This isn’t new news, and has been disputed in a roundabout way in various other pieces, particularly one by Jeff Lemieux that I commented on last year. However, the Commonwealth Fund has a latest report showing that in terms of pure increase in payments, the enrollees in Medicare HMOs will exceed the cost of their equivalents in the FFS program by 8%. In some urban counties (such as Phoenix, AZ) the difference will be as much as $1,000 per year per member.

So the recent legislation designed to "level" the playing field between the public FFS program and the privately-run HMOs in Medicare+Choice has at the very least thrown the advantage back to the HMOs. Logically, if it believed that HMOs actually were cheaper you’d expect the government to get seniors into HMOs and then keep them there as they cut reimbursement rates later. That presumably would save money in the long run. However, we’ve seen this movie before, we know how it ends, and there are problems with the "bait and switch" scenario in which the senior is trapped in an ever-cheaper HMO. The problems are that neither the members nor the plans can at this stage be forced to stay in the market. In the late 1990s the private plans moved out as reimbursement fell, and their members were forced to move back to FFS.

That means that the short-term costs of pushing people into HMOs cannot be "made-up" later by ratcheting down rates so (as Commonwealth says), the increased Federal spending is merely a short-term subsidy to private HMOs and their members. Not exactly logical government policy. But then again, who said PDIMA was logical. Expect Senator Kerry to point this out in the run-up to November!