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The Failure of Medicare+Choice
by Richard A. Sherer

Geriatric Times March/April 2003 Vol. IV Issue 2

When the U.S. Congress approved the Balanced Budget Act of 1997, that act included an innovative program called Medicare+Choice that promised to bring the newly discovered benefits of managed care to Medicare recipients. For a time, it appeared to be a perfect marriage, as HMOs signed up hundreds of thousands of seniors and provided them with a broad array of services not available under traditional Medicare, including prescription drug coverage and preventive care.
Five years later, Medicare+Choice is languishing. Many HMO operators are rushing to get out of the program, citing lack of support from Congress, and forcing many beneficiaries to return to traditional Medicare. The American Association of Health Plans (AAHP) stated in a press release that as many as 670,000 seniors could be forced out of Medicare+Choice plans by next January. Rep. Nancy Johnson (R-Conn.), chair of the House Ways and Means Subcommittee on Health, warned in Health Affairs that the program is failing "from the very ills that afflict" traditional fee-for-service Medicare.
Medicare "is inflexible in its benefits structure, bogged down in paperwork, and irrational in its payments," Rep. Johnson wrote. While Medicare+Choice represents a viable alternative, she added, "No policy analyst could reasonably contend that the legislated 2% yearly updates for most Medicare+Choice plans in urban counties sufficiently cover health care costs, which are growing at 8% to 10%."
"It doesn't take a math whiz to figure out that those numbers are unsustainable," AAHP spokesperson Mohit Ghose told Geriatric Times.
Indeed, money is at the heart of the problem. Congress has capped reimbursement increases to Medicare+Choice providers at 2% for three of the last four years; in the fourth year, some plans received a 3% increase. As a result, HMOs are dropping out of the program or reducing either their benefits or service areas almost continuously.
Tom Scully, administrator of the Centers for Medicare & Medicaid Services (CMS), said in a statement to the press last September that nine plans had decided to withdraw from the program, and 23 others were reducing their service areas. In what amounts to a commentary on the program's prospects, he added, "The results are better than expected, and we have far fewer plans leaving Medicare than in 2001 or 2002."
A total of 216,390 enrollees lost coverage when their plans dropped out of the program beginning in January. Of those, 35,793 were in areas not served by any other Medicare HMO and were forced to return to traditional Medicare. Currently, CMS does not have figures for the number of beneficiaries who opted to enroll in another Medicare+Choice program.
"There is no longer any plan in Detroit," Ghose told GT. "Houston now has one plan when there used to be nine. There are stories out of Florida, where they've taken $20 million in losses in three years, that plans have to leave certain counties."
In 2002, 58 plans dropped out of Medicare+Choice. Enrollment in the program has dropped from a high of 6.3 million to 5 million since 1999.
A 2002 study by Brian Biles, M.D., M.P.H., and colleagues at George Washington University Medical Center for The Commonwealth Fund found, "The number of plans participating in Medicare+Choice fell from 346 in January 1999 to 149 in January 2002, a decline of 57%. The complete or partial withdrawal of plans from 374 market areas in these years affected some 2.2 million Medicare beneficiaries."
"Every year since 1998, we've had pullouts," reported Lori Achman, M.P.P., a health analyst for Mathematica Policy Research Inc. and co-author of a continuing series of reports on Medicare+Choice for The Commonwealth Fund. "1999 was highest, and it has come down a little. Last year, the number of enrollees affected was about 250,000."
In 1998, 74% of the Medicare-eligible population had access to at least one Medicare+Choice plan. By 2002, that figure had declined to 60.5%.
According to the AAHP annual membership survey, health plans were projecting that more than a quarter of a million beneficiaries would drop out of the program rather than pay higher out-of-pocket costs or accept reduced benefits.
"Two hundred seventy-six thousand was the answer to a question about moving forward: what do you see as possible disenrollment from your health plan because of the cost and benefit changes you have had to institute for 2003?" said Ghose. "If funding levels were correct for this program, folks would still be getting the benefits they received in 1998."
In addition, based on the number of plans that intend to drop out of the program entirely by next January if Congress does not increase reimbursements, AAHP said as many as 394,000 beneficiaries could be forced out by plans leaving the program in 2004.
"Health plans aren't making these decisions lightly," Ghose added. "When they're forced out of markets, that only occurs when there is nothing else they can do in that particular market."
Before the creation of Medicare+Choice, most beneficiaries were enrolled in traditional Medicare. Many of them also had some form of supplement insurance, known colloquially as "Medigap" insurance, that paid for services--such as prescription drugs--not covered by Medicare. In the early 1990s, the government allowed managed care companies to offer HMO coverage to a limited number of Medicare recipients. These HMO programs, known collectively as "Medicare Risk plans," were the foundation of Medicare+Choice.
It is not hard to see why Medicare beneficiaries, especially those with lower incomes, were attracted to these plans. Premiums were low or nonexistent and the HMOs relied on managed care techniques to keep costs within the reimbursement levels set by the government. Most Medicare+Choice plans included coverage for prescription drugs, eliminating the need for Medigap insurance.
Over the last two years, however, in addition to the number of plans that have dropped out of the program entirely, many Medicare HMOs have raised premiums and reduced or eliminated some popular coverages, including the prescription drug benefit.
"In 2001, 62% of Medicare+Choice enrollees had at least some coverage for brand-name prescription drugs; in 2002, only 43% have this coverage," wrote Achman and her associate, Marsha Gold, Sc.D., in a report for The Commonwealth Fund published in November 2002. Twenty-nine percent of enrollees had coverage for generic prescriptions only, and 28% had no prescription coverage at all.
"More than two-thirds of the health plans continue to offer some type of drug benefit," said Ghose. "It's changed drastically since 1998, but most patients still have access to some level of coverage. We're trying our best to keep going on the limited resources that are being allocated out of Washington."
Ironically, if Congress approves a prescription drug benefit for all Medicare recipients, it could further weaken the appeal of Medicare+Choice plans. "Certainly, it would take some pressure off the Medicare+Choice plans," Achman said, "but I don't know how attractive they're going to be if they're not offering drug coverage."
For enrollees whose plans continue in operation, rising premiums also will help erode the appeal. Premium increases of $5 or $6 a month may not sound substantial, but they represent potential hardship for beneficiaries on low fixed incomes. While 61% of the Medicare population had access to a zero-premium plan in 1999, only 32% were in areas served by zero-premium plans in 2002.
Nevertheless, for some beneficiaries, Medicare+Choice remains the most attractive option. "If there's a plan in [their] area, most people will go to that plan because they are low-income people," said Achman. "It's difficult to get into the Medigap market if you've left it."
If plans leave the program entirely, in effect freeing their enrollees to return to traditional fee-for-service Medicare, the costs will be even greater.
Achman and Gold found that the average annual out-of-pocket expenditure for Medicare+Choice beneficiaries in 2002 was $1,787, including all premiums, co-pays for prescription drugs and other cost-sharing. For beneficiaries in traditional Medicare, they were $2,582. For those in three typical Medigap plans, annual costs were $2,861; $2,930; and $3,058.
Congress will have to decide this year on Medicare+Choice's future. Without an increase in funding, HMO operators will be unable to stay in the program, and patients will be forced to find other resources.