Medicare+Choice launches new PPO option in 23 states
by Markian Hawryluk, AMNews staff. Sept. 16, 2002. Additional information

Plans would pay out-of-network physicians at Medicare rates.

Washington -- Since the creation of the Medicare+Choice program, the choice has been quite limited. Most Medicare beneficiaries had only the option of an HMO, if they had any managed care option at all. That will begin to change next year.

In an effort to modernize Medicare, the Bush administration has persuaded insurance companies to offer preferred provider organization plans by mitigating the risk they will face.

The Centers for Medicare & Medicaid Services in August approved 33 new PPO health plans in 23 states to begin providing services in January 2003. Almost a third of all Medicare beneficiaries, or about 11 million individuals, will have access to a PPO plan in the Medicare open enrollment period in November.

The PPO model -- in which patients can see out-of-network doctors but with higher out-of-pocket costs -- has proved more popular in the under-65 market than the traditional HMO model. To date, Medicare+Choice plans have been almost exclusively HMOs or fee-for-service plans.

"The under-65 market is rapidly flocking toward PPO products, which give patients the flexibility they need," CMS Administrator Tom Scully said in announcing the plans. "Seniors want the same options, and this is a big first step in getting them there."

Physicians are now required to verify whether a patient is enrolled in a Medicare+Choice plan before an office visit, but only those doctors contracted with a plan could bill the plan for services provided. Next year, if the patient is enrolled in one of the PPO plans in the demonstration, out-of-network physicians will be able to treat the patient and bill the plan for their services. Out-of-network doctors are guaranteed the Medicare rate.

Nearly one-third of Medicare beneficiaries will soon have a PPO option.

The plans are likely to rely on existing networks of physicians instead of enrolling new physicians for their Medicare offerings.

While the PPO model was approved for Medicare years ago, few insurers ventured into the seniors' market with such plans. The Bush administration spurred the entry of the new plans by offering to pay them 99% of the average per beneficiary spending in fee-for-service Medicare or the current Medicare+Choice rate for their area, whichever is higher.

Additionally, the Medicare program has promised to pick up half the additional cost if spending rises 2% above what plans are paid. Likewise, the program will share in the profits if costs are 2% below their payments.

According to Walt Cherniak, spokesman for Aetna's Mid-Atlantic Region, which will offer a Medicare PPO in Maryland, New Jersey and Pennsylvania, many of details of its plan are yet to be finalized. Aetna is still considering the benefits, premium and structure of its plan. Those details will have to be OK'd by CMS over the next month in time to tell beneficiaries in the open enrollment period.

Pitching in on prescriptions
At a minimum, the plans must offer the standard Medicare benefit package, but they have the flexibility to provide additional services, such as prescription drug coverage and disease management programs.

CMS expects as many as 200,000 beneficiaries to opt for a PPO plan this year, mainly as a way to cut prescription drugs costs. All 33 plans announced in August will offer some drug coverage, although not as comprehensive as the coverage in PPO plans serving the under-65 market.

The project will run for three years, at which time CMS will make a decision about whether to recommend that Congress make the demonstration permanent. But plans must decide yearly whether to remain in or exit from the program. Although the Medicare+Choice program grew steadily through the 1990s, it was plagued by HMO withdrawals in recent years as payment levels did not keep up with plans' costs.

Consumer groups, including the AARP, Consumers' Union and Families USA, have expressed concern that introducing the PPO plans will reduce the pressure for Congress to pass a prescription drug benefit.