Weighing Privatization
Critics say private drug plans leave seniors paying more for less
By Deborah Barfield Berry
WASHINGTON BUREAU
February 3, 2003
Washington - Over the years, Diane Paulson has watched managed care plans promise seniors in Massachusetts cheaper health insurance complete with prescription drug coverage, only to pack up and leave.
"It was a shame that so many people were misled. Misled by the plans and in some ways misled by the government - that this was the best thing since sliced bread," said Paulson, managing attorney at the Medicare Advocacy Project, a Boston- based program representing Medicare beneficiaries. "It's been a mixed bag. But mostly negative."
Paulson, like many other advocates for seniors, doctors and some health experts, is now questioning why President George W. Bush would propose a plan that relies on private health plans to deliver a Medicare prescription drug benefit to seniors when the track record in an existing federal program, Medicare+Choice, has been shaky.
Citing Medicare+Choice as an example, advocates argue that private plans have abandoned seniors, leaving them scrambling to find new health care plans or paying higher premiums and co-payments for fewer benefits. In some cases, seniors have had to return to the more costly traditional Medicare, the federal insurance program for the elderly and disabled, which doesn't offer drug coverage.
"The whole privatization scheme is the wrong direction," said Don McCanne, president of the Phy- sicians for a National Health Program. "It will shift patients into an industry that has a much higher administrative cost ... and will do it at the cost of decreasing the benefit for Medicare beneficiaries."
Bush and Republican lawmakers support Medicare drug plans that rely on the private sector to deliver benefits. They contend that competition would drive down drug costs and offer seniors more coverage and choice.
"I believe seniors, if they're happy, should stay on the current Medicare system," Bush said last week in Grand Rapids, Mich., where he touted his plan. "Medicare must be more flexible ... They ought to be able to choose their own health care plan."
In 1997, Congress approved cost-cutting provisions that allowed HMOs to provide health care benefits to Medicare beneficiaries. Two years later, the program had enrolled 6.3 million people.
But from 1998 to 2002, the number of managed care plans contracting with Medicare dropped from 340 to 147, according to the General Accounting Office, the government's investigative arm. By last summer, the number of enrollees had fallen to about 5 million, or 12 percent of the 40 million Medicare beneficiaries. As a result, 1.6 million beneficiaries had to switch plans or go back to traditional Medicare.
Managed care plans complained that the federal government hadn't reimbursed them enough, leaving them with few options but to abandon unprofitable markets, reduce benefits or increase premiums.
This year, 33 managed care plans withdrew from the program or reduced their service area, affecting about 217,000 people, according to federal figures.
"We've been saying since 1997 there was a problem with the [funding] formula ... that led to unintended consequences," said Karen Ignagni, president of the American Association of Health Plans, a trade group.
Federal officials acknowledge the challenge is to attract more managed care plans and entice others to remain in some areas, particularly rural communities. Federal health officials are proposing that Congress increase reimbursements by 6.2 percent.
In 1999, Congress increased reimbursements from 3 percent to 5 percent in some rural areas. HMOs complained that the reimbursements didn't keep pace with rising health costs.
"These guys have been capped at 2 percent growth rate for a number of years," said Michael O'Grady, former senior research director at the Center for Health Affairs at Project HOPE, a health care think tank in Bethesda, Md. "Do they have something there? Sure. Both sides have their points."
Still, O'Grady said, "We have to see how much money is on the table. There is only so much money."
With adequate federal reimbursements, Ignagni said, managed care plans would remain in the program, which she called effective. The American Association of Health Plans is calling for an additional $1 billion a year.
"There isn't a problem in the delivery. There isn't a problem in the model. There isn't a problem in satisfaction," Ignagni said. "There is only a problem in the funding formula. And we know we can fix that."
The administration recently contracted with 35 private plans, called PPOs, to offer seniors health insurance that allows them to go to other doctors within a network. Several are in New York, including Queens, but none are in Suffolk and Nassau counties.
But consumer advocates and physicians say those private plans aren't very effective and emphasize there are more pressing issues, particularly restoring funding to doctors who treat Medicare patients. Some have stopped taking Medicare patients. "What we need to do is take care of the traditional program where we get the most value," McCanne said.
The Bush administration, which has yet to outline specifics on its Medicare prescription drug plan, has tried to downplay concerns about his proposal in recent days. Already the plan has drawn fire from Democrats and key Republicans who worry that seniors who don't enroll in private health plans will not have drug coverage.
Sen. Olympia Snowe (R-Maine), a moderate, said predicating prescription drugs on whether a beneficiary enrolled in a private health plan would exclude too many people, especially those in rural states like Maine where there are no managed care plans serving Medicare patients.
"It makes me very nervous," Paulson, of the Medicare Advocacy Project, said of Bush's plan. "Folks have become skittish about relying on the [private] plans ... It hasn't worked so far."
Staff writer Anne Q. Hoy contributed to this story.
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