New York Times: Tucson “A Model For Medicare’s Future?”


Nationwide, fewer than ten percent of Medicare recipients belong to Health Maintenance Organizations. In Pima County, HMOs serve 42% of participants in the federal health care program for the elderly and disabled.

Last Tuesday, a front-page article in the New York Times analyzed the Pima County experience with Medicare HMOs. According to the Times‘ headline, “H.M.O.’s [sic]in Tucson May Offer A Model for Medicare’s Future: Many Retirees Pick Managed Care and Like It.”

Only a handful of other communities (including Riverside and San Diego in California and Portland, Oregon) have HMO participation above 40% among Medicare recipients. Arizona’s HMO penetration into Medicare is generally high, and Pima County has the highest participation in Arizona.

Because Tucson has four vigorous and competitive HMO providers, their programs tend to provide more benefits than in some other communities. Pima County’s elderly residents can choose between Partners Health Plan, Intergroup, FHP and Cigna Health Care of Arizona. The competition has generated some real savings for participants.

Benefits for Members

HMO participants in Pima County have come to expect $5 doctor’s visits, free hospitalization, free X-rays, mammograms and lab tests, $26 eyeglasses, and even free rides to medical appointments. More recently, the competition has resulted in coverage for medications; some participants pay as little as $7 for a three-month supply of most drugs, while “traditional” Medicare provides almost no coverage for prescriptions.

Medicare HMO participants seem generally to be pleased with their plans. Just over 1% of plan participants quit and return to regular Medicare coverage each month. Polls show customer satisfaction with Medicare HMOs is higher than traditional Medicare, employer-sponsored HMOs or even regular indemnity insurance plans.

Future of Medicare?

The Pima County experience with Medicare HMOs may become the national norm in the next few years. An analysis prepared by an HMO industry trade group predicted that national participation at 40% (just below Pima County’s level) would save Medicare 21% of its annual costs. Since this represents almost exactly the $270 billion in savings promised by the Republic Congress, the allure of HMOs is obvious.

The New York Times article also notes that HMOs may save less money than anticipated for one simple reason: they market their alternative services to the relatively younger, healthier population of Medicare recipients who require the least medical care. Since HMOs are paid 95% of the average cost of Medicare for each enrollee, such “skimming” could easily cause the total cost of Medicare to actually rise, as the average cost of providing care to the relatively healthy HMO participants could be less than that 95% figure.

Government studies have attempted to determine whether the payments to HMOs are fair, given the patient population attracted to HMOs. The results have been inconclusive, with some evidence suggesting that the cost of care may be increased. It is clear, however, that the average cost of care in Arizona is lower than the national average for Medicare.

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