Shopping for Managed Care: The Medicare Market
Dallek, Geraldine, Generations
Why so many elderly people enrolled in Medicare are joining managed care.
Managed care is now an indelible part of the Medicare program. Over the past few years, the number of HMOs contracting with Medicare has grown exponentially. From I987 to I997, the number of HMOs marketing to Medicare beneficiaries increased from 161 to 283. In 1990, only 3.3 percent of the Medicare population were in HMOs; today, about 16 percent of the population are in managed care plans rather than fee-for-service. In one year alone, between June I996 and June 1997, enrollments in Medicare HMOs grew by 29 percent (LeRoy, Hoadley, and Merrell, 1997), and by the year 2002, the Congressional Budget Office predicts that more than one quarter of the Medicare population will be enrolled in HMOs.
In many ways, this growth is surprising. Few pundits could have predicted that so many elderly Medicare beneficiaries would be willing to change their physicians and lose their guaranteed access to specialists to plunge into the untested waters of managed care. Yet, this is exactly what they are doing-in droves. Clearly, HMOs offer much that the elderly find attractive. This paper addresses the following questions: Why are so many elderly people enrolled in Medicare joining managed care? What are the risks they face in the managed care market? And what is the future Medicare marketplace likely to look like as a result of the Balanced Budget Act of 1997?
WHY OLDER PEOPLE CHOOSE MANAGED CARE
Managed care has some real advantages over traditional fee-for-service Medicare for older people, and many features long perceived as disadvantages-lack of continuity with current providers, for example-have in some cases been remedied.
Managed care, at its best, can reduce much of the harmful excesses of a fee-for-service system that encourages overuse of physicians, drugs, medical equipment, and procedures. Through coordination, managed care can ensure that medical interventions are appropriate to the problem and that the entire patient, not just the particular disease, is treated. Managed care can screen contracting physicians to ensure that they all provide quality care, adopt the latest in disease management principles and clinical guidelines, and establish internal quality assurance systems to continuously improve the care provided. At its best, managed care provides high quality care while saving money for the healthcare system.
The search for improved quality may draw some older people to join HMOs, but they join for other reasons as well. For example, they wake up one morning, open their mail, and discover that the cost of their Medigap insurance policy (which pays costs not covered by Medicare) is increasing by 20 to 30 percent. Or they go to their local pharmacy only to find that a new prescription drug will cost $50 a month.
In short, the elderly are being priced out of the Medicare fee-for-service market. They are joining HMOs because most offer prescription drug and other benefits not covered by Medicare. The prescription drug benefit is especially attractive to the Medicare population. Some 69 percent of Medicare HMOs offer a prescription drug benefit (Komisar et al., 1997). In Los Angeles, all of the HMOs marketing to the Medicare population offer an unlimited prescription drug benefit.
The elimination of the need to purchase a Medigap policy is also a strong inducement for the elderly to join a managed care plan. Depending on the type of Medigap policy purchased, the age of the purchaser, and the state and county in which the person lives, Medigap policies can cost anywhere from $400 to over $7,000 a year (Alecxih et al., 1997). And the costs of these policies continue to go up dramatically. Medigap premiums rose an average of I3 percent in 1997, following a 27 percent increase in 1996 (Hendren, 1997).
Managed care looks like, and is, a "good deal" for many elderly unable to afford the costs of fee-for-service Medicare. …