Obama targets massive cuts for Florida’s largest HMO program

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President-elect Barack Obama has targeted $15 billion in cuts to Medicare Advantage, which hauls in more premium revenue and profit than any other HMO program in Florida.

Obama, and many of his fellow Democrats in Congress, believe the government overpays insurance companies in Medicare Advantage. A Commonwealth Fund study said HMOs that participate in Medicare Advantage collect 12.5 percent more than fee-for-service Medicare coverage.

“We spend $15 billion a year on subsidies to insurance companies,” Obama said of Medicare Advantage during an October debate. “Under the Medicare plan, it doesn’t help seniors get any better. It’s not improving our health care system. It’s just a giveaway.”

Moves to cut that additional funding this year were blocked by congressional Republicans and President Bush. Democrats have proposed shifting that funding to support expanded children’s health coverage or a government-sponsored health plan for the uninsured.

But, insurance companies warn that low-income seniors could lose access to some Medicare services if the government slashes funding for the program. Medicare Advantage can include additional benefits like dental care or vision, and often has lower co-payments for enrollees.

South Florida has the nation’s highest premium rates for Medicare Advantage – and among the highest participation, said David Berman, president of Pompano Beach-based Eastwest Research Corp., which helps doctors negotiate with HMOs.

Medicare Advantage had 348,363 enrollees in October, covering 41 percent of all eligible beneficiaries, compared with an average of 27 percent in the 100 largest cities, Berman said. HMOs collected $1,160 per member per month here, compared with an $865 average.

Statewide, Medicare Advantage plans generated $3.99 billion in premium revenue in the first half of 2008, according to the Florida Office of Insurance Regulation.

Humana, by far the largest Medicare Advantage plan in Florida, earned $147 million on $2.45 billion in revenue over that period – a 6 percent profit margin. Berman said a 2 percent profit margin is a good measure of success for an HMO, but anything over 5 percent is “obscene.”

“Humana has a different model than a lot of the HMOs,” Berman said. “They have invested in infrastructure and do a better job of managing risk.”

Humana officials declined comment on Medicare Advantage.

Large HMOs like Humana would be fine even if premiums are reduced, but smaller companies in South Florida could struggle and put themselves up for sale, Minneapolis-based HMO analyst Allan Baumgarten said.

Despite the higher premiums, Medicare Advantage plans in Florida often pay physicians and hospitals less than fee-for-service Medicare plans because the HMOs have strong negotiating power, Berman said. If Obama approves premium cuts, the HMOs would likely try to reduce benefits and raise costs on members and lower premiums for health care providers before they lose any profit, he said.

Robert Zirkelbach, a spokesman for America’s Health Insurance Plans (AHIP) in Washington, D.C., said cutting Medicare Advantage funding would strip benefits from seniors and make the program too expensive for some enrollees.

A September study by AHIP found that 48 percent of Medicare Advantage enrollees made less than $20,000 a year, compared with 44 percent of enrollees in fee-for-service Medicare plans. Thirty-seven percent of Medicare Advantage enrollees said they chose their plan because of its lower costs.

Linda Quick, president of the South Florida Hospital and Healthcare Association, said HMOs probably would not do a major cut in services for enrollees because the market is so competitive. But, it could be a different story for providers.

“It is possible that lowering premium rates would lower provider rates, whether for physicians, hospitals or pharmacies,” she said. “They will use it as a rationale for paying providers less before they use it as a rationale to curtail services.”

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