MEDICARE HMOs HURT BY PAYMENT FORMULA - Brief Article - Statistical Data Included

Healthcare Financial Management, June, 2000

Medicare Choice plans, like most managed care plans, are profitable if they can negotiate contracts with providers and control costs so their expenses are less than their payment, according to the May 2000 Best's Review, published by A. M. Best Company, Oldwick, New Jersey. Best's Review states that Medicare payment varies widely from state to state. In 1999, the national average monthly payment per member for Medicare Choice HMOs was $488.45. However, the average monthly payment per member was $676.64 in Broward County, Florida, and $394.42 in Dakota County, Minnesota. In states where payment rates are high, HMOs can offer extra benefits without charging a premium. Best's believes the discrepancy in payment is the reason many Medicare Choice plans have withdrawn from some markets in the past two years. The payment formula prevents Medicare HMOs from keeping up with medical inflation in some areas since passage of the Balanced Budget Act of 1997.

Medicare Choice HMOs have dropped 5 percent of all enrollees, effective in January 2000, according to HCFA. It is unknown how many of those people have enrolled in another Medicare Choice plan, according to Best's. Of the 305 Medicare Choice HMOs, 41 plan to leave the Medicare market this year and 58 plan to reduce their service areas. In 1999, 43 Medicare Choice HMOs left their markets, and 52 reduced service areas. Many HMOs that stayed raised premiums or cut benefits, including prescription benefits, according to Best's Review. Medicare Choice membership grew from 1.8 million in December 1995 to 6.2 million in May 1999, according to data from the Kaiser Family Foundation. Membership dropped slightly for the first time in March 2000, indicating that growth in the plans might be leveling off.