Over the years, Medicare HMOs have been a virtual godsend for the many seniors who depend on costly medications but can't afford supplemental Medigap insurance.
But now, with prescription-drug prices soaring and HMOs fighting to contain costs, many seniors once again are facing steep financial barriers to the medications they need.
According to a study released late last year by pharmacy benefits manager Express Scripts, Medicare enrollees are up to three times more likely to drop out of their HMOs once they've exhausted their prescription-drug benefits.
The findings support insurers' long-held suspicions that many seniors jump from one health plan to another during the year to maximize their drug benefits, and in doing so jeopardize their health and drive up HMOs' administrative costs.
Some industry observers say the study justifies new Medicare rules that, starting next year, will make it tougher for seniors to change their health coverage. Others argue that "plan-hopping," regrettably, is the only way some seniors can pay for required medications and is indicative of the need for a comprehensive Medicare prescription-drug benefit.
"Some people may say these seniors are gaming the system, but they really have so few alternatives," says Emily Cox, Express Scripts' manager of outcomes research and lead author of the study. "When you need $4,000 worth of medication and have $20,000 in annual income, you're going to do whatever you can to make ends meet."
Express Scripts tracked enrollment patterns at three Medicare HMOs with varying pharmacy benefits during a two-year period. In 1997, the plans capped their annual drug benefits at $600, $1,000 and $1,500, respectively, with each allowing beneficiaries to spend one-fourth of the amount every three months. In 1998, all three plans capped benefits at $1,000, with one plan giving its enrollees the full amount upfront.
Among the results, the HMO with the lowest drug cap in 1997 had the highest disenrollment rate, about 19.3%. When the same plan raised its annual limit by $400 in 1998, it saw the highest rate of re-enrollment-21% of those who had dropped out in the previous year.
"What we found is that the risk of disenrollment is two to three times greater for those whose annual drug costs exceed the coverage limits of their plan, regardless of whether the benefits were administered quarterly or annually," Cox says.
Researchers say it's safe to assume that most of the seniors who defected from the HMOs went on to re-enroll in similar plans. "Other studies have shown that seniors who enroll in Medicare managed-care plans are most interested in the lower drug costs," Cox says. "So I think we can infer that a good portion of these seniors sought alternative coverage when it was available."
About one-third of health plans now limit their annual drug benefit to $500 per beneficiary, and in any given year, about 10% of beneficiaries reach their drug caps, she adds.
But while changing HMOs allows many seniors who reach their drug caps to maintain coverage, the practice can have serious consequences for both beneficiaries and HMOs.
When enrollees switch health plans, for example, they often have to change physicians or medications. And this "discontinuity of care" increases the risk of illness, Cox says.
What's more, frequent plan-switching by seniors who "max out" their drug benefits is boosting HMOs' administrative expenses at a time when insurers already are struggling to keep up with rising medical costs, says Susan Pisano, spokeswoman for the American Association of Health Plans.
Pulling the plug
On Jan. 1, more than 100 HMOs nationwide either pulled out of the Medicare+Choice program or slashed their service areas, leaving nearly 1 million seniors to seek new coverage. Insurers blamed the shake-up on federal reimbursement rates, which they contend are too low to cover the escalating cost of treating seniors.
"Our plans work very hard to provide the best benefits that they can afford to offer, but at some point they have to draw the line," Pisano says of the AAHP's 1,000 member HMOs. "If anything, this study shows how critical it is for the government to adequately fund the Medicare+Choice program."
But things are changing. HCFA is now gearing up to enforce new rules under the Balanced Budget Act of 1997 that are designed to curb frequent plan-switching.
Medicare beneficiaries currently are allowed to enroll and disenroll in HMOs on a monthly basis. Starting in 2002, however, they will be allowed to switch plans only within the first six months of the year. Then, in 2003, that period will be limited even further, to within the first three months.
As a result, Medicare beneficiaries who hit their benefit caps before year-end no longer will be able to seek new drug coverage immediately. Their only options will be to stick with their HMOs until the new year or return to fee-for-service Medicare. Either way, they'll be stuck paying the full cost of medications out of pocket.
Already, the amount of money that traditional Medicare beneficiaries pay out of pocket each year for healthcare is projected to rise 67%-to $5,248 from $3,142-by 2025, with some groups expected to spend 70% of their personal income just to meet costs that Medicare doesn't cover, according to a report released earlier this year by the Urban Institute in Washington.
The study didn't look at out-of-pocket spending by those in Medicare managed-care plans. But Marilyn Moon, a healthcare economist and senior fellow at the Urban Institute, says she expects Medicare HMO enrollees to feel a similar squeeze as prescription-drug prices continue to soar, forcing seniors to exhaust their coverage benefits more quickly.
That could have serious repercussions.
Beneficiaries who exhaust their drug benefits are more likely to stop taking their medications or take less than the prescribed amount to curb out-of-pocket spending, Moon says. Doing so puts seniors at greater risk for illness or death, and can lead to more hospitalizations, pushing healthcare expenses up even further.
"Another possibility is that, instead of cutting back on their medication, more seniors will start sacrificing in other areas, such as heat or food," Moon says.
These findings pose an important lesson for HCFA and Medicare HMOs that provide capped drug benefits, experts say.
"As we move forward with a Medicare prescription-drug benefit," Cox says, "we need to understand how beneficiaries' behaviors will be affected by cost-management strategies, such as benefit limits, and apply that knowledge in designing the program."