Bush Medicare Plan Hurts Seniors by Forcing Them Into HMOs and Private Insurance PPO Plans for Drug Coverage

Feb. 13, 2003

Bush Medicare Plan Hurts Seniors by Forcing Them Into HMOs and Private Insurance PPO Plans for Drug Coverage

WASHINGTON, D.C. – President Bush’s plan to push Medicare beneficiaries into HMOs and Preferred Provider Organizations (PPOs) to receive drug coverage would be a huge step backward for the Medicare program, according to a report released today by Public Citizen. The organization examined authoritative government and private sector research on the Medicare program’s current experience with private sector plans under the Medicare+Choice program and found that coverage offered through private insurers is unreliable, inefficient, confusing to beneficiaries, results in added costs to taxpayers and limits patients’ choices of doctor.

The report documents that Medicare’s experiment with relying on HMOs to offer coverage for doctor and hospital care has been a failure, and it shows that private plans should not be relied upon to offer prescription drug coverage. Since 1999, HMOs have dropped 2.4 million seniors and people with disabilities, forcing them to find new health care providers. HMOs have left the program despite the fact that, according to government reports, they are overpaid for the care they must provide beneficiaries when they participate in the program.

Public Citizen also examined the benefits offered by PPOs under a Bush administration demonstration program begun last year and found that these plans also have significant drawbacks. PPOs are intended to give seniors a much greater choice of providers than they have with HMOs. But like HMOs, they are likely to be unreliable, because they probably will withdraw from the program, forcing beneficiaries to find other coverage.

PPOs also charge significant additional premiums and offer meager coverage for prescription drugs. Further, once the sizable additional premium that beneficiaries must pay to enroll in the plans is taken into account, their coverage for doctor and hospital visits is little better than traditional Medicare. In some plans, hospitalized beneficiaries must pay more out of pocket than if they had stayed in traditional Medicare.

“This report shows why it would be foolish to privatize the Medicare program – either to get drug coverage from private plans or to force beneficiaries into HMOs for all coverage,” said Frank Clemente, director of Public Citizen’s Congress Watch. “It will mean less choice of doctors, unreliable coverage for beneficiaries and higher costs for taxpayers due to the inefficiencies of private plans.”

Among the report’s other major findings:

  • The 10 states with the highest number of Medicare+Choice enrollees who were dropped from their plans since 1999, including figures for 2003, are: Texas: 313,767; Florida: 264,170; California: 184,578; New York: 179,941; Pennsylvania: 154,519; Ohio: 144,400; Maryland: 116,273; Connecticut: 110,783; Washington: 85,265; New Jersey: 79,733.
  • HMOs offer unreliable coverage. The proportion of beneficiaries enrolled in private plans has fallen from 17 percent in 1998 to 11 percent in 2003. Nationwide, the number of states in which HMO Medicare drug coverage was unavailable nearly doubled, from 9 to 17 from 1999 to 2003.
  • HMOs are overpaid but demand still higher payments for providing coverage. HMOs are withdrawing from the Medicare program despite the fact they are overpaid, according to government investigators. From 1998 to 2000, federal payments to Medicare HMOs exceeded by 13.2 percent the costs the program would have incurred for treating patients. In 1998, Medicare HMOs were overpaid $5.2 billion.
  • HMOs are not viable in much of the country, particularly in rural areas. In 2003, only 61 percent of beneficiaries have access to a Medicare HMO. This represents a significant decline from 1998, when 74 percent of beneficiaries had access to an HMO.
  • PPOs offer meager drug benefits. Of the most generous plans offered in each of 18 geographic areas, only four will provide any coverage for brand-name drugs. In six of the plans, beneficiaries will pay more in annual enrollment premiums than they will receive in prescription drug coverage.
  • Some PPOs double bill beneficiaries. Beneficiaries who stay in the hospital for an extended period will find that some PPO plans, seven of 46 available, will charge them more than if they had stayed in traditional Medicare. Given that PPOs generally charge sizable additional premiums, averaging about $1,000 a year, this amounts to double billing on the part of the PPOs.
  • HMOs and private insurers are far less efficient than the Medicare program. The Medicare program spends a mere 2 percent of its budget on administrative costs. By contrast, HMOs on average spend 15 percent of their revenue on administrative costs. Some HMOs spend as much as 32 percent of their revenue on administration. Private insurers that offer supplemental insurance to Medicare enrollees (Medigap policies) spend an average of more than 20 cents of each premium dollar on agents’ fees, marketing, advertising, administration and profits – not on health care.
  • Private insurers don’t have the clout to negotiate drug price discounts that are as deep as those the federal government gets. For example, the federal government’s Veterans and Defense departments negotiate price cuts of 52 percent off the price paid at the pharmacy. HMOs and other private sector purchasers negotiate discounts of only 12 to 40 percent.
  • Health problems among seniors make proposals relying on choice unworkable. Nearly a quarter (23 percent) of Medicare beneficiaries have health (e.g., poor hearing or eyesight) or cognitive problems. One national survey found that 44 percent of adults over 60 are functionally illiterate.

Click here to view the report.

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