medicare beneficiaries in certain counties where the cost of living is higher.

Everywhere else, the premium hikes and benefit reductions present a double blow to seniors, who learned earlier this year that a number of HMOs are dropping out or cutting back participation in the program. Nearly 1 million Medicare recipients will either lose their managed care coverage or will have to switch to a new plan.

"This is really a bait and switch," said Jamie Court, who heads the advocacy group Consumers for Quality Care. "People joined HMOs to get the prescription drug benefits, and those benefits dried up. Now we're seeing premium increases that add insult to injury."

Trellis Massie, a retired Air Force sergeant who will turn 90 in November, said he joined Kaiser Permanente's Medicare managed care plan because it was free and offered generous coverage for prescription drugs and eye and dental care. Already, he said, dental bills are no longer covered, co-payments for doctor visits and prescription drugs have been implemented and, starting next year, premiums will be $ 30 a month.

"I can see $ 10 a month or even $ 20," said Massie, who lives in the San Francisco Bay Area community of Fremont. "But a dollar a day seems like a lot.'

The bite is even bigger in other places. In Hillsborough County in Florida, where the city of Tampa is located, Humana Inc. has instituted a monthly premium for its high-end plan of $ 179 per month. By contrast, last year the company offered two plans in the area: one had no premium and the other cost about $ 20 per month.

In rural El Dorado County in Northern California, seniors will pay $ 100 a month for Pacificare Health Systems' Secure Horizons plan. Seniors in San Francisco will pay $50 next year for Secure Horizons, more than twice the $ 20 they are paying now. They will also pay $ 50 for Health Net's plan--up from zero this year.

The extraordinary price hikes reflect the view of HMO executives that they must boost their rates to stay in the Medicare business because they don't get enough money under the complex federal reimbursement formula.

"Our costs are going up at a greater rate than our reimbursement by the government," said Lisa Rubino, senior vice president and chief executive for Medicare at Blue Shield of California. While costs are rising by as much as 7% per year, she said, federal reimbursements increase by only 2% per year.

As a result, HMOs are either dropping out of the program or raising prices. By 2001, 1.7 million seniors will have been dumped from their HMOs since 1998.

"This is a wake-up call to Congress," said Rubino. "We are committed to the market, but we need help."

The HMO industry is aggressively lobbying Congress to restore some of the money trimmed under the 1997 Balanced Budget Act, which altered the way their payments were calculated.

The premium hikes and co-payments "show the urgency of finding a remedy" for the cuts in the 1997 legislation, said Karen Ignagni, president of the American Assn. of Health Plans, which represents the HMO industry. "There is a growing realization that our plans are a safety net for individuals on fixed incomes who don't have the resources to purchase other types of private insurance."

Every American 65 and older, as well as the disabled of all ages, are entitled to Medicare coverage. If their HMOs go out of business or raise rates too high, they can go back to traditional Medicare, but traditional Medicare has steep deductibles, and it does not cover prescription drugs.

"I think the problem is largely the plans' inadequacy in managing their costs," said Dr. Robert Berenson, director of the Center for Health Plans and Providers at the federal agency that runs Medicare.

The agency is reluctant to simply give the HMOs more money, Berenson said. That's partly because of concerns that the plans could manage their money better and also because most are no longer offering the extra benefits like prescription drug coverage that were meant to make managed care plans a good deal for seniors with limited incomes.


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