HMOs reap benefits from new Medicare law quicker than seniors

WASHINGTON -- Health maintenance organizations will start reaping the benefits of the new Medicare law with higher payments beginning in March, well before most seniors get significant help with their pharmacy bills.

The new prescription drug benefit does not begin until January 2006. Even the new physical exam for new enrollees in Medicare won't be covered until 2005.

But the HMOs in Medicare, serving 4.6 million seniors, will receive an additional $1.3 billion in 2004 and 2005 under the law President Bush signed Monday, according to the Congressional Budget Office.

The industry's representatives said the increase is needed because the payment formula has shortchanged HMOs in past years. Health and Human Services Secretary Tommy Thompson said the HMOs, which limit choice of doctors to those on a list, are a key component of the expanded role for private insurers in the new law.

"We want them to stay. We want to make sure they're included in it and therefore some of the increases have been phased in earlier than 2006," Thompson said Tuesday during a meeting with reporters in his office. Thompson will set the new payment rates in January.

Opponents of the new law said the increased payments are evidence of a bias toward private insurers by the Bush administration. By 2006, the government will be paying HMOs 25 percent more than traditional Medicare costs for the same beneficiaries, said Robert Berenson, an expert on health care at the Urban Institute.

"The ultimate goal is to have a replacement for traditional Medicare," Berenson said.

Administration officials said HMOs would have to dedicate the additional money to reducing premiums for enrollees, improving benefits or both. But Karen Ignani, president of the managed care industry trade association in Washington, said HMOs also could use the money to offset increases from doctors and hospitals, or hold onto it for future use.

The HMO payments are just one of many tracks on which the administration is moving to put the new law into practice, Thompson said. Increased payments to rural doctors and hospitals also will begin next year and Americans with high-deductible insurance policies will be able to start socking away thousands of dollars in tax-free health savings accounts for future medical expenses.

Thompson said the government also would need every bit of the next two years to implement the new drug benefit. Thompson said he would leave his job by 2006, but added he is likely to remain as HHS secretary at least through the November 2004 election.

Another reason for the 2005 start of the Medicare physical and coverage for other screening tests for heart disease and diabetes is money, Thompson said. The bill was designed to cost no more than $400 billion over 10 years.

"If we had more money, we could have started the screenings next year," Thompson said.

The first piece of the law with widespread consumer impact is the new discount drug card that the president said would be ready by June.

Thompson said he wants to beat that deadline. The Medicare program staff is drafting regulations for the card, which is expected to be offered by insurers, pharmacists and possibly drug manufacturers.

Seniors "will have to pick and choose a card" that fits best with their prescriptions, he said. Low-income seniors will get a $600 credit on their cards that they can use to defer drug costs.

Thompson said the government will undertake an extensive public education campaign about both the drug card and the drug insurance program, one reason he said the program would not be up and running until 2006. "We want people to understand the law," he said.

He said the 1-800-Medicare help line is handling a substantial increase in the volume of calls, a product of heavy news coverage of the Medicare bill in recent months.

But Thompson inadvertently underscored the possibility for confusion about the new benefit. He said seniors could buy supplemental drug insurance policies to go with the new Medicare benefit. "AARP will be designing supplemental programs," Thompson said.

Asked to clarify his remarks, Thompson said he assumed that AARP, which currently partners with private insurers to offer Medigap policies, would be involved in the new benefit structure.

AARP's endorsement was critical to the Medicare's bill success. The 35-million member seniors organization has come under strong criticism for its role in the bill.

AARP spokeswoman Barbara Foelber said the group has made no decision about teaming up with insurers to offer new Medicare drug plans.