The news that another 500,000 Medicare beneficiaries will lose their managed care coverage next year surprised few observers.
By the end of the year, more than 2.1 million seniors will have lost their Medicare+Choice coverage since 1999, the first year that health plans entered the Medicare managed care market.
While about 5 million seniors will still have coverage through Medicare+Choice, the 35% decrease over four years in the number of seniors covered by what was to be Medicare's savior raises questions as to its viability.
However, few industry experts doubt some form of Medicare managed care will survive.
"We're not going to walk away from managed care," says Len Nichols, vice president of the Washington-based Center for Studying Health System Change. "We have to rethink the models and techniques."
Pouring more money into the system before addressing fundamental problems won't fix Medicare+Choice, says Bob Berenson, M.D., senior adviser at the Academy for Health Services Research and Health Policy. "Propping it up now just to have it provide additional benefits at great costs strikes me as a bad use of funding."
Another 500,000 Medicare enrollees will lose their Medicare+Choice coverage at the beginning of the year, according to the Centers for Medicare and Medicaid Services, based on notices from insurance carriers that they won't cover Medicare beneficiaries after December. Nearly 1 million people were dropped at the end of 2000.
Dozens of insurers have stopped offering coverage, citing mounting losses. Some of the nation's largest plans ended their participation in Medicare+Choice last year, saying they spent $2 for every $1 the government paid them.
Congress created Medicare+Choice in the Balanced Budget Act of 1997 in an attempt to save the ailing health plan for seniors.
Despite being billed as a cost-saving measure, Medicare managed care has failed at that mission, Berenson says.
"I think it's pretty well established that we are paying more for Medicare+Choice than we were paying under fee-for-service to provide Medicare benefits," he says. "What people are missing is that plans actually are getting paid more under the BBA formula."
Under the BBA, Medicare+Choice plans receive 98% of the fee-for-service costs, he says; before BBA, the government paid 95%. Rather than risk-adjusted payments, health plans receive the average cost of caring for beneficiaries, Berenson says.
Medicare+Choice programs tend to attract healthy beneficiaries who spend less of the Medicare dollar than their less-healthy peers, he adds.
However, plans still manage to spend more than they receive from the government because they haven't been able to rein in their medical costs, he says. In other words, Berenson says, the health plans haven't been any more successful in controlling Medicare costs than they have been in controlling costs on the commercial side.
"Their networks are in trouble," he says. "Their docs are quitting. They're bargaining for better payment levels. Their costs are going up. It's part of the managed care backlash. They're giving up a lot of the tools they used to use" to keep costs down.
Meanwhile, the government is losing money with Medicare+Choice, Berenson says.
"It's no longer as good a deal as it was," he says. "The traditional Medicare can administer benefits, and it should administer prescription benefits. What it doesn't do is manage patients with chronic diseases. They need to rethink the program, retool the program."
As widespread as that belief may be, there are two fundamental difficulties with reforming Medicare, Nichols says.
"The demographic realities are there: Right now there are four workers per beneficiary. We'll be going to two workers per beneficiary in 30 years. That's going to start kicking in in 10 years. That's got to be dealt with. The payroll tax burden will have to go up a lot."
The second difficulty is the wide regional variation in Medicare payments, he says. Nobody wants to move to a situation where companies receive less money to maintain the current standard of care for recipients, Berenson says.
"I don't think we've necessarily figured out the right model. We haven't figured out the way we need to pay people."
Medicare managed care has created efficiencies in the system, but much work remains to be done, he says.
"You can't take X percent out of last year's payment and expect plans to provide the same services and benefits," Nichols says.
"The government has to ante up and pay more than they were paying last time. I hope, over time, we can get back the savings."