Medicare and Managed Care

A recent study sponsored by the American Association of Retired Persons (AARP) found that people 65 and older spend approximately 20% of their income for health-related expenses. This figure jumps as high as 35% for those who are poor.¹ These dollars older adults dole out for insurance, medicines and other health services are in addition to what Medicare pays for health care!

The study also found that Medicare beneficiaries who were enrolled in HMOs spent one-third less out-of-pocket than those in traditional fee-for-service Medicare. The purpose of this article is to discuss how managed care fits into the Medicare equation, and why the government continues to increase its efforts to promote the managed care-Medicare option to beneficiaries.

Here is a very simplified version of how managed care and Medicare work. To qualify and be accepted as a managed care Medicare provider, the organization (HMO or other qualified competitive medical plan) has to apply and be accepted by regulations passed in 1982 as part of the Tax Equity and Fiscal Responsibility Act (TEFRA). For purposes of this discussion, I will refer to the managed care organization as the "HMO." If the HMO applies and is accepted as a Medicare risk contractor, the HMO agrees to provide a specific list of services. The government guarantees payment for 95% of what government actuaries estimate the cost would be for these services if the services had been obtained in the traditional fee-for-service Medicare plan.²

Right off the top, the government saves five percent! Knowing it will receive a guaranteed payment of 95% for predetermined services and because of its size, the HMO prenegotiates fixed fees with service providers (doctors, hospitals, clinics, etc.) based on volume. These negotiated fees may be 95% or less depending on the HMO's organizational mission and profit status (profit vs. nonprofit).

The HMO also receives a monthly capitation payment for each enrollee, similar to a monthly premium paid by an employer. Capitation payments are based on a formula called the adjusted average per-capita cost (AAPCC) based on age, sex, Medicaid eligibility, institutional status, whether the individual is entitled to other primary insurance benefits besides Medicare, and whether a person has both parts A and B of Medicare.³ The individual calculation of this complex formula results in 142 possible monthly capitation amounts that can (and do) vary considerably.

As a result of the agreements listed earlier, the government saves five percent of what it would have paid for services, reduces its management operations, and fulfills its responsibility to beneficiaries. The managed care organization prospers because it gains guaranteed monthly income, pays fixed fees for services, and gains a new population of enrollees it was unable to serve previously.

The really big question for chiropractors is, "Are chiropractic services covered for those patients who elect to enroll in a managed care Medicare option?" To obtain a TEFRA Medicare contract, the HMO must agree to provide all the Part A and Part B services available in the service area, either through staff providers or providers under contract with the HMO. However, depending on whether the organization is an HMO or a competitive medical plan, the services they are bound to provide beneficiaries may vary slightly, and what they have to offer as options may vary as well.

Min DeParle, the new head of HCFA, has an ambitious plan to provide all Medicare beneficiaries with information that will help them compare and evaluate the many Medicare options by the end of 1998. Some of these comparisons are available now on the Internet by accessing the HCFA home page ([url=http://www.hcfa.gov]http://www.hcfa.gov[/url]) and clicking on "Medicare Compare." This information compares specific benefits the plans cover and the costs to beneficiaries.⁴

Each year, HMOs are required to inform Medicare beneficiaries of their rights to re-enroll or disenroll at Social Security offices should they be unsatisfied with their coverage. Because of their complexity and regional variations, my best advice is to contact representatives of the various managed care organizations in your area that offer Medicare options. Request that they provide you with copies of their Medicare benefits. If you have a problem on a specific issue, contact the regional HCFA office, since they are tasked with complaint investigation regarding medical coverage issues.

References

1. Findlay S. Study: care costs seniors dearly. USA Today March 5, 1998; p. 3A.
2. Zarabozo C, LeMasurier J. Medicare and managed care. In: Kongstvedt P (ed). Essentials of Managed Health Care. 1997; Gaithersburg, MD, Aspen Publishers.
3. Ibid, p. 406.
4. McLeod D. Medicare's new boss vows action on abuse. AARP Bulletin Jan 1998:39(1); pp. 1,6-7.