Using New Medicare Billions, H.M.O.s Again Court Elderly - March 9th, 2004

By MILT FREUDENHEIM of The New York Times

SPRING HILL, Fla. - There is free lunch virtually every day for Medicare enrollees in the cafeterias and roadside restaurants here in Hernando County, a semirural expanse of scrub pine, golfers' subdivisions and medical strip malls 50 miles north of Tampa.

No fewer than five H.M.O. companies are scrambling to sign up elderly members in the county, and the pitches being delivered over lunch tables here herald a national surge in Medicare managed care prompted by the Bush administration's plan to pump $46 billion into these programs over the next 10 years.

In negotiations over the Medicare drug law last year, Republicans argued for more money for managed care plans, saying they would provide more choices for the elderly and save money in the long run. Many Democrats and consumer advocacy groups said Medicare managed care had yet to demonstrate savings over traditional Medicare.

But for elderly retirees in places like Spring Hill, the public policy debate in Washington comes down to hard realities: allotting dollars from their tight budgets, the allure of those free lunches, the extra benefits that the new billions will buy - and whether to believe that the health plans will not abandon them again as they did a few years ago.

Here in Hernando County, Humana Inc., one of the first H.M.O.'s to return to a place it had left, is encountering former members who are evidently slow to forgive.

"We were pretty angry," said Marie Nielsen, 68, a retired nurse origi nally from Woodbridge, N.J., who recalled standing-room-only protest meetings in the county offices after Humana announced its departure in 2000.

Clayton Thomas, an 85-year-old retired sales engineer who moved here from Middleborough, Mass., said there was "no way" he would go back to Humana.

"Humana told us they couldn't afford it," Mr. Thomas said. Now, though, "Medicare is paying more to the H.M.O.'s," he added. "So they decided to come back in and tackle us again."

As the money starts flowing under the new Medicare law, the government expects managed care membership to triple, to 14.7 million people in the next three years, and cover more than one in three elderly people.

That would be a drastic reversal. Complaining that they were losing money at the government's old reimbursement rates, managed care companies shut 411 local plans over the last few years, dropping more than 2.4 million Medicare enrollees.

Across the country, companies have filed applications with the government to set up new health maintenance organizations or preferred provider networks in 18 communities, Medicare officials said.

In Hernando County, Humana, which is based in Louisville, Ky., was the last of three Medicare H.M.O. companies to pull out entirely, in December 2000. The company returned on March 1, with executives saying they were confident that coverage of brand-name drugs and free health club memberships would overcome bitter memories.

"Even though there may be some residual angst, I think there's going to be a lot more people interested in participating," said Michael McCallister, chief executive of Humana, which has 328,000 Medicare members in half a dozen states, down from a peak of more than 500,000 in the mid-1990's.

Dr. Scott Latimer, a Humana regional vice president in Tampa, said that the elderly were savvy shoppers. "They compare networks, ask appropriate questions, decide what makes sense for them," he said.

Humana's return was timed to coincide with a sharp rise, under the new Medicare law, in the program's payments to H.M.O.'s. The increases were especially large here and in many other parts of the country where reimbursement levels were deemed inadequate to keep up with rising costs. In Hernando County, payments jumped 27 percent, to $739.37 a month for each member, from $581.55 last year, after five years of slow growth. In Nassau County, N.Y., the increase was 24.5 percent.

The Bush administration says that the higher payments make up for skimping in the past. Leslie V. Norwalk, acting deputy administrator of the federal Centers for Medicare and Medicaid, said the goal was "to get plans back in the program" and give beneficiaries more choices, including preferred provider networks that are popular in employer health plans.

For that, the program is paying a high price. A new study by Mathematica Policy Research Inc. says that the Medicare law gives health maintenance organizations 7 percent more, on average, than the per capita spending for traditional Medicare.

The government has "pretty much given up on the argument that the H.M.O.'s save money," said Lori Achman, a research analyst at Mathematica, an independent research center.

In Hernando County, Humana said it had lined up 17 primary care physicians and 75 specialists for an H.M.O. Dr. Latimer said that when residents looked at Humana's benefits and saw that their doctors were covered, they would be swayed to enroll.

"People will tend to vote with their feet," he said.

The departure a few years ago of Humana, United Healthcare and AvMed Health Plans, a nonprofit insurer based in Miami, caused great anxiety in Hernando, a relatively low-cost area. The county has attracted many blue-collar retirees from Long Island, New England and the Midwest, according to David Miles, a demographic specialist in the county planning office.

Of the county's 146,000 residents, 30 percent are 65 or older, and in 1999, the peak year for enrollment, more than 11,700 were members of Medicare H.M.O.'s. That number had fallen to 7,990 before the start of the current recruiting drive.

Ms. Nielsen, the retired nurse, said that the H.M.O.'s were popular with the elderly because they offered more benefits than traditional Medicare at a lower out-of-pocket cost. "No. 1, they can't afford the 20 percent share in traditional Medicare, and, No. 2, they needed a prescription drug program," she said of her peers.

As Humana was leaving, a group of local doctors persuaded WellCare, based in Tampa, to set up shop in Hernando County. Later, WellCare drew renewed competition from United Healthcare, based in Minneapolis, and two Florida-based insurers, Quality Health Plans and Universal Health Care.

Unlike Medicare plans in places where the competition is less aggressive, the H.M.O.'s here do not charge monthly premiums. Going even further, Universal is now paying the entire $66.60 monthly Medicare Part B premium, which the elderly normally have deducted from their Social Security checks.

Medicare plans across the country are using about half the windfall from Congress to reduce premiums or add benefits, and most of the rest to pay doctors and hospitals, according to the Centers for Medicare and Medicaid. The insurers are keeping 0.6 percent, or about $200 million this year.

But Wall Street investors are expecting a big payoff. With the passage of the Medicare law, Humana shares soared to a 52-week high of $24.02 in January, up from $8.81 in March 2003. Shares closed yesterday at $21.53, down 46 cents.

"Wall Street is focused on expected growth and the potential for profits this year and in 2005," said Charles A. Boorady, an analyst at Smith Barney. He estimates after-tax profits in a range of 2 percent to 5 percent of Medicare payments for publicly traded companies. But he cautioned that after the November election, investors might start to focus on the possibility for cuts in Medicare reimbursement, because of federal budget concerns.

Also, some elderly H.M.O. members may switch back to traditional Medicare if the new prescription drug benefit looks attractive, he said.

But for now, reimbursements and benefits are jumping. In the New York suburbs, a number of health plans have reduced monthly premiums. In Nassau County, for example, HIP has eliminated premiums altogether, while Empire Blue Cross and Blue Shield has cut its premium to $22 from $140.

Howard Gold, a senior vice president of North Shore Long Island Jewish Medical Center, said a number of H.M.O.'s that had pulled out of the region had approached him to discuss the financial terms they would face if they returned. Companies that shut down Medicare H.M.O.'s in Nassau County included Aetna, Oxford Health Plans and United Healthcare.

Managed care companies, which lobbied hard for the higher payments, see an opportunity for profits and to expand their physician networks before the boomer generation ages into Medicare eligibility.

In the meantime, executives are confident that Congress will not pull the rug out again. "Nobody can predict what is going to happen in Washington relative to this," said Mr. McCallister of Humana, but, he added, "we don't expect it to be unwound."

Still, some Medicare beneficiaries, feeling that they were lulled into complacency once, will not let it happen again.

Raymond Belanger, 70, a retired electronic engineer who moved to Spring Hill from Manchester, N.H., said he would "absolutely not" return to Humana.

"It's a big conglomerate," he said. "The dollar is the almighty thing. It's not the people."

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