Citing Losses, Cigna to Drop Medicare HMO

Cigna Corp., one of the nation’s largest health maintenance organizations, said Friday it will abandon the Medicare market, forcing more than 100,000 seniors nationwide to find new health insurance.

The move, effective Jan. 1, 2001, is expected to be followed by other managed care companies, which have been scaling back their Medicare participation since the federal government three years ago began reducing the amount of money it pays to take care of seniors.

Aetna US Healthcare, which covers 650,000 people in its Medicare plan, is considering reducing its participation in the program, a spokeswoman said, but a final decision will not be made for several weeks. Even Pacificare Health Systems, which covers 1.1 million seniors and remains committed to the Medicare business, is “evaluating all of the options” and may drop out of some markets, the company said.

“The program is in free fall,” said Karen Ignani, president of the American Assn. of Health Plans. “We’re in the middle of a real crisis.”

Medicare beneficiaries who find themselves without an HMO will still be covered under regular Medicare. But HMO care for seniors is generally more comprehensive and cheaper than traditional Medicare and Medi-gap.

So many companies have dropped out of Medicare managed care over the last two years that there is no managed care plan available for seniors living in 160 counties nationwide. Others have been bounced from plan to plan as companies such as Cigna have reduced their involvement in the business.

Health plans have dumped 750,000 Medicare beneficiaries from their rolls since 1998, according to the American Assn. of Health Plans.

Announcements of additional reductions are expected to come during the next four weeks, as a July deadline nears for health plans to notify the federal government whether they will participate in the program in 2001. By October, those plans that intend to drop out must write to members who are affected, telling them what happened and providing the names of alternate insurers.

“For the lowest tier of elderly, this is really a dramatic problem,” said Linda Bergthold, a Santa Cruz-based health care analyst and consultant. “It’s extremely disruptive and difficult.”

In those areas where Cigna is the last remaining Medicare managed care provider, seniors and disabled Americans who rely on the 1960s-era program for their care will be forced to return to the traditional fee-for-service form of Medicare coverage.

Under that program, members must pony up co-payments of 20% of doctor bills, pay for all or most pharmaceutical costs and shell out for a $3,000-a-year Medi-gap program, which covers office visits and other services not included in regular Medicare.

“We’re just devastated,” said Cigna member Carolyn Boyer, who is battling an aggressive form of breast cancer. Boyer, a former health insurance industry lawyer who lives in Washington, D.C., estimates that a return to traditional Medicare would cost her $50,000 a year in deductibles and uncovered costs for treatment and medicine.

She is thinking of joining Kaiser Permanente, one of the few remaining Medicare HMOs in Washington. But she is afraid that despite promises to the contrary the nonprofit HMO will quit too.

“Something is wrong when companies keep pulling out,” she said. “It’s a real disappointment.”

For its part, Philadelphia-based Cigna said it has been losing money on its Medicare operations, which just a few years ago covered 190,000 Americans.

“We started getting into it in the mid-1990s and started withdrawing last year,” said Cigna spokesman Howard Drescher. “We had hoped to provide a quality service to our members and provide more patients for our doctors.”

Friday’s announcement marks the end of Cigna’s two-year withdrawal from Medicare coverage in California, where 17,000 people in Los Angeles and Orange counties are members.

While Cigna itself will no longer offer Medicare coverage, the company plans to allow a small subsidiary in Phoenix to continue to serve seniors and is considering keeping open another subsidiary in New Mexico, Drescher said.

Drescher did not rule out a return to the Medicare business for Cigna if the federal government sweetens its reimbursements or, as President Clinton has proposed, begins to pay for prescription drugs.

Health plans have been lobbying furiously for such relief and last week even staged a demonstration in Washington demanding higher payments for doctors and health plans who treat people on Medicare.

But the federal Health Care Financing Administration, which runs Medicare and Medicaid, says that it is the health plans, not the government, that are causing the problem. Nancy-Ann DeParle, administrator for HCFA, accused health plans of spending too much money on unnecessary perks, such as low- or no-cost plans with rich benefits, in order to grab patients from other providers.

“While private-sector Medicare HMOs are paid more than enough to provide the basic Medicare benefits, the payment formula set by law doesn’t always pay enough for the extra benefits they use to entice beneficiaries and make enough profit,” DeParle said Friday.

At Pacificare, the nation’s largest Medicare HMO, executives have stood firm under pressure from stockholders and the Board of Directors to reduce the company’s involvement in Medicare.

But even Pacificare, whose Secure Horizons plan covers 1.1 million seniors and disabled people, is evaluating some markets to see whether it will withdraw when the deadline comes next month.

“Any market exit is our last resort,” said spokesman Ben Singer, who said that the company is making a small profit of 2% to 3% on its Medicare operations.

Rather than quit, he said, Pacificare has modified its plan in order to remain solvent while waiting for Congress to improve the program.

Last year, for example, the company began charging premiums in some areas where it had previously offered free coverage. Secure Horizons also began to charge co-payments for doctor visits and prescription drugs.

Last year, he said, the company increased its rolls by 20,000, as other insurers dumped Medicare managed care.

“We are committed to it,” Singer said. “We keep looking at not today or tomorrow but what comes after that. The [baby boomer] population is coming Medicare’s way.”