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WASHINGTON-Enactment of the Clinton administration's proposed budget for 1998 could make health maintenance organizations in some parts of the country more attractive for retired workers, while HMOs elsewhere may reduce benefits and increase premiums.
Over the last two to three years, moving retired workers to so-called Medicare risk HMOs has been one of the easiest and most popular ways employers have chosen to cut retiree health care liabilities.
Under this federal program, HMOs-in exchange for providing the same benefits Medicare would offer-receive 95% of the cost Medicare believes it would incur to provide health care benefits to retired workers. The reimbursement is based on Medicare's cost of providing benefits in hundreds of counties throughout the country.
These payment rates currently range from $767.35 a month in Richmond County, N.Y., to $220.97 in Arthur County, Neb. Where payment rates are high, HMOs have been able to offer a whole range of ancillary benefits not covered by Medicare-like prescription drugs and vision care-and still make money on covering retirees. That makes it attractive for retired workers to move out of employers' health care plans, which supplement Medicare, and into Medicare risk HMOs.
When retired workers move out of corporate health plans and into Medicare risk HMOs, employers often can save $800 to $1,000 per retiree in health care costs, said Will Applegate, a consultant with The Kwasha Lipton Group in Fort Lee, N.J. The savings can be so great that some employers, to encourage migration of retired workers from their plans to Medicare risk HMOs, will pay the HMO to provide extra benefits, like unlimited or very high prescription drug coverage for their retirees.
But in other areas of the country where the federal payments to Medicare risk HMOs are set at very low levels, HMOs have been reluctant to enter the Medicare market because they believe they can't make any money on it. That has closed off Medicare risk HMOs as a health care option for retired workers.
The Clinton administration's budget would address what many perceive as an inequitable risk HMO payment formula. In short, payment rates Medicare makes to HMOs would be based on national and local Medicare costs-not just local costs.
That would mean that payments Medicare makes to HMOs would increase in low-cost areas of the country, while payments to HMOs in high-cost areas would decline. The result of the change in the formula would be that HMOs whose payments are cut might have to increase premiums or cut benefits to maintain profit levels. In parts of the country where federal payments would increase, HMOs might enter the Medicare risk market, while others might add benefits.
But another change would hurt all HMOs in the Medicare risk market.
The administration is proposing reducing the payment rate to 90% from 95%. That change would not be implemented until the year 2000.
That kind of cut could result in HMOs cutting back on benefits they offer retirees, said Eileen Settineri, a health care consultant with Buck Consultants Inc. in Secaucus, N.J.
"An across the board decrease in the payment rate would not be good news for HMOs and their constituencies, which includes employers and retirees," said Kenneth Berkowitz, a consultant with Towers Perrin in Fort Lauderdale, Fla.
Aside from HMO changes, the administration also is recycling a 1995 proposal that would provide a six-month subsidy to states that agree to pay COBRA health care premiums for low-income workers who lose their jobs.
While the administration has bandied about this proposal for about 11/2 years, it still has not provided any details, such as income-eligibility levels.