The failure of Medicare PPOs is in marketing?
Chicago Tribune
March 23, 2003
Seniors spurning pilot Medicare PPO effort
By Bruce Japsen
A new and highly touted Bush administration effort to help Medicare patients pay for prescription drugs is a bust so far.
Three months into a much-anticipated pilot program, less than 1 percent of the elderly and disabled Medicare recipients eligible have signed up.
The initiative targeted up to 11 million Medicare patients in 23 states... to sign up for preferred provider organizations (PPOs).
Unlike health maintenance organizations, PPOs allow subscribers to visit doctors outside of their networks, a key reason they have become the most popular health plan.
The Bush administration figured the PPOs' popularity would mean that the pilot program would go over well with the elderly and disabled covered under the federal Medicare health insurance program.
On its face, the premium charged by the PPO seems like a bargain. The monthly charge is between $40 and $75 on top of the $58.70 monthly Medicare premium.
In contrast, most seniors who want prescription coverage have to buy supplemental policies priced at $200 or more a month, join an HMO that restricts their choices or pay out of their own pocket.
Why the lack of enthusiasm?
Among other things, most PPO plans do not cover the latest and typically more expensive brand-name prescriptions some seniors say their doctors are prescribing. They do pay for generic versions of brand-name drugs, but sometimes those versions are not yet available.
The fact that seniors have not embraced the pilot could be a setback for Bush health advisers who saw the program expanding to cover even more of the nation's 40 million Medicare patients in health plans operated by private companies.
For now, Bush official Scully says, the PPO pilot is budget neutral, using existing Medicare funds that prevent the plans from offering brand-name coverage. Should Congress pass the president's reform bill, Scully said, plans would compete for a larger chunk of money, and a much richer benefit with brand-name coverage will be available.
Tom Scully, administrator for the Centers for Medicare & Medicaid Services:
"The health plans need to do a better job of marketing because the only way you get people to switch is through a lot of marketing."
http://www.chicagotribune.com/business/chi-0303230063mar23,1,4556174.story
Comment: Question of the day: How many red flags can you count here?
A very fundamental flaw in the Bush administration's reasoning is that PPOs in the private market were not chosen because of their popularity, but rather they were chosen when the indemnity plans were withdrawn from the market and individuals were left with a choice of PPOs or HMOs. Although integrated HMOs such as Kaiser remain popular, network middleman HMOs ultimately have proven to be less popular than PPOs since the HMOs have been more restrictive and less dependable. Patients do prefer to have the greater choice of providers that PPOs offer compared to HMOs, with the added option of obtaining care outside of the provider list even though with increased cost sharing.
The primary advantage that PPOs offer over indemnity plans is that PPOs contract rates with providers, theoretically controlling costs. But once the market is saturated with PPOs (and HMOs), rates must reflect the true costs of delivering care plus a modest profit or the health care market will collapse. Ironically, Medicare also "contracts" rates with providers, but without the need to have restrictive provider lists since non-contracted providers must still adhere to Medicare-dictated rates (with a minor adjustment). Thus if benefits and cost sharing in the PPOs and traditional Medicare were comparable, there would be absolutely no reason to choose a PPO, because of the restrictive provider lists and the greater administrative waste (with the need to increase beneficiary cost sharing).
The reason that the PPOs in this pilot program are not selling well is that the program is "budget neutral." Since the PPOs receive the same reimbursement as the costs in the traditional Medicare program, not only do they have to target their marketing to a healthy subset of Medicare beneficiaries, they also must be certain that their prescription drug "carrot" used to entice patients is a very low-cost (Spartan) program. Medicare beneficiaries recognize the inadequacies of these minimal prescription plans and do not want to give up their free choice of providers in exchange for this very minimal benefit.
Tom Scully suggests that the problem is inadequate marketing on the part of the plans. He certainly exposes his blind faith in the market when he suggests that an inferior product needs only the blessing of Madison Avenue to displace our popular Medicare program.
Particularly disconcerting is the fact that Scully states that, under the president's reform bill, plans would "compete for a larger chunk on money" for more generous prescription coverage. The president's plan for traditional Medicare offers only negligible prescription benefits (nearly worthless discount cards, $600 maximum for poverty-level beneficiaries, and an approximately $6000 deductible catastrophic coverage for the wealthy). Scully's comments suggest that the administration is willing to pay more to the plans than the amount allocated for the traditional program. That certainly belies their claim that the private plans will reduce costs.
Why should taxpayers support more expensive private plans while being denied prescription coverage in our own public Medicare program? The least expensive solution that would provide comprehensive prescription coverage for everyone would be to add it as a benefit to our traditional Medicare program.