In a significant policy change, Clinton administration officials say they will not prod elderly Medicare patients to join health maintenance organizations, in part because they have discovered that the government loses money on people enrolled in such private health plans.

Bruce Vladeck, head of the federal Health Care Financing Administration, which runs Medicare, said he would not aggressively promote HMOs for beneficiaries until he could guarantee consistent high-quality care and had a better way of paying for it."Our payment methodology is so primitive that it doesn't save money," Vladeck said in an interview. "We are losing money on HMO patients. Before we undertake aggressive promotion of HMOs for Medicare beneficiaries, we have to make progress on both issues: payment methodology and quality assurance."

In the Reagan and Bush administrations, Medicare officials insisted that HMOs would both raise the quality of care for elderly people, by coordinating services, and save money for the government.

But a new study by Mathematica Policy Research, a private consulting concern, said the government paid 5.7 percent more for Medicare patients in HMOs than it would have paid if those people had been in the regular Medicare program. Medicare "is not achieving its goal to save money" through HMOs, said the study, done under contract to the government.

The problem, essentially, is this: while Medicare paid the HMOs a per-capita fee close to the cost of services used by the average Medicare beneficiary, the patients who enrolled in the HMOs tended to be healthier than the average, meaning that they would probably have used fewer services anyway.

The report does not discuss President Clinton's plan to remake the nation's health-care system, which seeks to hold down health spending by inducing large numbers of consumers to enroll in HMOs and other forms of managed care. But the findings suggest that it may be difficult to achieve the large savings that his plan envisions.

View Comments

Under Clinton's plan, organizations known as regional alliances would buy coverage for large numbers of people in a particular area.

Just as the government has not found a reliable way of adjusting its payments to HMOs to reflect the expected health needs of Medicare beneficiaries, so the alliances may have difficulty adjusting their payments to networks of insurers, doctors and hospitals to reflect the needs of alliance members.

Proponents of an alternative to the president's plan argue that instead of seeking elusive savings through managed care, all Americans should be lumped into a government-run "single payer" plan like the one in Canada.

But administration officials argue that the nation is not yet ready for a health care system financed entirely by taxes.

Join the Conversation
Looking for comments?
Find comments in their new home! Click the buttons at the top or within the article to view them — or use the button below for quick access.