Does enrolling in medicare HMOs affect mortality?

Prescription drug plans may make the difference

People who are enrolled in Medicare Choice HMO plans with drug coverage die at about the same rate as those in traditional fee-for-service Medicare plans, but mortality rates for those in Medicare HMO plans without drug coverage are substantially higher.

Gautam Gowrisankaran

A critical question raised by the growth of the M&C program is whether beneficiaries experience better health outcomes in Medicare HMOs or in traditional FFS Medicare. In theory, beneficiaries in M&C may experience better outcomes because Medicare HMOs often provide greater coverage for preventative care such as diabetes screening and for prescription drugs. On the other hand, M&C beneficiaries may receive fewer health care services — providers are reimbursed a fixed amount per patient per year and thus have lower profits when they provide more intensive treatment. This could result in worse health outcomes, the researchers found.

Gowrisankaran and Town’s study explored how enrollment in Medicare HMOs affects one particular health outcome measure, mortality rates. Typically, that relationship is difficult to quantify, as beneficiaries who enroll in Medicare HMOs may be systematically healthier than beneficiaries who opt for traditional Medicare, so that any observed relationship between HMO enrollment and health outcomes may not represent a causal effect of HMOs on health.

The researchers offered a novel solution to this problem. They began by noting that M&C payment rates are based on the average cost of treating FFS Medicare patients in that county three to eight years earlier, and suggested that insurers will be more likely to offer M&C plans and to provide additional drug coverage if payment rates are higher. The authors then predicted the fraction of the population in a given county and year that will be enrolled in M&C plans with and without drug coverage based on the payment rate. In their analysis, the researchers estimate the relationship between the predicted M&C enrollment rates and the mortality rate at the county level.

The sample for the study was counties with population over 100,000 in the years 1993-2000. The data came from a variety of sources, including the National Vitality Statistics, Center for Medicare and Medicaid Services, and the Bureau of the Census.

Although these findings have important policy implications, the researchers caution against drawing inferences from the results, as the Medicare plan types differ in many ways, making it difficult to attribute mortality differences to a single factor.

One implication of the study is that prescription drug coverage may reduce elderly mortality. Roughly two-thirds of FFS Medicare beneficiaries currently have prescription drug coverage, typically through Medicaid or a supplemental Medigap policy, as do all beneficiaries in M&C plans with drug coverage. Thus, it is plausible that increased access to prescription drugs explains the lower mortality rate for beneficiaries in these two plan types, though it could also result from other differences in covered benefits.

A second implication is that Medicare HMOs with drug benefits provide care (as measured by mortality outcomes) that is as good as that received by the typical beneficiary enrolled in traditional FFS Medicare. This could mean that the financial incentives for providers to offer fewer services to patients in Medicare HMOs either do not affect treatment decisions or that the reduction in services has no effect on mortality. On the other hand, it is also possible that there are negative mortality effects of managed care but that they are offset by the positive impact of greater drug coverage.

The authors of the study looked only at the effect of Medicare HMO enrollment on contemporaneous mortality; thus, their analysis does not measure other health effects, such as changes in level of functioning or any mortality effects that might occur in future years.

“Many new drug therapies are instrumental in prolonging life,” Gowrisankaran said. “The study sheds some light on how we can make these drugs accessible to people and what the value in that is.”

The effect of the new prescription drug cards now available to seniors through pharmacies has yet to be seen, Gowrisankaran said. “My general impression is that they’re going to have a modest impact because they’ll lower prices for drugs but not by much,” he said. “One thing that came from the Medicare Drug Act is that we’re going to move toward providing drug coverage for our seniors.”

This research, as summarized by Courtney Coile in the Spring 2004 National Bulletin of Economic Research, Health & Aging, is reprinted with permission from the National Bureau of Economic Research.