20 May 2004
HMO'S to Cost Medicare $2.75 Bln Extra in '04
CHICAGO (Reuters) - A new law encouraging private health insurers to bid for Medicare business will cost the government $2.75 billion more this year than a fully government-run program, a nonprofit group reported on Thursday.
The Commonwealth Fund's study suggests that the government may be better than private insurers at managing health-care costs for the elderly, the authors said.
"It suggests that private health plans don't save more money," said Brian Biles, professor of health policy at George Washington University, an author of the study, "The Cost of Privatization" in Medicare.
The analysis of government data found that payments to the private plans in 2004 will be an average 8.4 percent higher than the costs in traditional Medicare, the study found. That comes out to $552 more per recipient.
Biles said the study controls for the fact that private insurers tend to cover healthier people, while Medicare must cover everyone.
Seniors in the United States now have the option of buying a private plan contracted by the government from a company such as Aetna Inc. or PacifiCare Health Systems Inc.
Biles worked on the 1973 HMO Act, passed under President Richard Nixon, which laid the groundwork for modern health insurers known as Health Maintenance Organizations.
Landmark changes to the Medicare program late last year added a prescription drug benefit for its 40 million beneficiaries, and significantly hiked payments to private health plans.
PLANS FLED
America's Health Insurance Plans, a trade group representing health plans and insurers, challenged the report's conclusions.
The group said the analysis is slanted because it excludes costs the federal government incurs for so-called graduate medical education, in effect not making it an apples-to-apples comparison.
In 1997, lawmakers passed legislation aimed at luring private sector HMOs into Medicare with incentive payments. The plans initially rushed in and at a peak insured about 16 percent of the Medicare population from 1998 to 2000.
HMOs offer some services traditional Medicare does not -- including payment for prescription drugs.
But HMOs retreated from the program, complaining that payment rates didn't keep up with medical inflation. Today just 5 million Medicare members, or about 12 percent of the population, choose the private plans.
"The plans said, 'look we can invest our time and money on the employer side', " Biles said.
Backers of the recent Medicare changes fought for higher payments to private plans to once again entice them back in.
But some analysts say the elderly will be skeptical; when the private plans pulled out of markets last time, it disrupted their insurance and made them wary of HMOs.
"The experience of private health plans in Medicare has not been promising as plans have dropped coverage where it hasn't been profitable," said Karen Davis, president of the Commonwealth Fund.
And the private Medicare plans are not available universally. About 40 percent of the Medicare population, especially in rural areas, lacks access to one, the Fund said.
"If there is a bottom line, it is there is $2.7 billion that is being used to benefit roughly 5 million of 40 million Medicare members," Biles said. "It's a question of efficiency and of equity."
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