Tucson Medicare HMO’s in 1996: Featured in New York Times

Excerpts from a New York Times article from March 26, 1996

Tucson H.M.O.’s May Offer Model for Medicare’s Future

Partners for Seniors has expanded its pharmacy benefit!” a newspaper ad proclaims to Tucson’s big retirement community. “Enjoy free health club benefits,” promises Intergroup of Arizona. “Do you know,” touts FHP Health Care, “how your health plan stacks up against FHP’s? You tell us. $0 plan premium. $0 deductibles.”

Tucson’s health maintenance organizations offer free hospital stays, free annual physical exams, free X-rays, free mammograms, free laboratory tests, $26 eyeglasses, $5 and $10 doctors’ appointments, free rides to get to them and this year’s newest offering: $7 for a three-month supply of any of 300 prescription drugs.

In response to the companies’ appeals, 42 percent of the people 65 and older in Tucson’s Pima County, or six times the national average, have fled the standard, more costly Medicare program to enroll in the programs for the elderly offered by the four competing H.M.O.’s: Partners Health Plan, Intergroup, FHP and Cigna Health Care of Arizona.

For lawmakers, the health organizations’ success in enrolling the elderly makes Tucson a test case for ways to cut fat from the health care system and curb the rise in Medicare spending.

The rush of the elderly into H.M.O.’s in Tucson runs counter to the more common image of H.M.O.’s as ferocious cost-cutters that employers hire to provide health care for their workers. In programs for the elderly, the patient, not an employer, is the customer.

The environment is so competitive here for the business of the elderly that H.M.O.’s are behaving like banks giving away toasters. Customers who do not see enough to like can stick with conventional Medicare, which serves most of the nation’s elderly.

“It’s been sort of a price war in Tucson,” said Chris Herstam, director of the Arizona Department of Insurance in Phoenix, which oversees the financial condition of the H.M.O.’s. “And that’s great for consumers.”

But Stewart Grabel, ombudsman for the Pima County Council, calls the H.M.O.’s a mixed blessing. “So far, the H.M.O.’s’ emphasis has been on cutting costs,” he said. “There are serious quality-of-care issues that we see in terms of discharges from hospitals and nursing homes, in terms of getting things approved that would be readily approved under traditional Medicare and in terms of rights of appeal.”

In a state poll for the Arizona Hospital and Health Care Organization last November, the Gallup Organization found that the elderly in H.M.O. programs were more satisfied than health care consumers in all other types of programs, including fee-for-service Medicare, employer-financed H.M.O.’s and employer-financed insurance programs that permit workers an unrestricted choice of doctors.

Many of Tucson’s elderly are swayed by the simple arithmetic of joining H.M.O.’s., and by the prospect of being liberated from Government forms, insurance forms and other assorted paper work. Under standard, fee-for-service Medicare, an individual pays $716 for each hospital admission ($1068 in 2009), pays for all medications and pays a $46.10 monthly premium ($96.40 in 2009) to cover 80 percent of the cost of physician and outpatient services. Many also buy insurance costing $200 or $300 a month to cover the charges that Medicare does not.

H.M.O.’s Reaping Medicare Profits

H.M.O.’s finance their services through grants from the Federal Health Care Financing Administration. It pays them 95 percent of what it would typically pay to care for a beneficiary.

The grants are based on local health care costs; in Tucson, H.M.O.’s get $438.58 per month per patient ($800 in 2009). That income and the money saved through tight cost controls are expected to leave the organizations room enough to offer cheap prescriptions and many additional services, like free physical exams, while still making a profit. The companies say profits range from 2 to 5 percent in Arizona.

Now Tucson’s experience with H.M.O.’s for the elderly is offering policymakers insights into how to curb the growth in Medicare spending so its trust fund does not run dry early in the next century, as many economists predict.

Study Predicts More Savings

In a study last September for the industry’s trade group, the Group Health Association of America, Jack Rogers, chief health economist at the accounting firm of Price Waterhouse, reported that a 10 percentage-point increase in the proportion of the elderly using H.M.O.’s would spill over to reduce the Government’s fee-for-service Medicare spending by 2.8 to 7.6 percent.

And if H.M.O.’s nationwide raised their enrollment of Medicare patients, now 7 percent, to 40 percent, or close to the Tucson level, the study said, all Medicare spending would drop by 21 percent, just about enough to achieve the Republicans’ projected reduction of $270 billion.

This article is composed of Excerpts from a New York Times article from March 26, 1996

Medicare Choices of Arizona is in Tucson, Sierra Vista and Green Valley. Call (520) 820-8639


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