In their drive to capture more of the Medicare risk market, HMOs are getting a powerful assist from employers seeking to rein in the cost of retiree medical care.
Faced with soaring costs of retiree medical coverage, more employers are encouraging Medicare-eligible retirees to join Medicare risk HMOs.
Median claims costs for Medicare-eligible retirees rose 13% to $983 in 1994 from $872 the previous year, according to figures from consulting firm William M. Mercer.
In Medicare risk HMOs, HCFA pays the plan a capitated rate for the retiree's healthcare. The cost to an employer is lower-sometimes half the cost of regular Medicare supplemental coverage-and retirees usually get richer benefits, such as prescription drugs and preventive care.
Consultant Towers Perrin says employers can save as much as $2,000 annually for each retiree enrolled in selected Medicare HMOs. In June, 60 employers-with 1.5 million retirees-joined Towers Perrin in a coalition to select HMOs to offer their retirees.
Besides holding down medical costs, the savings will reduce the amount employers have to carry on their balance sheets to account for future retirees' medical costs.
Managed-care options grow.
According to a January study by Mercer of 228 mid-sized and large companies, two-thirds of which provide health coverage to retirees, 44% added managed-care options- including Medicare risk HMOs-to their retiree medical-benefit plans during the past three years. And 11% were considering doing so.
"The numbers have gotten bigger" since January, said George B. Wagoner, managing director at Mercer in Richmond, Va.
As a result, the Medicare risk market has grown. As of July, HCFA had awarded 167 Medicare risk contracts with a total enrollment of about 2.8 million, up from 157 contracts with a total enrollment of about 2.4 million enrollees at the end of February. About one-third of the nation's HMOs served Medicare enrollees in 1994, according to the Group Health Association of America.
"I see a growing number of employers offering Medicare risk HMOs as an option" to their retiree population, Wagoner said.
Some employers are telling their retirees they can choose any Medicare plan they want, but that the employer won't pay more for the retiree's healthcare coverage than for a quality Medicare risk HMO in the area where he or she lives, he said.
But Wagoner does not believe employers will eventually offer only Medicare risk HMOs. One reason is that Medicare law may prevent that. Moreover, employers realize that HMOs still have problems providing out-of-area coverage and that many retirees have never belonged to HMOs and have a "lack of comfort" with them, he said.
Wagoner said a number of employers are concerned that the government will change Medicare risk payment methods. That could result in many HMOs dropping out of the market-as they did in the 1980s-and leaving retirees high and dry.
GTE Corp., for instance, is moving carefully in this area. "We would like (retirees) to join HMOs, but I want to absolutely underscore the point that this is their choice," said Bruce Bradley, corporate manager of managed care at GTE, based in Stamford, Conn.
GTE offered Medicare HMOs to its 54,000 retirees for the first time in 1994. Enrollment of 16% is "better than I expected," Bradley said, and he hopes it will exceed 20% this year.
GTE has "a fairly active internal marketing campaign" to give retirees information about HMOs that the company has evaluated based on the quality of their delivery systems, he said.
In Southern California, where HMO care has been commonplace for years, employers appear to be more aggressive.
Two private employers in Southern California working with A. Foster Higgins, a consulting firm, have said that employees retiring after July 1995 will only be offered medical care if they enroll in a Medicare risk HMO. Moves in this direction will propel Medicare risk market growth, said Elisabeth Lake, a principal with Foster Higgins in Los Angeles. Lake declined to identify the employers.
The interest in Medicare risk is shared by public employers. Recently Los Angeles County began offering its 28,000 retirees three Medicare risk plans along with indemnity plans and other HMOs. The Los Angeles County Employee Retirement Association, which administers the county retirement program, encourages retirees to choose Medicare risk HMOs by paying the entire $42 monthly premium.
The alternative is a cost of about $190 a month for an indemnity plan, with the county paying on average about 86%, depending on a retiree's years of service, Lake said. It would be cheaper for the county if more retirees chose Medicare risk plans, but so far only about 7,000 have done so. One problem is not all county workers are eligible for Medicare because public workers don't pay into Social Security, Lake said.
The county is using health fairs and newsletters to promote Medicare risk plans for eligible retirees.
Cypress, Calif.-based PacifiCare Health Systems, the country's largest Medicare risk HMO with close to 400,000 enrollees nationally, has seen employers "get a lot more creative and aggressive" in encouraging retirees to join HMOs, said Michael Lombardi, senior vice president of the California Secure Horizons plan, PacifiCare's HMO for seniors.
Secure Horizons has 350,000 Medicare risk enrollees in California, about 25,000 of them through employer groups, he said.
Almost 250 employers contract with Secure Horizons for Medicare risk coverage in California. "Three years ago, we maybe had 30 employers," Lombardi said.
Sears Roebuck & Co. has just rolled out pilot programs with Secure Horizons and other HMOs in Southern California, Arizona and Florida to offer retirees Medicare risk HMOs. "We're moving very aggressively and hope to have another 20 or so locations in 12 to 15 months," said James Bronson, director of compensation and benefits at Sears.
Bronson said retirees who join Medicare risk HMOs will have broader coverage and may pay less than the $25 per month they currently pay for Medicare coverage.
Sears is among the 60 employers participating in the coalition with Towers Perrin to evaluate 100 HMOs for their retiree populations in 50 markets covering 30 states.
"The vision for this initiative is to create a competitive model," said Joseph Martingale, a principal with Towers Perrin in New York. The plan is to qualify as many HMOs as possible, which will drive premiums down as the plans compete for retirees, he said.
The HMOs responded to Towers Perrin's requests for proposals, and the consultant is currently delivering information to employers.
Marketing to retirees.
Towers Perrin will help employers sell retirees on Medicare risk HMOs by supplying scripts for an introductory meeting, descriptive brochures and a video that will be prepared cooperatively with the GHAA, Martingale said.
Responding to multistate employers with large numbers of retirees, the national Blue Cross and Blue Shield Association earlier this month said it will unveil a national Medicare managed-care network on Jan. 1, 1996 (Aug. 7, p. 18).
The network of Blues Medicare risk HMOs, already doing business in 10 states, will grow as more Blues plans are certified by HCFA, said Judith Wilson, vice president of national managed-care services at the association.
The Blues network will offer unprecedented portability to retirees, she said. For instance, a retiree who joins a plan in Pennsylvania will be able to receive care from a plan in Michigan.
While applauding the national Blues plan, some observers said it will present an administrative challenge that Blues plans have not yet mastered in the coverage of active employees.
For example, one hurdle to overcome is that some Blues networks-typically in the East-pay physicians on a fee-for-service basis, while in Western states doctors are paid on a capitated basis. How, Wagoner asked, will different plans be reimbursed for a traveling retiree who visits several Blues?
The Blues also must obtain waivers from HCFA to implement portability, observers said. Wilson conceded that portability will not occur "automatically." She said the association is in discussions with HCFA to work out the technical details.