Magazine article The Washington Monthly

HMO Ripoff

Magazine article The Washington Monthly

HMO Ripoff

Article excerpt

Depending on your point of view. HMOs arc either rite greatest advance since sliced whole-grain bread or the worst threat to human health since smallpox. But everyone agrees on one basic point: HMOs, with their enforced efficiencies anti limited-access approach to specialized care, are a terrific means to cut health care costs. It takes the U.S. government, through the antiquated Medicare system, to actually lose money hen beneficiaries switch over to HMOs.

The basic problem is simple. Medicare is reimbursing HMOs at too high a rate. Essentially, the system works like this: For each Medicare beneficiary they treat. HMOs receive a flat fee, called capitation, based on the average cost of Medicare's fee-for-service patients within the same geographic area. Currently, that fee is set at 95 percent of fee-for-service patients' costs. Using simple arithmetic. that ought to translate into a 5 percent savings every time a Medicare beneficiary signs up with a local HMO-which, multiplied by the 38 million people now covered by Medicare, could mean an annual savings of $10 billion. Unfortunately, the government's 5 percent solution fails to take into account one important fact: Medicare beneficiaries who opt for HMOs tend to be healthier than average. That's because enrolling in a managed care plan usually means switching primary-care doctors. an unattractive prospect for chronically or critically ill patients who have longtime relation ships with their physicians. That means the HMO option appeals primarily to the healthy elderly, who are less interested in doctor choice than in avoiding the 20 percent co-payment demanded under Medicare's fee-for-service system. …

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