The cost and benefit trends for California Medicare HMO plans are clear and unmistakable: Consumer costs are increasing, while benefits are being reduced. Although the trends have affected some areas of the state more than others, the overall direction is remarkably consistent.

California Medicare HMOs: Declining Benefits and Rising Costs, produced for the California HealthCare Foundation (CHCF) by Milliman USA (Milliman) finds that the benefits offered by Medicare HMOs and costs charged to plan members vary significantly, so that it is difficult to characterize a single plan as "average." According to CHCF Program Officer Marian Mulkey, "Variations among Medicare HMOs across the state and within counties have real consequences for consumers."

As an example, Medicare consumers in Los Angeles County have 13 plans to choose from. In contrast, Medicare HMO consumers in Fresno County have only 2 plan choices with higher premiums and lower benefits than those in Los Angeles. In 25 California counties, Medicare consumers have no HMO options. Approximately one-third of California Medicare consumers were enrolled in Medicare HMOs at the end of 2002.

Medicare HMOs offer enrollees more comprehensive benefits than does traditional Medicare alone. However, containing costs under Medicare HMOs (also known as Medicare+Choice) has proven more difficult than originally anticipated. Health care costs have accelerated rapidly in recent years, resulting in unplanned expenditure increases for the entire Medicare program. At the same time, the federal budget environment has deteriorated and Medicare program funding has not increased.

CHCF and Consumers Union recently published their third annual Guide to California Medicare HMOs, a free report to consumers that rates each Medicare HMOs in California for both financial and prescription drug coverage value. (Note: The Guide to California Medicare HMOs was discontinued in 2004.) This body of work, and additional Milliman research, allowed CHCF and Milliman to identify numerous noteworthy trends taking place in California during the past three years.

• The geographic gap in value has widened. Since 2001, health plans in the Los Angeles area have offered better financial value than plans in other parts of the state. However, the extent of those value differences has widened dramatically over the past three years.
• Premiums and copayments are increasing steadily.
• Benefits are declining. Although costs to beneficiaries have increased, the added premiums and higher copayments have not been used to fund additional or expanded benefits.
• Cost and benefit provisions are increasingly complex. For example, some plans now include deductibles that apply to some services (such as hospital care) but not others (such as physician office visits). Mulkey stated, "The precise cause of this trend continues to be a matter of debate among health care analysts. While some disagreements remain, a clear consensus has emerged that the gap between health care costs and the reimbursement rates paid to Medicare HMO plans is a primary cause."

  Beneficiaries and health plans have different and sometimes conflicting motivations, and policymakers must strike a balance when contemplating changes to the Medicare program. To avoid unintended consequences, including a further deterioration of consumer benefits or fewer participating health plans, it will be important to weigh consumer value and health plan viability as well as program costs.

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