Medicare HMO Program Debates Funding Levels

Rapid growth of Medicare Choice program threatened by claim of HMO overpayments

CEO SUMMARY: Medicare+Choice was to offer seniors insurance options that went beyond standard Medicare fee-for-service services.Through the 1990s, seniors enrolled in Medicare HMOs at phenomenal rates. A recent GAO report repeated claims that Medicare HMOs are over-funded, to the tune of $5.2 billion per year. Congress must now consider a dozen bills seeking increased reimbursement for Medicare HMOs.

RAPID ENROLLMENT GROWTH in commercial HMOs during the 1990s was matched by equally rapid enrollment growth in Medicare Choice+HMOs.

Medicare HMOs attracted seniors by offering, at modest additional charge, prescription drug benefits and other benefits not available in traditional Medicare. These features fueled rapid enrollment growth in such plans. In that regard, Medicare HMOs were a consumer success.

For clinical laboratories and pathology group practices, the growing proportion of seniors shifting from Medicare fee-for-service to Medicare HMOs meant reduced access to these patients as well as a definite decline in net reimbursement.

Potentially Significant Trend

THE DARK REPORT labeled this shift into Medicare HMOs as a potentially significant trend if it continued into future years. This trend would be particularly relevant for anatomic pathologists. (See TDR, December 29, 1997.)

Seniors are relatively high-volume users of AP services. If increasing numbers of seniors entered Medicare HMOs, exclusive, full-risk, capitated contracts would restrict pathologist access to these patients. Medicare HMOs would also pay those designated pathologist providers much less money per episode of care than Medicare’s fee-for-service reimbursement.

During the last three years, private insurers have terminated their Medicare HMOs in a number of markets, claiming insufficient reimbursement to sustain operations. A total of 1.6 million seniors enrolled in these plans were forced to switch to a different plan as a result of these closings.

On the government’s side, the perception is that Medicare HMOs are overpaid. The problem that dogs private Medicare HMOs is the charge that these plans recruit only the healthy population, leaving Medicare fee-for- service to treat the chronically ill. The problem is called “favorable selection” and HCFA has struggled for years to deal with this issue.

A just-issued report by the United States General Accounting Office (GAO) is generating increased debate about favorable selection and the Medicare+Choice program. The GAO concluded that, for fiscal 1998, Medicare spent $5.2 billion more for care of enrollees in Medicare+Choice plans than if these same enrollees had been in the traditional Medicare fee-for-service program.

Healthy Seniors

“There has always been the contention that Medicare HMOs get a disproportionate enrollment of healthy seniors, so it’s claimed that the premiums they get from Medicare represent overpayments,” said Susan Pisano, Vice President of Communications at the American Association of Health Plans in Washington, DC.

“Yet, the government has never measured the actual health services used by seniors in private Medicare HMOs,” she observed. “Generally, it measures the health of the enrollee in the year prior to enrollment. Such studies do not accurately gauge health services provided to that enrollee by the Medicare HMO in subsequent years.

“The reimbursement squeeze noted by the Medicare HMOs is triggered by the fact that year-to-year increases in Medicare premiums have gone up by 2%, while the expenses of these plans have increased 10% annually in recent years,” explained Pisano.

Congressional Action

Congress may be forced to act upon this issue during the fall session. According to Pisano, the Medicare HMOs are requesting funding increases of $15 billion over the next five years. Countering this request is the argument by HCFA and the GAO that “while health plans tended to enroll less-expensive beneficiaries, Medicare’s payments were too generous because they were based on the expected costs of enrollees in average health.” (GAO/HEHS-00-161, page 8.) As a point of reference, HCFA reports that 10% of all Medicare beneficiaries account for 63% of all Medicare expenditures.

In the GAO report, government administrators advance the argument that “…many of the additional benefits enjoyed by plan enrollees may have been the result of Medicare’s overly generous payment rates, not of efficiencies achieved under managed care.”

Although the objective of the Medicare HMO program was to expand choice and consumer options, government administrators now use these plan features as an argument to reduce Medicare HMO premiums.

Debate Is Changing

“Fortunately, this debate is changing,” noted Pisano. “An increasing number of Congressional members from both sides of the political spectrum are recognizing the benefits of consumer choice that Medicare HMOs provide to seniors. There are a dozen bills pending which would increase reimbursement.

“As Congress deals with this issue in the next 6 weeks, the basic question is whether or not Medicare HMOs will get the funding they need to flourish in coming years,” concluded Pisano.

For laboratory executives and pathologists, this issue will have a direct financial impact. Any decisions that lead to further gains in Medicare HMO enrollment will have long-term financial impact in laboratories.

Further, THE DARK REPORT believes that the political debate involving Medicare HMOs will become part of the ongoing battle between those who want a government-run national healthcare system and those who favor a private healthcare system that is built upon consumer choice.


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