PULLOUTS IN RISK HMOS SEEN

ROSELAND, N.J. -- Another major Medicare risk HMO is withdrawing from certain markets, and additional withdrawals by more health care plans are expected soon.

Prudential HealthCare SeniorCare -- The Prudential Insurance Co. of America's Medicare risk HMO product -- will exit California; Maryland; New Jersey; New York; Baker County, Fla.; parts of St. John's County, Fla.; and the Washington, D.C., area. The affected plans have nearly 25,000 members. The withdrawal will be effective Jan. 1, 1999.

Prudential, though, will continue to offer Medicare risk HMOs in other parts of Florida as well remaining in Houston, San Antonio and Cleveland. Those Medicare risk HMOs have about 100,000 members.

Several factors are behind the pullout, including small penetration in markets dominated by other Medicare risk HMOs, little likelihood of gaining additional market share, and low payment rates from the federal government, a Prudential spokesman said. The importance of these factors varies by market, the spokesman added.

Prudential's termination of several of its Medicare risk HMOs comes in the wake of other health care plans closing their risk HMOs. Earlier this month, Aetna U.S. HealthCare said it is shutting down Medicare risk HMOs in six states and parts of three others. Other insurers shutting down risk HMOs in certain markets include Humana Inc., Foundation Health Systems Inc. and PacifiCare Health Systems Inc.

The closure of these Medicare risk HMOs affects only a small percentage of the nearly 6 million retirees now enrolled in Medicare risk HMOs nationwide.

But health care experts say more announcements of Medicare risk HMOs withdrawing are imminent. United HealthCare Corp. last month said it will curtail its presence in the Medicare risk HMO market, though it has yet to release details.

The wave of pullouts is expected to continue unless Congress revamps its methodology for increasing the rates it pays HMOs that take over from Medicare the responsibility of providing coverage to retirees, HMO experts say.

"There are pullouts all around the country. It is clear that Congress will have to revisit the issue" if retirees are to have choices, said Susan Foote, coordinator of the Fairness in Medicare Coalition, which represents HMOs, hospitals and hospital associations in areas with low HCFA payment rates to Medicare risk HMOs.

Legislation passed by Congress in 1997 was intended to overhaul the much-criticized Medicare risk HMO rate structure.

Prior to those reforms, Medicare risk HMOs in areas of the country that traditionally had the highest Medicare costs also got the highest payments from the federal government, while HMOs operating in areas that had been the most successful in holding down costs got the lowest payments.

That, in turn, means HMOs in high-payment areas could provide a rich array of benefits, charge no premiums to beneficiaries and still profit, while HMOs in low-payment areas couldn't even afford to enter the market.

The 1997 legislation -- known as the Balanced Budget Act -- was intended to address these inequities, by boosting rates in extremely low-payment areas, such as rural areas, by about 50%, while rates in areas of the country where costs were somewhat lower than the national average also would increase more than they otherwise would. Rates in high-payment areas would increase, though much less compared to the former system.

But due to certain budget neutrality provisions in the legislation, the net effect -- except for HMOs in very low-payment areas -- has been to limit rate increases to about 2%.

In very low payment areas, the rates still are too low to attract HMOs, while HMOs in lower-payment areas are not getting enough of an increase to offer a competitive benefit package to Medicare beneficiaries, said Ms. Foote, who also is president of Duren-berger/Foote, a Washington-based health policy consulting firm.

Unless Congress changes the payment methodology, "you will have a two-tiered system in which there will be risk HMOs in high-payment states and none elsewhere," she added.

To ensure that does not happen, the American Assn. of Health Plans, a Washington-based managed care trade group, called on Congress and regulators to make "midcourse corrections" to ensure that Medicare Risk HMOs and other so-called Medicare + Choice plans can remain viable alternatives to the traditional Medicare program for retirees.

"The payment (to Medicare + Choice) needs to be adequate to ensure long-term stability," said AAHP President and Chief Executive Officer Karen Ignagni.

In fact, even before the most recent announcements of withdrawals from the Medicare risk HMO market, enrollment growth has been slipping. Last year, enrollment in Medicare risk HMOs was growing at a rate of about 100,000 per month. Most recently, the monthly growth rate has slipped to about 65,000.

Employers have a major stake in ensuring that Medicare risk HMOs remain in the market and are attractive to retirees.

That is because many risk HMOs offer far more generous benefits than the traditional Medicare program. That makes it attractive for retirees to opt out of the traditional Medicare program and enroll in risk HMOs.

When that happens, there is much less need for employers to offer retirees benefit plans designed to supplement the traditional Medicare program.

In fact, some employers have found it much less expensive to pay whatever premium a Medicare risk HMO charges than offer a retiree health care plan.

But if Medicare risk HMOs withdraw from more areas of the country, employers will lose a cost-saving health care market for their retirees to obtain coverage.