Clinton Studies Cuts in Medicare HMO Payments

WASHINGTON — The Clinton administration is considering substantial cuts in premiums Medicare pays health maintenance organizations as part of a broader effort to keep the federal health insurance program for the elderly afloat, administration sources said.

Although the proposed reductions have not been put in final form and would require congressional approval, if adopted they would cut an estimated $20 billion from HMO premiums over the next five years.

The proposal is part of the administration’s plan to cut Medicare growth by about $100 billion over the next five years and stave off bankruptcy of the Medicare hospital trust fund projected for 2001.

Of the 37 million Americans covered by Medicare, more than 4 million have joined HMOs. When people turn 65 they become eligible for the traditional Medicare fee-for-service program. But they may join an HMO and have the government pay the premium.

The theory behind proposed cuts is that many HMOs are being overpaid in comparison with other Medicare providers.

HMOs are thought to attract a disproportionate share of the healthiest seniors, and as a result, have lower costs than the current premium formula assumes. This leaves the sicker, more costly patients in the traditional Medicare fee-for-service program. The current fee schedule, the administration will argue, doesn’t properly account for this. A second argument is that HMOs do not incur the level of hospital bills traditional Medicare providers do.

Susan Pisano, spokeswoman for the HMO industry trade organization, the American Assn. of Health Plans, disputed the notions that the hospital costs or patient population of HMOs differ from those in the fee-for-service Medicare plan. She contended that the supposition that HMOs have healthier patients is based on outdated studies.