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WHEN LOOKING AT WHY so many health maintenance organizations are dropping out of the Medicare market, it is important to separate fact from fantasy.
Factually, the move out of this market has been large: HMOs leaving the market now provide coverage to more than 400,000 beneficiaries, or about 6.5% of all retirees enrolled in Medicare risk HMOs.
It would be a mistake, though, as seems to be the pattern now, to blame the HMOs' pullout exclusively on low government payments. HMOs leaving Medicare cite a variety of reasons, including inability to negotiate favorable rates with providers as well as tough competition.
Having said this, there is no question, as we previously have noted, that Congress next year has to take another look at this program -- now called Medicare + Choice.
The biggest problem with the Medicare + Choice program is the flawed methodology for setting government payment rates for managed care plans that take over from Medicare the responsibility of providing coverage to retirees. Right now, rate increases are essentially held to 2% a year, while managed care plans are facing much higher costs, such as the rising price of prescription drugs. Clearly, that methodology has to be changed.
Medicare + Choice is one of those rare government programs in which everyone can benefit: Retirees can get better benefits compared with the traditional Medicare program, Medicare can save money when more cost-efficient managed care plans provide coverage, and employers have less demand for health care plans to supplement Medicare.
Now it is up to Congress to make this program work.