But critics say insurers are now flocking to private fee-for-service plans -- which were nearly ignored in the first few years after they were authorized in 1997 -- because they offer the easiest way to capitalize on Medicare's now-generous payment rates. Since the plans don't require insurers to develop provider networks, they can be rolled out quickly with minimum investment -- and can be dropped just as easily.
"Insurers aren't really being asked to do anything for the additional subsidies," says Marilyn Moon, vice president and director of the health program at the American Institutes for Research, a not-for-profit research firm in Washington. "I don't see that these plans add any value whatsoever."
Moon and others believe that it's only a matter of time before Congress realizes the error of its largesse and begins to roll back its rate increases.
Legislators have already been pushing to cut Medicare's payment rates and to do away with the stabilization fund. So far, the White House has made it clear that it would veto any such cutbacks, but the issue is bound to keep resurfacing as the nation continues to grapple with its budget deficit, industry observers say.
Seniors certainly have been burned before. In the early '90s, Medicare HMOs enjoyed rapid growth and often hefty profits as generous payment rates allowed them to offer an array of extra benefits at no additional cost. Enrollment in the plans nearly tripled between 1994 and 1999, to a then-peak of 6.4 million members, or about 17% of all Medicare beneficiaries. But the system imploded when budget pressures prompted Congress to pass the Balanced Budget Act of 1997, which effectively capped annual reimbursement increases to insurers at about 2%. Arguing that the tighter rates failed to keep pace with their soaring medical costs, Medicare plans began to impose premiums and deductibles, curtail benefits and eventually dump unprofitable markets altogether.
"Medicare plans have shown a lack of stability in the past, and I don't think the dynamics have changed very much," Moon says. "We don't know yet whether the next exodus will be on the same order of magnitude, but for the most part, insurers remain willing and able to just pick up and leave."
There may already be signs that the industry is shifting. The CMS says a total of 28 plans have filed to withdraw from certain markets or reduce their service areas next year, displacing nearly 60,000 Medicare beneficiaries in 40 states.
Those totals are a far cry from the mass exits reported early in the decade; and unlike in previous years, when thousands of members were forced to return to traditional Medicare, the vast majority of next year's displaced seniors will have access to at least one other managed-care option. Still, the numbers are up noticeably from 2005, when just 6,000 seniors were cut loose by four plans (See chart, p. 25). The CMS did not release figures for 2006, but analysts say the defections for this year were minimal.
While the closure of Harvard Pilgrim's Medicare HMO will account for the single greatest disruption next year, the broadest changes will be made by UnitedHealth, which is ending service to about 13,300 Medicare enrollees across 37 states, CMS data show. The vast majority of those changes will result from the insurer discontinuing its private fee-for-service coverage in about 185 counties, primarily those in which it has fewer than about 50 members.
Meanwhile, some say the much-ballyhooed regional Medicare PPO concept, though still in its inaugural year, is already shaping up to be a bust. While backers of the Medicare reform law have touted regional PPOs as a way to give seniors throughout the country access to a managed-care option, enrollment in the plans has been lackluster: As of Sept. 1, only 92,000 Medicare beneficiaries nationwide had signed up for the plans.
This year, nine insurers signed 11 contracts to provide one or more regional PPOs. Still, five of the 26 multistate PPO regions the CMS designated in December 2004 -- including such large areas as the Pacific Northwest -- failed to attract any plan sponsors. And despite the availability of the stabilization fund next year, no new regional PPO contracts were signed for 2007. Many insurers say they have been deterred by the daunting task of having to establish adequate provider networks over such broad, often multistate areas. Others admit that the regional PPO concept isn't financially attractive to insurers because it requires them to sell a uniform product over the entire region, limiting their ability to pick and choose between markets and tailor benefits to specific populations.
Far more popular with insurers this year are special-needs plans, which are designed specifically for seniors who are eligible for both Medicare and Medicaid, live in an institutionalized setting or suffer from serious chronic illnesses. Some 471 such plans will be available next year, up 71% from 276 this year and just 11 in 2004. Enrollment now tops 548,000 members, the vast majority of them dual-eligibles.
The main attraction of special-needs plans is that they allow insurers to tailor their benefit packages to "niches" of the senior population where they may have particular expertise, such as diabetes management. They also hold the prospect of greater profits: Because payment rates to Medicare Advantage plans will be fully risk-adjusted in 2007 to factor in members' health status, special-needs plans will likely garner higher-than-average reimbursement because of their disproportionate share of sicker enrollees.
In addition, many dual-eligibles receive significant subsidies from the federal program, which can offset additional medical costs. Special-needs plans "represent one of the biggest and most promising areas of growth in Medicare Advantage," Moon says.
But the plans may also represent the greatest potential for future withdrawals, industry experts caution.
A number of this year's 276 special-needs plans are small Medicaid or provider-owned plans entering the Medicare market for the first time, and several have limited enrollment. As of July, 46 plans had fewer than 10 members, 102 had fewer than 100 members and 167 had fewer than 500 members, according to Mathematica Policy Research, an independent public policy firm in Washington.
If these plans can't achieve enough scale to cover their operating costs and provide competitive prices, they may soon be forced out of the market, says Marsha Gold, a senior fellow at Mathematica. "These (special-needs plans), if they're going to work, really need to know how to manage the care of some very sick people," she says. "I doubt all the folks getting into the market will know how to do that, and there may not be enough members to go around."