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Seniors' healthcare choices expand

Private fee-for-service Medicare often provides advantages for members compared with traditional government-administered Medicare...but there are hidden drawbacks that insurance companies and the government don't publicize

Massachusetts health insurers are promoting a new type of Medicare coverage for seniors in 2008 that potentially offers better coverage than traditional government-sponsored Medicare. The new plans, called private fee-for-service, also raise questions about the long-term direction of Medicare because they cost more than traditional coverage but are not held to higher quality and efficiency standards.

Under traditional Medicare, seniors choose their doctors and hospitals, and are typically responsible for a 20 percent copay regardless of the service. The government handles the billing. Private fee-for-service is similar, except the plans are set up and administered by insurance companies. Copayments are often lower than 20 percent, and insurers sometimes add benefits.

Though they have proliferated nationwide since the Medicare Modernization Act was passed in 2003, there weren't any private fee-for-service plans in New England until January. Harvard Pilgrim Health Care led the way in Massachusetts, switching all its Medicare coverage to private fee-for-service this year. It has about 20,000 members in the plan, called First Seniority Freedom. For 2008, Blue Cross Blue Shield of Massachusetts and Tufts Health Plan are adding private fee-for-service alongside more standard coverage like Medicare HMOs.

The pitch to seniors is that the private plans offer more benefits than traditional Medicare, such as coverage for dental, vision, and hearing services. Also, they don't restrict members to particular doctors or hospitals. They also do not require subscribers to choose a primary care physician or get a referral to see a specialist.

For 2008, Harvard Pilgrim Health Care is expanding its fee-for-service plans to members throughout Massachusetts, New Hampshire, and Maine.

"Harvard Pilgrim was one of the first health plans in this region to realize that a private fee-for-service plan offers Medicare beneficiaries great choice and comprehensive coverage," chief executive Charles D. Baker said in a statement.

Blue Cross Blue Shield of Massachusetts, the state's largest insurer with about 3 million members, is introducing a private fee-for-service plan called Blue Medicare PFFS. For seniors who don't receive health benefits from their former employers, the monthly premium is $27.

The many types of Medicare coverage can be confusing. A 1997 federal law allowed private insurance companies to offer new types of Medicare coverage. In addition to HMO networks, they began selling Medicare coverage through preferred-provider organizations, which are less restrictive than HMOs. Together, the options are called Medicare Advantage.

Private fee-for-service plans are the fastest-growing type of private Medicare. As of February, they accounted for 18 percent of Medicare Advantage beneficiaries nationwide, and are growing faster than other private Medicare plans.

"The open access is what makes this attractive to folks," said Patty Blake, vice president of senior products for Tufts Health Plan.

But freedom from networks can also have disadvantages. For instance, doctors aren't required to accept the coverage, so a senior may be unable to get care from a specific doctor.

"It's like gold to say that members can see any provider they want," said Cindy Parks Thomas, a senior scientist at the Heller School for Social Policy and Management at Brandeis University in Waltham. "But what looks good in marketing materials may not be as great as you expect."

Fallon Community Health Plan, a smaller insurer serving patients in much of Eastern and Central Massachusetts, said it is looking at private fee plans, but will not offer one for 2008.

"There's no guarantee our members would be able to see the doctors they're seeing today," said Christine Cassidy, a Fallon spokeswoman. Also, she said, the oversight a primary care physician provides can improve healthcare for some seniors.

"We think it's important for an aging population to have the coordination of care they have in a traditional Medicare Advantage plan," said Cassidy. "Private fee-for-service provides more choice, but we're not sure that it's a positive. It potentially puts patients at risk."

For insurers, the plans are attractive because there aren't many rules. They don't have to monitor the quality or amount of care members receive, as they do with some other types of health plans.

That means there are fewer incentives to ensure that efficient care is provided, according to Mark E. Miller, executive director of the Medicare Payment Advisory Commission, a nonpartisan body that recommends Medicare policy to Congress. In testimony to Congress in June, he said private fee-for-service is the least efficient Medicare Advantage coverage.

Private fee-for-service plans can also be more lucrative to insurers than other plans. Under Medicare rules, insurance companies bid against a set rate. When the bids come in lower than the base rate, one-quarter of the difference is returned to the government as savings.

What happens to the other three-quarters depends on the plan. For Medicare HMOs, extra money must be used to provide members with better benefits. But private fee-for-service plans can use it however they like. Typically, it's split between beefing up benefits and boosting profits.

Some Medicare advocates said the generous rates for private insurance companies are part of an effort by the Bush administration to promote private coverage at the expense of traditional government-sponsored Medicare.

"It's an ideological drive to privatize Medicare without any corresponding improvement in quality of care," said Robert Hayes, president of the Medicare Rights Center, a patient advocacy group. "That's the only rational explanation for spending so much extra money for so little extra healthcare."

Jeff Nelligan, a spokesman for the Centers for Medicare and Medicaid Services, the federal agency that oversees the programs, said, "The key to Medicare Advantage plans is that they are available in every region of the country and in particular, are the choice of rural, low-income, and minority beneficiaries. Our surveys show that MA beneficiaries have high satisfaction rates with their healthcare and report fewer problems obtaining care."

The growing popularity of the private fee-for-service plans has also been marred by aggressive and improper sales tactics, according to the agency. In June, some of the nation's largest insurers suspended marketing efforts for the plans while they worked with the government to eliminate abuses. The companies, including Humana Inc., UnitedHealth Group Inc., Coventry Health Care Inc., and Sterling Life Insurance, later received Medicare approval to resume marketing.

"This is another example where the government gave the green light to the private sector and then was very surprised that they acted like companies in the private sector," said Parks Thomas, the Brandeis scientist.

Jeffrey Krasner can be reached at

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