Give us your elderly, frail

2 new local health insurers think they're struck gold in an unlikely group: old, sick Medicare patients

Business Of Medicare


Normally, insurers make money by minimizing risk. Auto insurers want good drivers. Homeowners' carriers covet brick houses near fire stations.

But changes in the federal Medicare program for the elderly are allowing two Baltimore health care companies to turn the usual logic of insurance upside down.

Elder Health, which has been offering general Medicare HMOs, is now starting one aimed just at seniors with low incomes, many of them frail enough to be in nursing homes.

Seniors pay no monthly premium to join the new HMO, which will provide their prescriptions as well as health care for low co-payments. "A profile of our member might be five diseases and nine medications," said David A. Weinstein, president of Elder Health Mid-Atlantic.

And XLHealth, which has been working under contract to other HMOs and the federal government, is launching its own health plan enrolling only people with three chronic - and expensive - diseases: diabetes, congestive heart failure and end-stage renal disease.

The plans seem counterintuitive and economically suicidal - but, so far, they are working.

Both companies, which are privately held, are growing rapidly.

Elder Health has gone from 290 employees to 425 in a year. XLHealth expects to go from 215 today to 400 by the end of 2006.

Each estimates 2005 revenue will be substantially above 2004 levels. Each is expecting revenue to double again in 2006, with Elder Health's projected at nearly half a billion dollars. XLHealth says it already is profitable.

Each company has attracted significant private-equity investments - more than $50 million each - to help finance that expansion.

What could make a health plan for sick older people work?

First, the costs of providing this coverage - while higher than for a normal insurance company - are in some ways more controllable.

Insurers and care providers have been working over the past decade or so on low-cost, often commonsensical ways to keep chronically ill people healthier.

Through these disease management programs, nurses remind patients to take their medications and schedule checkups. That can reduce the need for hospitalizations and other expensive treatments later.

In a study in the journal Diabetes Care in 2002, one HMO reported that diabetic members enrolled in disease management had more doctor visits and more screening tests than other diabetics, but fewer hospitalizations and emergency room visits - which would have cost more money.

The bottom line: Health costs were more than 20 percent lower for the patients in disease management compared with diabetics not in the program.

Second, changes in the Medicare program mean that the government will pay more - often several times more - to insure a sick patient than a healthy one.

Medicare used to pay the same for someone with heart disease as someone who ran marathons, though it had phased in some risk adjustment over the past couple of years.

The Medicare changes have drawn attention mostly for the new prescription drug program that 40 million seniors are struggling to comprehend during sign-up this month. But other lesser-noticed modifications have created opportunities for companies to do old things in a new way.

For example, Medicare will pay an HMO or other health plan $270.86 a month, to care for a healthy woman age 65 to 69 in Baltimore County next year. But if that woman has diabetes with complications and heart disease, the monthly payment jumps to more than five times that. (See box.) And for a kidney dialysis patient, the average payment in Maryland will be $6,765.29 a month.

A Medicare health plan can also collect premiums from the member. XLHealth's plan, called Care Improvement Plus, will charge $33.23 to $163 a month, depending on the level of benefits.

Whether or not the HMO charges premiums, Medicare members must continue to pay the Part B premium (to cover doctor fees), which they would also pay as traditional, fee-for-service Medicare enrollees. For next year, the Part B premium is $88.50 a month.

However, those who enroll in Medicare HMOs don't need so-called Medigap supplemental policies, because the HMO covers the benefits that Medigap policies offer.

A few such HMOs for the sick have operated in the past under a variety of demonstration programs and waivers. Elder Health has done it for frail and low-income elderly in Baltimore for about five years.

But the law that created the new prescription benefit makes these so-called special needs plans a regular part of Medicare as of Jan. 1.

Despite the prospect of higher payments from Medicare, jumping into these new plans has its risks for XLHealth and Elder Health.

Because of the lead times involved in starting a new insurance program, they're making plans now for expansion in 2007 and 2008, without any experience to judge how the new rules will affect their economic projections.

Government programs sometimes change the rules and rein in rates; such an action caused a crash in Medicare HMOs in the late 1990s.

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