In the past few weeks, Michigan HMOs have made a series of announcements that leave observers wondering if Medicare+Choice (M+C) plans have much of a future in the state. And if it cant work there, what does that say about its future in other states? This trend note is based on research that we conducted in preparing Michigan Managed Care Review 2001, which was released in July.
During the late 1990s, several Michigan HMOs enthusiastically launched Medicare+Choice plans. They hoped that the auto makers and other employers, concerned about their huge balance sheet liability for those retiree benefits, would link up with HMO plans to reduce those costs. As in other states, the HMOs marketed to seniors the advantages of plans with supplementary benefits, no enrollee co-insurance and no paperwork. Enrollment grew from 18,000 seniors in two HMOs in 1996 to 81,000 in seven HMOs at the end of 2000. The figure below shows the growth on Medicare+Choice enrollment since 1994.
At its peak, less than 8% of the 1.2 million seniors in Michigan elected Medicare+Choice plans. A major reason for this low penetration is the lack of a financial incentive. Retirees who used to work for the Big 3 auto makers or their suppliers usually have rich retirement benefits, The employers pay for prescription drug coverage and other coverages that are not part of traditional Medicare but which were part of the benefit plan at work. While the auto companies and many other employers showed some interest, no one ever took the step to create incentives for retirees to go to Medicare+Choice plans. In any addition, many Michigan retirees are snowbirds, spending their winters in Florida and other states. The M+C plans did not travel well.
Medicare plans in Michigan were stable in 2000, even as health plans around the country were cutting back on service areas, reducing benefits or exiting the program. One Michigan HMO, Care Choices (Trinity Health), terminated it plan at the end of 2000. It had peaked at about 4,000 lives.
This year, though, the program has been severely disrupted. HMOs have two extra months, until mid-September, to decide if they will participate in the program in 2002 and to set their enrollee premiums and supplemental benefits. However, Blue Care Network has already announced that it will terminate its M+C program, with about 17,000 enrollees, at the end of 2001. It lost almost $14 million on its M+C plan in 2000.
Health Alliance Plan, owned by the Henry Ford system, has announced that several key provider groups will no longer participate in its M+C plan and closed off new enrollment. HAP is the largest M+C HMO in the state, with 31,000 enrollees at the end of 2000. This year, HAP acquired the HMO business of SelectCare, a managed care company owned by St. John, Beaumont and Oakwood hospitals. SelectCare had an additional 5,200 seniors in its senior plan, and it capitated hospital systems for almost all services. Many of these providers have said that they will no longer accept risk for senior plans.
M-CARE, part of the University of Michigan system, had grown its plan to 21,000 seniors and reported a profit of $2.9 million in 2000. However, it will exit Macomb County and has also closed off new enrollment. It lost a major physician group as well, which will affect several thousand seniors even before the end of 2001.
The HMOs that stay in the program for now are concerned that seniors leaving will overwhelm the capacity of their provider networks. Further, they are concerned that the seniors who will seek out another M+C HMO are those that are above average utilizers of care.
The AAPCC (Average Area Per Capita Cost) rates for Michigan counties are highest in Southeast Michigan and in Flint. With the 2% increases that took effect in March 2001, the base rate in Wayne County was $689. Oakland County was $658 and Genesee County (Flint) was $674. The federal government has announced that rates in those counties will increase by 2% in 2002. The rates in Grand Rapids and Kalamazoo got a bigger boost in March, to $525. However, no HMOs offer M+C plans in those parts of the state.
Among other findings from Michigan Managed Care Review 2001:
o Enrollment in HMOs fell slightly in 2000, after increasing at an average annual rate of 8% in the five previous years. Enrollment declined in Medicaid plans and was flat in Medicare HMOs. Medicaid enrollment has begun to consolidate in a smaller number of plans, as three large commercial plans Blue Care Network, Health Alliance Plan and SelectCare left the Medicaid program. Similarly, the market for commercial HMOs became more consolidated as Health Alliance Plan acquired the HMO business of SelectCare. Some Detroit area employers had offered SelectCare along with Health Alliance Plans because it gave their employees access to all the major hospitals and because SelectCare was usually cheaper. It will be interesting to see how employers respond to this change.
o HMO premium revenues per member per month for commercial plans increased by an average of 8.4% in 2000. HMOs increased their premium revenue from $137.09 to $148.57 per commercial member per month. As a result, HMOs regained profitability for the first time since 1996. However, they still lost $19.4 million on operations. That was a major improvement over 1999 when they lost $92.2 million on operations. The report projects that HMOs in the state will post a profit on their operations in 2001, although that will require premium revenue increases of 10% or more.