Perspective               

Inspector General Recommends Cost-Saving Changes in Managed Care

The Department of Health and Human Services Office of the Inspector General has come up with new strategies to improve Medicare and protect it against fraud, waste, and abuse. According to the Inspector General's findings, HCFA, the government agency that runs Medicare, could save $6 billion in Medicare spending just by reforming Medicare managed care.

The Inspector General found that the government pays Medicare HMOs more than enough money to deliver the Medicare package of covered services and that many Medicare HMOs use Medicare payments to cover excessive administration costs.

To address these problems, the Inspector General recommends that the government adjust the amount that it pays HMOs to cover the health care costs of each person with Medicare who joins an HMO. Right now the government pays HMOs about 95.5 percent of the average amount spent on a person in Original Medicare. This number, however, is too high because HMOs typically attract more healthy and less expensive customers relative to Original Medicare. The Inspector General also advises the government to limit payments to HMOs for administration.

Of course, if the government reduces payments to HMOs, it is likely that the HMOs will either increase member premiums, cut benefits, or end their Medicare contracts. To learn more about the Inspector General's recommendations, read the Red Book, the Inspector General's yearly cost-saver handbook. It is available for downloading on the Inspector General's Web site at www.dhhs.gov.

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