HMO WOES

November 03, 1998
		On January 1, almost half a million elderly and disabled Americans will lose their health coverage when several managed care plans no longer cover Medicare patients. Susan Dentzer of the health unit reports as a partnership with the Henry J. Kaiser Family Foundation.

Additional RealAudio excerpts with Nancy Ann DeParle, Karen Davis, Dr. Norman Payson Participate in a Forum on this topic. Jan. 6, 1998: Expanding the Medicare net Aug. 7, 1997: Medicare and the budget. Browse the NewsHour's coverage of Medicare Browse the NewsHour's Health Spotlight.	SUSAN DENTZER: Every weekday Meals-on-Wheels volunteer Harry Dennehy delivers lunch to homebound senior citizens in Waterford, Connecticut. But earlier this month, the tables were turned as 75 year-old Dennehy found himself in need of some assistance. He was one of just over half a million seniors -- all of them covered by Medicare -- who were told they would be dropped by their managed care plans in January. HARRY DENNEHY: Now, all of a sudden, they are pulling out of the whole thing -- right out of the state. I hate to have them go out and drop me. SUSAN DENTZER: Seventy-nine year-old Evelyn Sang, who suffers from lung disease, also was dropped. EVELYN SANG: I couldn't believe it. I thought, oh, that don't mean me. They are not talking to me. SUSAN DENTZER: Dennehy and Sang were among a number of seniors who met recently with counselor Nancy Krodel of the local Agency on Aging to discuss what to do next. NANCY KRODEL: This is an emotionally charged issue. People are - I mean -- really upset about this, and rightly so.
	It was a fantastic deal.
	SUSAN DENTZER: Democratic Senator Christopher Dodd of Connecticut lambastes the HMOs who cut off many of his constituents. SENATOR CHRISTOPHER DODD: All of a sudden you've got people signed up and so either you let me get more money or I dump these people. You know, it's a pretty cruel trick to play on some of these folks. SUSAN DENTZER: The episode has cast a cloud over a new program called Medicare+Choice. It was devised by Congress and the Clinton administration after a bitter two-year battle over how to constrain costs in the huge Medicare program. A truce was finally reached in the summer of 1997, when a host of Medicare reforms was agreed on as part of a package to balance the federal budget. The goals were two-fold: slow the growth of costs in Medicare, and modernize it by encouraging more seniors to enroll in managed care plans. Lawmakers thought those goals were compatible, but now it turns out that they may not have been. CHIP KAHN: It's an inherent conflict in the program. SUSAN DENTZER: "Chip" Kahn, incoming head of a leading health insurers' group, was one of the top staffers who worked on the legislation on behalf of Republican lawmakers. CHIP KAHN: On the one hand they wanted to give Medicare beneficiaries more choices, and that was one of the purposes of Medicare+Choice. But they also wanted to balance the budget and constrain the growth in Medicare costs, and thus, they constrained the growth in the premiums that Medicare pays for beneficiaries, and that's part of the rub. SUSAN DENTZER: Nowhere was this conflict more evident than in changes Congress made in the way it pays HMOs to care for Medicare beneficiaries. A carryover of the traditional Medicare program, the system is a crazy quilt of payments that vary from county to county. In 1999, these monthly per member payments will range from a low of $380 in areas like Champaign-Urbana, Illinois, to a high of $798 in places like Staten Island, New York. These differences have deterred HMOs from getting into the Medicare market in many areas. So Congress last year agreed to narrow the differences, although that will take a number of years. Meanwhile, Congress also said monthly payments to HMOs could grow by no more than 2 percent a year. That meant that in many counties, like New London, Connecticut, HMOs would be stuck for a while with the worst of all worlds: Low payments that grew very slowly. Still hopeful they could make money on the program, health plans geared up their marketing campaigns. HARRY DENNEHY: We went to seminars, we listened to people talk, we listened to all the rosy things that they came out with. And it was, it was a much better plan than I had. I mean, I didn't hesitate at all. SUSAN DENTZER: Beneficiaries joined HMOs because the plans provide attractive benefits not available through traditional Medicare, such as broad coverage for prescription drugs. What's more, the price of the coverage is often far lower than the combination of traditional Medicare and a supplemental insurance plan, known as Medigap. For example, the Connecticut seniors we talked with were very satisfied with their health plan, Physicians Health Services, or PHS. HARRY DENNEHY: PHS got me these glasses. And it was a fantastic deal. Prescriptions were a big item, though, with the HMO. OLDER LADY: Oh, yes. HARRY DENNEHY: I mean, if you were on - like I said -- the company that I had previously, you had $2,800 a year and never provided any prescriptions. PHS came along and said, "We can do the same thing, we'll give you all these things, and we can do it for about 600 and some dollars." Well, that's $2,200 savings. OLDER LADY: Absolutely. HARRY DENNEHY: So, naturally, I jumped onto it.
	Walking away.
	SUSAN DENTZER: Not surprisingly, so did many other seniors, says neurologist Anthony Alessi. He heads a group of Connecticut physicians who do business with many of the health plans that pulled out. DR. ANTHONY ALESSI: I mean, to give eye care, pharmacy, full benefits for some $60 a month. But, I mean, you've dangled the carrot. You have said, hey, you know, you can go to the eye doctor and get free glasses. Hi, there. Hey, you can get all the medication you need for free. SUSAN DENTZER: Free to beneficiaries, perhaps, but not to health plans, whose costs began rising briskly. One was Oxford Health Plans. Dr. Norman Payson is the chief executive officer. DR. NORMAN PAYSON: We think there's what we call in industry jargon selection bias, meaning that we tended on average to get seniors that had more pre-existing conditions, more illnesses than the average senior of the same age and sex. Plus we provide extra benefits like pharmacy coverage, and then it tends to encourage people that know they have a lot of health care needs to join. SUSAN DENTZER: Many health plans simply began hemorrhaging money on much of their Medicare business. Payson recently told his sales force that for every dollar Oxford got from the government for Medicare, the company spent $1.10 on health care -- a recipe for big losses. DR. NORMAN PAYSON: The Medicare situation was truly a financial emergency. The approach we've taken is that outside New York City, where we have underwriting losses, the plan was to either fix it or leave. SPOKESPERSON: Good morning. Oxford customer service. SUSAN DENTZER: Health plans say the government also unexpectedly saddled them with the costs of new regulations designed to protect Medicare beneficiaries. To stay profitable, many HMOs tried to cut payments to doctors and hospitals. But many of these providers were also feeling burdened by the new regulations and refused to go along. Karen Ignani, who heads the leading HMO trade association in Washington, says that plans had no alternative but to ask the government to let them charge enrollees more. In September, they asked the federal agency that overseeing Medicare to let them change pricing plans that they had already filed with the government. KAREN IGNANI: The types of changes we were talking about were in the case of prescription drugs, increasing the co-pay from one to two dollars, increasing premiums in some cases by several dollars. These are modest changes which are far less than any of the direct costs that beneficiaries will face being consigned to go back to the old-style system. SUSAN DENTZER: But the agency that oversees Medicare, the Health Care Financing Administration, known as HCFA, said no. Nancy Ann DeParle, the agency's head, made the decision. NANCY ANN DE PARLE: I'm sorry, you know, I'm sympathetic to the position that the plans are in. But the law is the law, and there's only so much that I can do to be flexible around that. SUSAN DENTZER: With no other recourse, plans sent letters to beneficiaries notifying them they were pulling out of the Medicare market -- in some cases, even as their sales forces were out selling plans. DR. An additional RealAudio excerpt with Dr. Norman Payson. NORMAN PAYSON: We waited until the last hour and we were still exchanging faxes with the hospitals to try and see if we could save a few of these counties, and we just couldn't get close enough. So unfortunately, we had to pull back. But it was hurtful for us because these members are important to us. SUSAN DENTZER: However not important enough to risk continuing losses. So now the fingerpointing has begun. Are the health plans to blame for precipitating the crisis? Dr. Alessi says yes. DR. ANTHONY ALESSI: This is an issue of responsibility to a community. People have come in here, done business in this community and simply walked away from the business. You don't do that in health care.
	Mistakes were made.
	Additional RealAudio with Karen Davis. SUSAN DENTZER: Medicare expert Karen Davis says health plans underestimated the impact of the cost constraints in the 1997 Medicare reforms. KAREN DAVIS: And I don't think they anticipated how widespread the stringency would be, but in fact, that's the way the Medicare Balanced Budget Act made money. That's how it generated savings, that's how it eliminated the federal budget deficit, with tightening down both what it paid managed care plans and what it paid physicians, what it paid hospitals, what it paid home health agencies. SUSAN DENTZER: The plans agree they made mistakes. DR. NORMAN PAYSON: I think the industry did underestimate the costs. I can understand how that happened. Be that as it may, you know, the cost reality is the cost reality. SUSAN DENTZER: At the same time, though, other experts believe that the Health Care Financing Administration was simply too rigid. CHIP KAHN: In this case I think they really blew it. This was a very tough year. And the Health Care Financing Administration should have given them a break and given them a chance to adjust their rates. SUSAN DENTZER: Some Medicare beneficiaries we spoke to also think the government made a mistake. EVELYN SANG: If you had to pay a little more, what the heck, you know. HARRY DENNEHY: I don't know why that wasn't one of the options that was offered. It really should have been. EVELYN SANG: I can't see why they didn't do that. HARRY DENNEHY: It really should have been - I mean, somebody at that level should have said, well, look, pass some of the increase on to the people who are paying the premiums. EVLYN SANG: Who are paying the premiums.
	Not good for healthcare.
	SUSAN DENTZER: HCFA administrator DeParle disagrees. Allowing some HMOs to revise their rates, she says, would have opened the door to identical requests from all the health plans covering six and a half million Medicare beneficiaries in managed care. An additional RealAudio excerpt with Nancy Ann De Parle. NANCY ANN DE PARLE: I'm saying that I don't see that it's in our beneficiaries' best interests or the Medicare program's best interests to allow them to come in at this late date and increase the premiums and lower the benefits, and change this program around for beneficiaries who have relied on it. SUSAN DENTZER: More than 90 plans in 30 states have now abandoned or scaled back their Medicare business for next year. As a result, some of the roughly ½ million affected beneficiaries will have to switch to new health plans -- and will probably have to change to new doctors as well. Donald Fischer heads an association representing large physician groups like the famed Mayo Clinic. DONALD FISCHER: Our biggest concern in this whole thing is that it's going to totally disrupt these patient-physician relationships that have been developing over many, many years in very favorable relationships, and that's not good for healthcare. SUSAN DENTZER: Meanwhile, an estimated 50,000 beneficiaries live in counties where no other managed care plans accept Medicare enrollees. They'll have no choice but to reenroll in conventional Medicare. But that means that they may have to purchase costly Medigap insurance plans. The choices are dizzying. KRODEL: There is Plan F that takes care of the Part B deductible, Plan C and Plan J. I will tell you the most common plans in Connecticut are plans C or Plan F, which are the better of the supplemental plans. So just in this little time you just had Medicare 101 right here at this little table. SUSAN DENTZER: President Clinton recently called on HCFA to help beneficiaries sort through all of these options. HCFA has followed up with its own stern warning to insurers, reminding them of their legal obligations to sell Medigap policies to enrollees. The president also asked HCFA to take further steps to halt the erosion in Medicare+Choice -- a goal that everyone from health plans to providers enthusiastically supports. Moreover, the program now seems certain to undergo renewed congressional scrutiny next year. Although many in Congress once hoped to encourage almost half of the program's enrollees to join HMOs over the next decade, that now seems unlikely. To keep enrollments in HMOs growing even modestly, many say payments to HMO's will have to go up. SEN. CHRISTOPHER DODD: I mean, obviously, we need to go back and you want to reexamine the reimbursement rates. You need to come back and find some middle ground in all of this, and that's why I'm not objecting at all to renegotiating, relooking at these contracts. HARRY DENNEHY: It seems like we have all the facts but we don't have solutions. OLDER LADY: Exactly. That is a very nice way of putting it. SUSAN DENTZER: The big solution that continues to elude Congress is how to contain the costs of Medicare. If HMO payments are raised, the program may bust the tight budget that Congress set for it last year. And that's a lesson of Medicare+Choice that is hardly lost on Harry Dennehy and his fellow senior citizens in Connecticut: No matter how health care is delivered, it is going to be very difficult to control health care costs for America's aging population