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Insurers Sweeten Health Plans for Seniors
By Vanessa Fuhrmans and Sarah Lueck, The Wall Street Journal
November 8, 2005
Some of the nation's biggest health-insurance companies are significantly improving their insurance policies for Medicare recipients, spurred by billions of dollars in new government funding.
The companies, including Aetna Inc., PacifiCare Health Systems, UnitedHealth Group Inc. and Humana Inc., are adding extras like vision benefits and gym memberships, and offering lower premiums -- or even no premiums -- in an effort to sign up new customers for their plans. Often these plans include prescription-drug benefits at no extra premium.
The flurry of new activity is part of a renewed effort by the federal government to shift Medicare recipients into privately run managed-care plans. These plans, known as Medicare Advantage, are an alternative to traditional government-run Medicare. Instead of paying beneficiaries' claims directly, the government pays commercial plans to provide "all in one" coverage for hospital care, doctor visits and prescription drugs.
Private Medicare options have been available since the 1970s, and have been often promoted as a more-efficient approach to Medicare. After an explosion of growth in 1990s, though, government cutbacks prompted insurers to trim benefits and pull out of markets, triggering wariness on the part of many seniors. Only 13% of Medicare enrollees currently get their Medicare benefits through an Advantage plan (the rest are on traditional Medicare). And last year, just 62% of Medicare beneficiaries lived in areas where Medicare managed-care plans are an option.
Now, as part of the overhaul that created the Medicare drug benefit in 2003, the government is improving funding and has created more options for sicker patients and those in rural areas. The legislation increased government payments to Medicare Advantage plans by $46 billion in the 10-year period starting in 2004, under Medicare actuaries' estimates.
There are risks to the new Advantage plans. Medicare is always a popular target for government budget cutting. Some members of Congress have said Medicare Advantage plans are being overpaid. So despite the current push, there could be cutbacks at some point, leading insurers to pull back on coverage again.
But many Republicans, including the Bush administration, view private plans as a way to rein in long-term costs of Medicare, which covers about 41 million people who are either 65 and older or have certain disabilities. For now, the government is spending hundreds of dollars more on average for each Medicare Advantage beneficiary than it is for the people in the traditional arm of the program. Mark McClellan, head of the federal agency that runs Medicare, says that when beneficiaries' out-of-pocket costs are counted, spending in traditional Medicare is "significantly higher" than in Medicare Advantage and that the private plans will help avoid duplicative services.
Many rural areas, where the Medicare Advantage plans had been scarce, will have at least three to four plans, thanks to the creation of new regional PPOs, or preferred provider organizations. Such plans provide benefits even for services outside of their network of "preferred" doctors, though at a higher cost.
The new PPOs help address one of the concerns with older HMO-like Advantage plans, where benefits were restricted to limited networks of doctors, so they appeal to consumers who want more choices. In order to provide PPOs, insurers must offer them for a whole region, including rural areas, not just in the urban centers where it may be easier to get discounts from providers.
The government now also reimburses insurers more for sick and potentially costly beneficiaries, allowing them to profit from courting such patients and coordinating their care. If a plan can help a diabetic patient see a doctor and take medicines regularly, it could avoid medical complications and spend less of the government payments on costly hospital admissions. Until the advent of these "risk-adjusted" payments, says Lynn Dorsey Bleil, a director at consultants McKinsey & Co., insurers "just wanted to avoid" the sicker patients.
Some insurers are gearing up to market "special needs" plans designed for beneficiaries with severe chronic disease, or for those so poor they also are in the federal-state Medicaid program. They typically cost the same as other Medicare Advantage offerings but provide more coordinated care. UnitedHealth offers one such plan in 11 states, where it assigns a nurse practitioner to oversee care for patients with severe or disabling conditions, such as a diabetic patient who suffers from blindness or someone with congestive heart failure.
In all, there were 458 Medicare Advantage policies available nationwide as of October, compared with just 300 last December, according to Mathematica Policy Research, a research firm. How good of a deal Medicare Advantage offers varies. In Bonner County, Idaho, for instance, monthly premiums for the seven Medicare Advantage plans available range from $9 to $115, the three cheapest of which offer no drug coverage.
In Johnson County, Kan., outside Kansas City, Medicare beneficiaries now have a choice of 11 Medicare Advantage plans, including four HMOs with no premiums and one from Humana for $8 a month. The latter is typical in that enrollees have to pay a $10 co-pay for doctor visits, a $195-a-day co-pay for the first five days in a hospital and no extra premium for the drug benefit. For $41 a month, a somewhat richer PPO plan there also sold by Humana limits the hospital co-pay to a flat $600 regardless of how long the stay, and the option to pay a higher co-pay should the enrollee go to an out-of-network provider.
Dr. McClellan estimates that seniors in Medicare Advantage plans can save $100 a month on average over traditional Medicare. Under traditional Medicare, Beneficiaries in 2006 must pay a $110 annual deductible and 20% of the bill for each doctor visit, and a $952 deductible before a hospital stay is covered. Buying one of the new drug plans costs an average of about $32 a month, though the prices vary widely.
Many beneficiaries also buy a private supplementary plan, called Medigap, to fill the gaps in traditional Medicare's coverage, especially the doctor co-insurance and the hospital costs. Medicare Advantage plans, by law, cost the same for anyone in a given county, regardless of age, sex or illnesses. In contrast, Medigap policies are underwritten individually, so people with chronic ailments pay more.
Before picking a Medicare Advantage plan, seniors should compare costs for hospital stays and other benefits to what they're getting in traditional Medicare, says Patricia Neuman, a Washington-based Medicare expert at the Kaiser Family Foundation, a nonprofit health-policy research group.
Despite the risks, the Medicare Advantage plans may attract many seniors with their beefed-up coverage. Robert Laszewski, a health-insurance industry consultant, says he urged his own father to think about switching out of the government-run program. "A senior is foolish to pass up looking at a Medicare Advantage plan," he says.
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