PPO Demonstration Project
Conference Call Summary
July 30, 2003 at 3PM EST
I. Brief Overview of Medicare PPO Demonstration
The Centers for Medicare and Medicaid (CMS) approved a preferred provider organization (PPO) demonstration project under Medicare + Choice (M+C); the demonstration includes 33 new health plans in 23 states. According to CMS, “[i]n this demonstration, organizations will offer PPO models under the M+C program, which consists of in-network and out-of-network services. Enrollees will be able to choose which providers they want to see and will be aware of any price differentials associated with in- versus out-of-network care.” For more information from CMS, see "Medicare Preferred Provider Organization Demonstration at www.cms.gov/healthplans/research/ppodemo.asp.
The PPO demonstration:
- is open to beneficiaries who are eligible for the Medicare + Choice plans;
- must provide all benefits offered under Medicare Parts A and B;
- is not required to offer a prescription drug benefit;
- will follow the Medicare + Choice appeals process;
- offers certain services out-of-network;
- does not have a capped enrollment; and
- permits plans to renew their Medicare + Choice contracts annually.
For an advocacy organization’s perspective on the PPO demonstration project, see "Medicare+Choice PPO Demonstration Programs:Thoughts for Beneficiaries and Advocates" on the Center for Medicare Advocacy’s Web site at http://www.medicareadvocacy.org/Archived%20Pages/Managed%20Care_M+C%20PPO%20Demo.htm.
The health plans in the PPO demonstration project serve Medicare beneficiaries in the following 23 states: Alabama, Arizona, California, Florida, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maryland, Missouri, North Carolina, Nevada, New Jersey, New York, Ohio, Oregon, Pennsylvania, Rhode Island, Tennessee, Virginia, West Virginia, and Washington. For more information, see CMS's April 15, 2002 news release, "CMS Announces Demonstation Project to Expand Health Plan Options in Medicare+Choice" at (http://cms.hhs.gov/media/press/release.asp?counter=443). Eligible beneficiaries began enrolling in November 2002, and the PPO health plans began operating on January 1, 2003.
As of May 2003, 63,000 Medicare beneficiaries were enrolled in a PPO demonstration health plan. CMS has stated that it hopes that this number will rise to 150,000 to 200,000 by this year’s end. The total number of potential participants in the PPO demonstration is 11 million.
PPOs have to offer all of the services that traditional Medicare offers; however they can meet this requirement by offering the services in- and/or out-of-network. This means that enrollees may be forced to go out-of-network for some services and may be required to pay a higher share of the cost through co-payments and deductibles. One of the points made by the Center for Medicare Advocacy is that there may be restrictions on out-of-network emergency care, which could be burdensome for the PPO enrollee.
PPOs in the demonstration do not have to offer a drug benefit. Should a PPO choose to include a drug benefit, the PPO decides the drug benefits, co-pays, deductibles, formularies, and caps. According to AARP’s report, The Medicare Preferred Provider Organization Demonstration: Overview of Design, Characteristics, and Outstanding Issues of Interest,[1] available at (www.aarp.org/ppi/), 79 percent of PPO plans offered some prescription drug benefit: 64 percent of those offering a benefit limit it to generic drugs, and 15 percent cover brand name drugs and generics but limit the coverage for brand names.
Beneficiaries enrolled in a PPO demonstration project have the right to guaranteed issue to certain Medigap policies only if the PPO plan non-renews its contract with CMS or if the beneficiary opts out of the PPO plan within one year of enrollment.
II. General Feedback from SHIPs
SHIPs on the call reported that enrollment is low. Enrollees in PPOs generally do not understand the difference between an HMO and a PPO. Individuals who are enrolling in the demonstration PPOs appear to be higher-income individuals.
In one city, among three PPO companies, only about 2,000 people are enrolled. State SHIP directors cited the following reasons for the slow beneficiary enrollment in PPO demonstration projects:
- premiums are very high;
- benefits, co-pays, and caps are inconsistent among plans;
- the PPO benefits are not much better than the HMOs;
- PPO plans only have annual contracts and could pull out;
- potential enrollees are confused as to whether a plan is a true PPO or an HMO with a POS;
- PPOs may cost more than Medigap, and the beneficiaries know what they are getting from Medigap, since managed care plans are standardized;
- doctors and insurance companies seem confused and lack knowledge regarding benefits;
- out-of-network providers are confused regarding coverage and billing; and
- prescription drug coverage offered by the PPO plans is insufficient.
III. Specific Feedback from SHIPs
One state shared a unique situation. Last year, a Medicare + Choice HMO plan called Medicare Blue non-renewed as of December 31, 2002. The demonstration PPO plan in the state is called Medicare Blue. All of the enrollees who were terminated by the HMO got a letter saying that their HMO plan was ending but that there was a new plan with the same name. The enrollees were confused and enrolled in the new product, “Medicare Blue,” which is a Medicare PPO plan. The old plan (HMO) and new plan (PPO) are very similar with like co-pays and premiums; it is, therefore, more difficult for people to discern that they are no longer in a HMO but rather have been enrolled in the PPO demonstration plan. The only way they will know is when they need to go to a specialist and do not need a referral or when they seek out-of-network services and discover the co-payment is much higher than expected.
In another state, one company runs PPO plans in three counties. Enrollees pay a premium of $85/month in the PPO, whereas the HMO does not charge a premium. However, there has been some enrollment in the PPO, possibly due to the ability to go out of the network. PPO enrollees in general are happy with the plan, and the state SHIP director cited no complaints.
In another state, the two companies that offer the PPO product also offer HMO products. Beneficiaries do not understand the difference between the two. PPO enrollees are filing the most complaints and are calling SHIPs complaining that they thought they were enrolled in a HMO. Enrollees are calling the Department of Insurance stating that they have been misled.
In one state, three PPOs operate in seven counties. In two of those counties, there are also 10 and 14 HMOs. The SHIP director reported that the PPO plans are not marketed, and there are no newspaper articles or any publicity, so people are not aware of them.
Another state has three PPOs offering five products. The out-of-network costs among PPOs vary significantly. For hospital coverage, one plan has a $7,500 cap, while another plan has a $1,500 cap. Beneficiaries do not anticipate the potential for very high costs, as they are accustomed to the fixed costs offered by HMO enrollment.
With respect to prescription drugs, experiences with PPOs have varied. In one state, a PPO plan offers generic drugs and a discount card for brand name drug, which provides an average discount of 9 percent. Another plan in the same state does not offer prescription drug coverage. One state SHIP director explained that some PPO plans only offer generic drugs, but enrollees are provided with a mail order pharmacy catalog allowing them to get brand name drugs at wholesale price less 15 percent. In yet another state, the PPO plans provide discount cards to everyone, even those with Medigap. If cardholders show the card at a participating pharmacy, the prescription drugs cost 17 percent less on average than retail.
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AARP’s publication, The Medicare Preferred Provider Organization Demonstration: Overview of Design, Characteristics, and Outstanding Issues of Interest (June 2003), Publication # 2003-07, addresses the scope and geographic regions of the demonstration, benefits, cost sharing, and in- versus out-of-network coverage and cost and provides profiles of participating PPOs. An extensive appendix, organized by state, provides a list of all PPO plans and information about their benefits, such as co-pays, drugs, service areas, hospital benefit, premiums, and in- and out-of-network services.
