Perspective               

Higher Federal Funding is Not Necessary for Success of Medicare HMOs

If you are an older or disabled adult with Medicare and are being abandoned by your HMO next year, you are not alone. Over 934,000 people with Medicare will be affected by HMO withdrawals in 2001. The HMOs have led us to believe that inadequate federal funding is forcing them to terminate care. Is this really the reason behind the HMO terminations? It all depends upon how you define adequate federal funding.

There is new data that shows that HMOs are actually paid well for their Medicare members relative to how much the government spends on people in Original Medicare. Indeed, new evidence continues to show that HMOs leaving Medicare are costing tax payers more for their members than traditional Medicare. In a recent Congressional testimony, William Scanlon, the Director of Health Financing and Public Health for the GAO, reported that Medicare managed care, although originally expected to achieve program savings, continues instead to add to program cost.

Of course, many HMOs experience financial problems while receiving sufficient funding. First, some HMOs simply have trouble negotiating with their doctors or dealing with a competitive market. Second, many HMOs are leaving because of a combination of business decisions and administrative changes. For example, some HMOs have been offering many extra benefits in an effort to attract new members. Upholding these promises, however, often ends up too costly for an HMO.

Congressional members and industry experts agree that pumping money into HMOs will not solve the problem. Instead, the Medicare Rights Center and others believe that Congress should pass a Medicare prescription drug benefit for everyone with Medicare, which would increase federal HMO payments. This change would assure that everyone with Medicare could receive affordable prescription drugs and better overall health care.

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