Medicare outlays to rise by 10.6%


WASHINGTON - President Bush will increase Medicare payments to health maintenance organizations and other private health plans by a record 10.6 percent in an effort to persuade them to enter the Medicare market and increase benefits for the elderly, administration officials say.

Federal officials and members of Congress said they hoped the increase - five times as large as the typical annual increase in recent years - would reverse the exodus of private plans from the Medicare program. The administration, trying to enhance competition and efficiency in the Medicare marketplace, wants to triple enrollment in private plans within three years.

With Medicare payments to HMOs rising 2 percent annually in recent years, many insurance executives decided that they could no longer do business with the program because their Medicare-related costs were rising about 10 percent a year.

From 1999 to last year, health plans dropped more than 2.4 million Medicare beneficiaries. Some pulled out of Medicare entirely, while others curtailed their participation by withdrawing from specific counties.

Leslie V. Norwalk, acting deputy administrator of the federal Centers for Medicare and Medicaid Services, predicted that as a result of the increased payments, which take effect March 1, many private plans would return to the Medicare program.

About 4.6 million beneficiaries, or 11 percent of the 41 million people enrolled in Medicare, are now in HMOs, which have customarily provided drug benefits and preventive care not available in the original fee-for-service program. The number of people in private plans reached a peak of 6.3 million, or 16 percent of beneficiaries, in late 1999.

The Bush administration predicts that the Medicare law enacted last month will encourage people to enroll in HMOs and similar private plans called preferred provider organizations, so that by 2007, 35 percent of beneficiaries will be members.

Tommy G. Thompson, the secretary of health and human services, described the increased payments as "an investment in our seniors." As a result of the increase, he said, Medicare beneficiaries will have more options and better services.

Private plans will be able to use the additional money to enhance benefits, to reduce premiums or co-payments paid by beneficiaries, or, as a way of stabilizing the network of health care providers who serve the beneficiaries, to increase payments to doctors and hospitals.

Many Republicans say private plans are more efficient than the traditional government-run Medicare program. But Democrats said Congress was "bribing" the private plans to take Medicare patients, with little evidence that private insurers would save money for taxpayers.

Rep. Pete Stark, a California Democrat and member of the House Ways and Means Subcommittee on Health, said the increases were "a first step in the march toward privatization" of the Medicare program.

"Medicare HMOs were already substantially overpaid relative to what it would cost to serve the same beneficiaries in Medicare, even before this significant rate increase," Stark said. "Republicans have devised a sweetheart deal for HMOs and the insurance industry that comes at the expense of beneficiaries and taxpayers."

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