Academic journal article The Journal of Consumer Affairs

Understanding Needs and Concerns of the Elderly regarding Medicare Health Maintenance Organizations

Academic journal article The Journal of Consumer Affairs

Understanding Needs and Concerns of the Elderly regarding Medicare Health Maintenance Organizations

Article excerpt

Medicare beneficiaries, who currently receive health care under a fee-for-service system, present new challenges and opportunities for Medicare-HMOs. Part of the challenge lies in discerning major need dimensions underlying the elderly's choice between standard Medicare and a Medicare-HMO. Although Medicare-HMOs have special features likely to be particularly beneficial to the elderly, they are not greeted without some disquietude. The paper focuses on identifying the major need dimensions and concerns of the elderly in choosing a Medicare-HMO over the traditional fee-for-service Medicare system.

Today's health care business environment requires that planners and management decision makers fully understand and effectively respond to the significant changes occurring in the health care markets. One of the most widely recognized and pervasive of these changes is the aging of the population. There is a growing concern in the nation regarding meeting the future health care needs created by an aging population. The elderly population, defined as those who are 65 years of age and over (Gilly and Zeithaml 1985; Roedder-John and Cole 1986), is growing twice as fast as the general population and is projected to account for over 21 percent of the U.S. population by the year 2030 (Lumpkin and Hunt 1989).

Currently, an estimated 29 percent of the U.S. health care expenditures are devoted to the elderly. The Medicare program, the U.S.'s largest single health insurance program, serves over 30 million elderly and disabled citizens. Spotts and Schewe, for example, pointed out that "Medicare payments have continued to increase as part of the elderly's total health care expenditures and now constitute the source of 45 percent of the total payments for persons over 65. Hospital costs account for nearly half (45.2 percent) of health care expenses per person" (1989, 36).

With the changing demographic structure of the population and the burgeoning cost of health care for the elderly, health care planners have begun to take a closer look at alternative delivery systems such as health care maintenance organizations (HMOs). HMOs offer a comprehensive package of health care benefits for a fixed premium and usually feature some limitations on consumers' choice of providers. In addition, providers of care are usually placed at some economic risk, and thus, face incentives to reduce "unnecessary" services. The U.S. government has nurtured the development of HMOs through the initial provision of grants and loans and the passage of a law that compelled most employers to include HMOs (if available) among the health care options offered to employees.

HMOs integrate several cost containment measures such as utilization review, pre-admission authorization, outpatient surgery, and preventive care under one institutional entity. The presence of HMOs as a significant force in the market place has been expected to stimulate competition among health care providers and exert a restraining influence on overall health care premiums. Empirical evidence points to the success of HMOs in reducing costs of in-patient care, especially through lowering hospitalization rates (GHAA 1990; Luft 1981; Manning, Leibowitz, Goldberg et al. 1984; Schlesinger 1985).

With growing support from employers, labor unions, and the federal government, enrollments in HMOs increased at an accelerating pace among the general employed population. In 1980, for example, HMOs enrolled 9.1 million persons with a market penetration of 4.0 percent. In comparison, HMO enrollments in 1990 were estimated at 33.1 million, and HMO market penetration was 13.3 percent (Interstudy Edge 1980, 1990).


The passage of the Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (Section 114) enabled the development of risk-based prospective payment health plans for the elderly, commonly referred to as Medicare-HMOs (Iglehart 1985). …

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