Medicare seniors in 23 states will be offered PPO option

In Baltimore area, Aetna is insurer for 3-year pilot program

August 28, 2002|By M. William Salganik | M. William Salganik,SUN STAFF

WASHINGTON - Looking to offer seniors more options after HMOs cut back their participation in Medicare, the federal Department of Health and Human Services announced yesterday a demonstration program in 23 states, with the Baltimore area one of the test sites.

The pilot program will offer seniors a chance to participate in preferred provider organizations (PPOs), networks of health care providers that have agreed to accept discounted payments from the insurer. They are the most popular form of insurance for people younger than 65. As consumers chafed under HMO restrictions, such as the need to get referrals from a "gatekeeper" doctor, PPO enrollment has burgeoned.

Saying the program will offer seniors "greater access and more choices," HHS Secretary Tommy G. Thompson said the demonstration PPOs will include some prescription coverage and the possibility of using out-of-network doctors or hospitals, although at a higher cost to the patient.

In the Baltimore area, Aetna will be the participating insurer. Walter J. Cherniak, an Aetna spokesman, said many key details of the PPO - including the premium, the benefits and the list of participating doctors and hospitals - remain to be worked out. He said the program will begin enrollment in November and will be available to seniors in Baltimore and in Anne Arundel, Baltimore, Calvert, Charles and Harford counties.

The three-year demonstration project reverses a trend over the past several years of contracting options in the program the government calls Medicare + Choice.

Medicare health maintenance organizations, offering prescription coverage and other benefits not included in traditional Medicare, became very popular very quickly. From 1994 to 1998, enrollment grew nationally from 2 million to 6.5 million. In Maryland, the jump was from 1,000 to 90,000.

But Medicare changed the way it decided how much to pay the HMOs, and the HMOs shifted rapidly from aggressive recruitment to an aggressive retreat. Nationally, Medicare HMOs dropped 1.6 million seniors from 1999 through last year. In Maryland, almost all insurers left the market, leaving only Kaiser Permanente, which has about 24,000 Medicare HMO members.

Susan Pisano, vice president of the American Association of Health Plans, a trade group for HMOs and other insurers, said plans have been leaving Medicare + Choice because "costs were going up at 10 percent a year, and payments were going up at 2 percent. You can't sustain that over the long run."

Cherniak said Aetna, one of the plans that dropped its Maryland Medicare HMO in 1999, was attracted back into Medicare + Choice for the PPO demonstration by "an overall more favorable payment structure."

Thomas Scully, administrator of the Centers for Medicare and Medicaid Services, the federal agency that administers the program, said payments to the PPOs would be at least as high as those for Medicare HMOs and higher in some cases.

In addition, he said, insurers were attracted by the government's willingness to share the risk. If medical costs run higher than expected, HHS will pick up a portion of the costs. If costs are lower, the government will share the savings with the insurer.

Overall, Scully said, the demonstration is expected to be "budget neutral" because the PPOs will in most cases be paid slightly less than Medicare pays for traditional, fee-for-service treatment in the same area.

Pisano said the important question is not whether the PPO demonstration will work. "Clearly, the funding issue has to be addressed broadly" to stabilize the HMO portion of the Medicare + Choice program, she said.

Julie Alexis, a spokeswoman for AARP, said the organization considers the PPO "a viable option for some seniors" that is worth testing, but that it is "not a substitution for modernizing Medicare with a prescription benefit" for all seniors.

Marsha Gold, a senior fellow at Mathematica Policy Research Inc. in Washington, who has written extensively on Medicare + Choice, said, "The government as a whole is torn" about how to fix Medicare. "There's no consensus on what to do, and there's no money," she said. "And what money there is, some want to use for prescriptions, and some want to give to the [health insurance] plans."

Thompson alluded to the congressional deadlock on Medicare in announcing the demonstration. "We would like for Congress to join us," he said, "but we will take administrative action while we wait for Congress to act."

He said of PPOs, "If this is so popular with Americans under 65, we should provide the same choices for seniors."

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