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Tuesday, December 17, 2002

By Pamela Gaynor, Post-Gazette Staff Writer

When Aetna U.S. Healthcare rolled out the region's first Medicare HMO in 1994, it was a godsend for many retirees.

	(Illustrated by Daniel Marsula, Post-Gazette)

At the time, many Western Pennsylvania seniors were becoming hard pressed to pay for costly Medigap supplements that cover health expenses Medicare does not fully reimburse.

Medicare HMOs -- managed-care plans run by private insurers on behalf of Medicare -- offered a cheaper alternative. For monthly premiums priced at a tenth or less of the cost of popular Medigap plans, members could get everything the supplements provided, plus a wealth of other benefits, some of which Medicare does not cover, such as allowances for prescription drugs. Not surprisingly, seniors flocked to the new plans -- nearly 40 percent, or more than 91,000 of Allegheny County's 243,936 Medicare beneficiaries, are enrolled in Medicare HMOs.

Now retirees are trying to figure out how to pay for the plans. For the past four years, the cost of membership has been surging, benefits have been shrinking and some insurers, including Aetna, have been abandoning Medicare HMO markets around the country. The Hartford, Conn.-based insurer said it would discontinue its individual Medicare HMO plans in Western Pennsylvania Dec. 31, ending coverage for about 5,000 members, though it plans to continue serving corporate groups here.

All told, withdrawals of Medicare HMOs from markets around the country have forced some 2.4 million retirees -- 200,000 this year alone -- to find other coverage.

The exodus is a cautionary signal as the Bush administration champions additional market-based initiatives to handle Medicare benefits, including a possible prescription drug program.

What happened?

In a nutshell, for the past several years, the federal government has been curbing payment increases to Medicare HMOs, making the plans a less lucrative proposition for private insurers than when they first became popular in the early 1990s.

Under amendments to the federal budget in 1997, Medicare adopted formulas designed to even out the payments Medicare HMOs receive in different counties across the United States and to adjust them to reflect the health of each HMO's members. The new formulas have reined in payment increases for most Medicare HMOs to about 2 percent annually since then.

At the same time, medical costs, driven in large part by higher hospital and prescription drug expenses, have been rising at greater rates, with the increase for last year hitting 10 percent.

Whether both factors entirely justify the premium increases retirees are seeing remains a question.

But what many retirees don't realize is that the premiums they pay to their Medicare HMOs represent only a small fraction of the revenue on which the health plans depend.

The lion's share of the private health plans' income -- a minimum of $548 per member per month next year in urban counties, such as Allegheny County -- comes from the federal government, which contracts with Medicare HMOs to administer their members' Medicare benefits and pay their health-care bills. The amounts the Medicare HMOs receive vary for each county in which their members reside.

For a while, in the early to mid-1990s, the plans enjoyed what critics charged were rich federal payments, even though Medicare HMOs had ostensibly been created to save the government money.

The argument that the plans were costing the government too much stemmed from the fact that the Medicare HMOs received just a little less for each member than what Medicare paid to take care of the average beneficiary under its traditional fee-for-service arrangements. But the costs of caring for a Medicare HMO member were thought to be considerably lower than the government's average because Medicare HMOs tended to attract younger, healthier seniors. In addition, unlike the government, the Medicare HMOs had the opportunity to manage care in ways that would curb use of unnecessary hospital stays and specialty care.

Bruce Vladeck, who served as Medicare's top administrator during the Clinton administration, said he always viewed the extra benefits Medicare HMOs were able to offer, particularly when they were charging no premiums or only nominal ones, as "a good surrogate measure of the extent to which they were being overpaid."

But Vladeck, who expressed little sympathy for the insurance industry's complaints about federal reimbursements in the mid-1990s, now says "the big overpayment that had been built in is probably pretty much gone ... I think a lot of [the Medicare HMOs] really are being squeezed."

What's happening to retirees is akin to what's happening to working people covered under corporate group health plans. Just as corporations are asking their employees to pay more toward their health benefits as medical costs rise, Medicare HMOs are making up for medical cost increases and lagging federal payments by raising members' premiums.

Indeed, most seniors in the region with individual Medicare HMO memberships are facing eye-popping premium increases in January. Many now fear that the cost of the health plans, just like Medigap supplements that once prevailed as the most popular private insurance options for Medicare recipients, may soon be priced out of their reach -- if they haven't already been.

And those in corporate group Medicare HMO plans are not immune from the increases. Many retirees with corporate coverage have seen their premiums rise as much and in some cases more than individuals. Benefits under those plans also are usually better, in many cases providing unlimited prescription drug coverage.

"It's threatening," said William Cornelius, 74, a Baldwin retiree who received notice about a month ago that the premium for his membership in the less expensive of two versions of the UPMC For Life Medicare HMO would rise nearly fivefold in January.

"This thing is running wild. It's totally out of control. How can you afford it if it continues down this road, if they keep raising [premiums] by these exorbitant percentages?"

Of the three Medicare HMO operators in Allegheny County, the largest, Highmark Inc., said it would triple monthly premiums for the lowest cost version of its Security Blue plan to $36 and raise rates for the other versions anywhere from 41 percent to 49 percent.

UPMC Health Plan, which introduced its UPMC for Life Medicare HMO in Allegheny County earlier this year at rates significantly below Highmark's, also said it would sharply raise premiums. For the less expensive of its two plans, the version Cornelius has been buying, monthly premiums will rise to $44 in 2003 from $9. For the more expensive version, UPMC is boosting monthly premiums 84 percent, to $107 from $58.

The only Medicare HMO in Allegheny County holding the line on rates is Health America's Advantra plan, which will remain at a monthly premium of $35.

Medicare HMO plans are generally more costly in outlying counties, where federal payments to Medicare HMOs are lower than in Allegheny County. Historically, Medicare's fee-for-service costs in more rural counties -- the basis for payments to the Medicare HMOs -- were lower than in urban ones.

Premium rates also vary among corporate-sponsored Medicare HMO plans from those quoted for individual memberships.

Cornelius said he'll switch to Health America's Advantra plan in January. Although he'll still be paying a premium nearly four times what his current plan costs, the Advantra plan affords $1,000 in prescription drug coverage. The UPMC plan in which he's been enrolled offers none.

The biggest difference between Advantra and the plans offered by UPMC and Highmark is that it doesn't offer access to all of the same hospitals and doctors. For example, UPMC's flagship hospitals, UPMC Presbyterian, UPMC Montefiore and UPMC Shadyside, are not available to Advantra members.

Restricting choices of doctors and hospitals is one way managed-care plans, including Medicare HMOs, can save money. Consumers, of course, must look both at the economics and access issues before determining which Medicare HMO option best serves their needs.

On the economic front, checking premiums and co-pays for prescriptions and visits to doctors -- the most frequently used benefits -- is the place to start comparisons.

In addition to prescription coverage, some plans also offer some other benefits that Medicare doesn't normally cover. For example, a limited number of routine visits to the podiatrist is available under Health America's Advantra plan, both of UPMC's plans and under Security Blue's Deluxe plan. The UPMC plans and Security Blue's Deluxe plan also offer a limited number of routine visits to chiropractors. Like Medicare, all of the plans must offer "medically necessary" podiatry and chiropractic care.

Both of UPMC's plans allow members to see specialists without referrals, but for a higher $25 co-pay. Visits to specialists cost $15 under the UPMC plans if members first obtain referrals from their primary care doctors. Security Blue Direct, Highmark's newest plan, also allows specialist visits without a referral. Instead of charging higher co-pays than it does for other versions of Security Blue, Highmark instead charges a higher premium.

For additional help in comparing the costs and benefits of the region's Medicare HMOs, consumers can order a pamphlet, "Choosing a Medicare Managed Care Plan: A Guide for Medicare Beneficiaries," published in November by the Pennsylvania Department of Aging and the Pennsylvania Health Care Cost Containment Council. To obtain a copy, call the Council at 1-717-232-6787cqsrm. The contents of the pamphlet also are available on the council's Web site at http://www.phc4.org.