Academic journal article Health Care Financing Review

Adjusted Community Rate Reforms to Promote HMO Participation in Medicare+Choice

Academic journal article Health Care Financing Review

Adjusted Community Rate Reforms to Promote HMO Participation in Medicare+Choice

Article excerpt


Until recently, Medicare beneficiaries had been enrolling in risk-contract HMOs at record pace. Enrollment more than doubled--from 2.3 million to 5.2 million--between December of 1994 and December of 1997 (U.S. General Accounting Office, 1998). During 1997, average monthly enrollment of Medicare beneficiaries in risk HMOs increased by approximately 93,000. By September of 1998, however, this monthly enrollment growth had declined to just over 55,000. It declined further to approximately 38,000 in December (Health Care Financing Administration, 1999). By the beginning of January 1999, a total of 99 risk HMOs had discontinued operations in 400 counties in 31 States. Approximately 407,000 HMO enrollees (roughly 1 in 14) had to seek alternative health care providers, and 60,000 of these were forced to obtain health care services from fee-for-service (FFS) providers. Overall, 800,000 Medicare beneficiaries lost all access to risk HMOs in their counties (U.S. General Accounting Office, 1999).

Although HMO enrollment growth increased in the first half of 1999, it is not yet clear if this increased growth will be sustained. The 1999 Health Market Survey (Medicine and Health, 1999) found 70 of the 301 Medicare risk HMOs are no longer accepting new enrollees, and some major plans have already announced further withdrawals for 2000 (Falk, 1999).

These statistics are disturbing, particularly if continued expansion of the managed care sector is to help limit the growth of Medicare expenditures. (Medicare expenditures are projected to grow by 80 percent over the next 10 years, from 8231 billion in 1998 to $416 billion in 2007 [Smith et al., 1998].) Therefore, it is important to identify the causes of the observed slowdown in enrollment growth in the Medicare+Choice program (the alternative to Medicare FFS) and the observed termination of Medicare operations by risk HMOs.

The observed terminations and reduced enrollment growth are likely caused by many factors. Some obvious factors include the changes introduced in the Balanced Budget Act (BBA) of 1997 (Public Law 105-33). The BBA placed new limits on increases in the capitated payments that Medicare makes to Medicare+Choice managed care organizations (MCOs) on behalf of Medicare enrollees. Historically, these payments have generally increased by more than 8 percent annually. But, largely as a result of the BBA reforms, 1999 payments were only 2 percent above their 1998 levels in approximately 85 percent of counties served by MCOs (U.S. General Accounting Office, 1999). The BBA also imposed new auditing and accounting requirements on MCOs (one-third of the HMO financial reports filed in conjunction with the Medicare+Choice program must be audited annually) and imposed user fees on MCOs that amounted to 895 million in both 1998 and 1999. (These fees help to offset the costs of informing Medicare beneficiaries about the Medicare+Choice plans available to them [Medicare Payment Advisory Commission, 1999].) By reducing the revenues and increasing the costs associated with participation in the Medicare+Choice program, the BBA has reduced the financial attraction of the program. This reduced attraction may be a primary determinant of the observed withdrawal from the Medicare+Choice program.

There are other factors that may have contributed to the observed withdrawal. For instance, MCOs were required to submit their proposed 1999 premiums and benefit packages before HCFA published its final regulations implementing Medicare+Choice for 1999. When these MCOs were denied permission to raise premiums or reduce benefits after seeing the final regulations, some withdrew from some of the areas they had been serving (Medicare Payment Advisory Commission, 1999). Significant increases in the prices of medical supplies and services, more intense industry competition, less favorable enrollee selection, and growing public sentiment against the rationing of medical services may also have diminished the profitability of serving Medicare beneficiaries (Medicare Payment Advisory Commission, 1999). …

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