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Florida's HMO Medicare Bazaar
Wanda wanted to find out whether she'll have to make a $10 co-payment for each monthly allergy shot. SeniorCare orientation specialist Donna Clyburn told her that as long as the nurse, rather than the doctor, gives the shot, there would be no charge. Pleased with that response, Wanda enthuses, "You get more here."
Myers' statement is music to the ears of Congress' Republican leadership. Since the 1994 election, Speaker of the House Newt Gingrich and his lieutenants have been touting HMOs for Medicare recipients as a way to help balance the federal budget while protecting health-care benefits for the nation's elderly. In Florida, with its large elderly population, the congressional discussion has precipitated a benefits war, to the advantage of Medicare members.
While lawmakers sell HMOs as a way to save Medicare dollars, many experts believe that Medicare HMOs actually cost the government more than if senior citizens had stayed with Medicare's traditional fee-for-service care. For the government to save money, it will have to restructure (and reduce) payments to Medicare HMOs. The implication for Florida business: HMOs likely will shift costs to commercial clients to offset federal cutbacks to their Medicare operations.
Medicare, enacted by Congress in 1965, provides government-paid health care to the elderly, age 65 and over, and disabled. The program has two parts: Hospital Insurance (Part A) and an optional Supplementary Medical Insurance (Part B).
This year, Part A hospital insurance, financed by workers' payroll taxes, provides full coverage for inpatient hospital care, minus a $716 deductible. Most retirees also sign up for Medicare's optional Part B supplementary insurance, financed both by $46.10 monthly premiums paid by enrollees and by general government revenues. Medicare Part B pays 80% of physician and outpatient services after a $100 deductible.
To supplement Medicare's benefits, many seniors sign up for private "medigap" insurance policies at a monthly cost of $60 or more. Medigap policies pay Medicare deductibles and co-payments, reducing or eliminating the out-of-pocket expenses for hospitalization and doctors' visits paid by those seniors who rely solely on Medicare. But while medigap plans help retirees cope with the rapidly rising costs of health care, the federal government's burgeoning health-care costs continue to rise.
The Health Care Financing Administration (HCFA), the federal agency that oversees Medicare and Medicaid, has projected that Medicare Part A will be insolvent by 2002. Already, Medicare costs are crippling the nation's finances. Last year, the United States spent $162 billion on Medicare, 2.4% of the gross domestic product. From 1985 to 1994, Medicare spending increased at an average annual rate of 9.6% according to the Congressional Budget Office, which projects spending will continue at or above that rate if changes are not made.
The most talked about attempt to control costs is "managed care" - a system in which economic incentives exist for health-care insurers and providers to deliver health care in a cost-efficient manner. HMOs, the prototypical managed-care plans, provide members with any medical services they require in return for a fixed payment per member per period - termed the "capitation rate." HMOs manage care and save money by focusing on preventive care and letting primary care physicians decide when and whether a patient should be admitted to the hospital, referred to a specialist or administered high-cost tests and procedures.
Since 1985, when the government decided to involve HMOs in Medicare, it has paid HMOs 95% of the estimated cost of each beneficiary's fee-for-service health care in a given county. In return, Medicare HMOs by law provide all the benefits of Medicare, plus in many cases 100% coverage for hospitalization and in-hospital doctor's visits, limited prescription drug coverage and preventive care. The trade-off for members is that they must go to the Medicare HMO's select list of doctors, although exceptions are made in an emergency.
In 1994, Medicare HMO enrollment grew by 25%, more than double the HMO growth for the non-Medicare population. Much of that growth came in Florida, with its 2.5 million people aged 65 and older. In the past two years, three of the nation's largest for-profit operators of Medicare HMOs - Cypress, Calif.-based PacifiCare Health Systems Inc., Minneapolis-based United HealthCare Corp. and Rancho Cordova, Calif.-based Foundation Health Corp. - entered the state through acquisitions. Oakland, Calif.-based Kaiser Permanente, the nation's largest not-for-profit HMO, has yet to enter Florida.
Unlike commercial HMOs that reach potential members at their workplace, Medicare HMOs must search for prospects throughout the population by newspaper advertisements, direct mail, billboards and television.
"The elderly as a group have been huckstered by everyone from roofers to sellers of tinted windows. They are skeptical of any sales pitch," says Peter Kilissanly, president and chief operating officer of Physician Corp. of America, which manages PCA Health Plans of Florida. So Medicare HMO salespeople pitch to seniors over breakfast or lunch at a cafeteria or family-style restaurant.
For most of the last decade, HMOs' interest in Florida's Medicare population has centered in South Florida, where reimbursement rates are high. HCFA pays HMOs an average of almost $600 a month for each Dade County Medicare member, among the highest rates in the nation. By contrast, in northern Florida's rural Jefferson County the average reimbursement is just over $250.
Now, in anticipation that Congress will push retirees into managed care, HMOs are expanding into areas of the state with lower reimbursements as fast as they can get Medicare contracts from HCFA. In Tampa Bay, where the reimbursement rate is about $400 a month, three Medicare HMOs - AvMed Medicare Plan, Prudential SeniorCare and PCA QualiCare - have entered the market in the past two years; C.A.C.-United expects to join them this summer. Competition is heating up in Jacksonville and Orlando, as well.
As HMOs expand statewide, Florida's seniors are making out like bandits. In South Florida's competitive HMO market, for example, members routinely get health-care packages far more generous than in other parts of the state - everything from 100% prescription drug coverage to free transportation to the doctor's office to hearing aids, eyeglasses and dental care. Typically there are no co-payments and no premiums.
Expanded benefits at no or low cost are the key to luring Medicare recipients to HMOs. Pinellas County residents Joe and Judy Lantz signed up for Prudential's SeniorCare when Joe, a retired policeman from Parkersburg, West Virginia, reached age 65 and was dropped from his former employer's health-care plan. Wife Judy, 55, has lupus and has been on Medicare disability for 25 years. Lantz checked out medigap policies, but the $300 monthly premiums were too rich for his modest budget. "I couldn't afford it," he says.
Competition also is forcing HMOs to drop or freeze the $29 to $59 member premiums they charge in some markets for extra benefits. AvMed, a Miami-based not-for-profit plan, for example, dropped its $32 monthly premium for Tampa Bay Medicare members last year when Prudential and PCA entered the market. Bill Gleason, a 76-year-old retired plumber who lives in Valrico in Hillsborough County, recently switched to AvMed from Humana Gold Plus' Premium Option, which was costing him $59 a month. "A doctor is a doctor," says Gleason, adding, "I'm saving $177 every three months." Gleason's live-in companion, 73-year-old Evelyn Wertz, also switched to AvMed, although she is more hesitant about the decision. She's been happy with Humana for almost a decade.
It's not just seniors
Edward C. Peddie, president and chief executive officer of AvMed, says that potential members should take into consideration HMOs' emphasis on preventive health care and solving health-care problems. Unlike fee-for-service medicine, in which health-care providers benefit when a person is sick, Peddie says the HMO benefits by keeping the person active and healthy until they die. "It's a damned shame that HMOs aren't sold as a better way to do it. They're sold for cost," he says.
It's not just seniors who are turning to HMOs for cost savings. Corporations, faced with escalating health care expenses for their retired employees, are looking at how Medicare HMOs can save money. Towers Perrin, the New York-based consulting firm, last year evaluated Medicare HMOs for eight large employers with retirees in Florida, including the city of New York, Nynex, LTV Corp. and Union Carbide. This year, Towers Perrin is working with 50 employers.
For HMOs, the price of gaining market share is squeezed profits. And when some HMOs began reporting lower earnings this spring, Wall Street pounded the HMO industry as a whole.
Florida's Medicare HMOs face another expense. An HCFA rule requires retirees who leave an HMO's service area for more than 90 consecutive days to leave the plan. That means Florida's winter visitors who spend four, five or six summer months outside the state may have to re-join the HMO upon their return to Florida each year, giving the HMO's competitors an annual opportunity to fight for the seniors' business.
To protect the bottom line, HMOs are negotiating stringent, cost-saving terms with doctors and hospitals. The danger of too much cost cutting, of course, is that care will suffer.
That's what happened with managed care plans for Florida's poor on Medicaid. After an expose by the Fort Lauderdale Sun-Sentinel, the state's Agency for Health Care Administration (AHCA) audited Medicaid prepaid health plans. The agency imposed moratoriums on 21 of the 29 plans due to deficiencies in care, documentation and marketing.
In 1987, charges of shoddy medical care, forged HMO enrollments, phony billings and bribery of union officials bankrupted Florida's first Medicare HMO, Miami-based International Medical Centers. IMC's founder, Cuban-born Miguel Recarey Jr., accused of swindling $230 million, fled the country after being indicted and now lives in Spain, out of reach of federal prosecutors.
Current regulatory requirements for commercial and Medicare HMOs are more stringent than for the Medicaid plans, which are not technically HMOs. The Florida Department of Insurance licenses HMOs that serve the commercial and Medicare markets, and AHCA monitors quality of care. For the past three years, Florida has required all HMOs be accredited by an independent quality control organization using the standards of the Washington, D.C.-based National Committee for Quality Assurance (NCQA).
Perverse Medicare costs
But questions remain about what sanctions Florida will impose on HMOs that don't meet NCQA standards. Indeed, in March NCQA reported that accreditation had been denied to Humana HMOs in Miramar and Jacksonville; CareFlorida, another HMO with Medicare operations; and a number of other non-Medicare HMOs doing business in Florida.
Ironically, competition among Medicare HMOs is taking its toll not only on health-care companies' bottom line and their ability to provide quality care, but also on the federal government's finances.
"Higher HMO enrollment may have the perverse effect of increasing Medicare's costs - not lowering them - under Medicare's current payment system," testified Congressional Budget Office (CBO) Director June E. O'Neill in May.
Indeed, a 1993 study by Princeton, N.J.-based Mathematica Policy Research Inc. found that Medicare costs the government 5.7% more when an HMO is involved because the government's reimbursement rate does not take into account a senior's health status.
By law, Medicare HMOs must let any Medicare-eligible members join unless they have terminal renal disease (kidney failure) or are in hospices. But Mathematica reports that healthy seniors are more likely to join HMOs than are seniors with a history of heart disease, cancer or stroke. They tend to stick with fee-for-service care so they can see familiar family doctors and specialists.
So although Medicare pays the HMO 95% of its estimated cost to provide fee-for-service care - theoretically saving 5% - the government actually overpays HMOs.
Would tax dollars be saved if everyone eligible for Medicare, healthy or ill, joined an HMO?
Yes, says the Healthcare Leadership Council (HLC), a Washington-based coalition of managed-care providers, hospitals and pharmaceutical companies. Citing a 1995 CBO report, the HLC says Medicare spending would fall by 19.5% if all Medicare members were enrolled in HMOs. Sandra Christensen, the CBO health-care analyst who authored the report cautions, however, that HMOs aren't yet available everywhere. She says, "In real terms, it wouldn't happen."
The government's failure to consider health status makes Medicare's reimbursement rate a faulty, and costly, way to pay HMOs. And given Congress' quest to slash more than $250 billion in Medicare funds over the next seven years, lawmakers are going to have to alter reimbursement levels to generate savings for the government. (See page 20.)
At the state level, Florida recently adjusted its Medicaid reimbursement formula, adding patient age as a determinant (something Medicare already was doing). The change will cut Medicaid spending in Florida by $65 million in fiscal year 1995-96, according to the AHCA.
If lower reimbursement rates squeeze Medicare HMOs' finances further, who will pay? To make up for lost Medicare dollars, odds are that HMOs will try to recoup money from their commercial HMO operations, which serve Florida and the nation's business community.
Medicare HMO members will also pay, perhaps in quality of care but more likely in the level of care. "HMOs do better when they do the right thing," says AvMed's Peddie, adding, "but you don't do the unnecessary stuff."
To many people, that sounds like health-care rationing.
Indeed, HMOs still have an uphill struggle to convince skeptical seniors. Currently, only 15% of Florida's Medicare members, and a scant 9% nationwide, are enrolled in managed-care plans.
At a recent AvMed sales pitch at Luby's Cafeteria in Pinellas Park, a group of 16 seniors listened to independent brokers Bobby Maggi and Kevin Speranza tease and cajole the audience as they explained the HMO's benefits.
Then Maggi questioned the crowd, "What does HMO stand for?"
To which an elderly lady replied: "Humans Move Over."
