Medicare Cuts Could End Valued Perks

WASHINGTON — The 4 million Medicare beneficiaries enrolled in health maintenance organizations, including more than 1 million in California, could lose some cherished extra benefits, including free prescription drugs, under Clinton administration plans.

Seeking to avert Medicare bankruptcy, the administration has prepared a budget calling for $138 billion in savings from the program over six years. The biggest chunk, $46 billion, would come from reductions in payments to HMOs.

But firms in the highly competitive HMO industry, which has been wooing seniors with a broad range of benefits that they cannot get in the regular Medicare program, warn that the response could be a loss of such extras as drugs, dental care, vision care--even, in some cases, health club memberships.

The HMOs would have the unpopular choice of either charging beneficiaries substantial amounts for benefits they now get free or at minimal cost, or of dropping the benefits entirely.

“It would be unfortunate if the effort to achieve Medicare savings in the long term adversely affected choices available in Medicare HMO plans,” said Aileen Harper, director of service programs at the Center for Health Care Rights in Los Angeles, which provides advice to Medicare beneficiaries.

“There clearly would be a regional impact, especially in terms of California,” she said.

Hardest hit would be the Western states, where HMO market share is the largest. In California, 38% of Medicare beneficiaries are members of HMOs, compared with about 11.5% nationally. The other highest-enrollment states include Oregon, Washington, Hawaii, Nevada, Arizona, Colorado, Utah and New Mexico. Outside the West, the biggest impact would be felt in the high-enrollment states of Minnesota and Florida.

Influential members of Congress are worried about the administration’s plan. The heavy reliance on big savings from HMOs could have a double impact: threatening benefits in some markets and, in other areas, even forcing HMOs to “drop out entirely” from the Medicare business, said Rep. Bill Thomas (R-Bakersfield), chairman of the health subcommittee of the House Ways and Means Committee.

“It doesn’t make a lot of sense” to place a heavy burden on HMOs, which have been successful in holding down costs in the private sector and are now a familiar system for delivering health care to most workers, he said.

Sen. Ron Wyden (D-Ore.), normally a staunch ally of the administration, has criticized the proposed HMO cuts, warning that they could cripple Medicare HMOs in his state.

The biggest threat is to the prescription drug benefit, said Carmen Ness, vice president of PacifiCare, a major HMO. “It is the most costly [benefit] and we get no money for it,” Ness said.

The extra benefits are precisely those used to “attract people to come out of fee-for-service and into managed care,” said Nick Franklin, vice president for public affairs at FHP, another large plan. If government payments are cut, the choices are grim: “either reduce benefits or increase premiums or both,” he said.

PacifiCare and FHP are in the process of merging, a combination that would give them more than 900,000 Medicare HMO members nationwide, including 600,000 in California.

In a competitive market such as Southern California, Medicare HMOs offer hospital and doctor coverage with no payments and no deductibles. And they throw in for free important extras that Medicare does not cover, such as prescription drugs, annual physical exams, dental care, eye examinations and glasses.

The HMOs can provide the extras “because the payments they get from Medicare are a lot higher than the cost of providing the services in the regular Medicare package,” said Duane Dauner, president of the California Healthcare Assn., which represents hospitals and many physicians’ group practices.

The federal government, however, believes the same thing: HMOs are getting more than they need to take care of the Medicare population. Medicare spending is growing at the rate of 9% a year, about three times the rate of spending in the private sector.

The Clinton budget next month will propose reducing the payment to 90% of the costs. And it would take away from HMOs the money they now receive as part of Medicare’s traditional payments to teaching hospitals and hospitals caring for large numbers of poor people.