Senoir Solutions: Why a local HMO can be cheaper than Medicare

Q. My wife and I began shopping for cheaper Medicare Supplement coverage. In doing so, we came across a local HMO that promises broader coverage than traditional Medicare at a lower cost than a Medicare Supplement policy. I am wondering why the cost is so much less than traditional Medicare supplemental coverage. —Frank J. A. An HMO contracts directly with Medicare to provide services to Medicare recipients. In doing so, the HMO becomes the primary provider and Medicare supplements the cost of providing services directly to the HMO. Officially, this falls under the category of a Medicare Managed Care Plan. Nationally, these plans have not fared as well as originally hoped. The underlining problems fall into two major categories, freedom of choice and profitability. HMO members are limited to a given network of Medical Providers. Utilizing a provider outside the network usually results in reduced coverage, or no coverage at all. Access to specialist must be preceded by a recommendation from your primary physician and approval of the HMO. By restricting its members to its own providers, HMOs in theory are able to offer broader coverage at a reduced price. In the last few years, however, we have seen a marked exodus of medical providers and Medicare recipients away from HMOs. This is primarily due to the restrictions placed on providers to deliver coordinated medical care. Lack of service has driven Medicare recipients back into traditional Medicare coverage. These market conditions have affected the solvency of some HMOs as well. You may want to check with your state department of insurance as to the financial strength of an HMO before joining. Q. My insurance agents suggested we purchase a policy from a company that offers a PPO. I just came out of an HMO. What is the difference? —Joyce P. A. Unlike an HMO, a Preferred Provider Organization (PPO) is not normally funded by Medicare. Insurance companies contract directly with medical providers. In turn for directing their clients to the medical provider, the insurance company receives discounts for services rendered. These savings are normally passed along to the insured in the form of reduced premiums. The insured is compelled to use providers within the PPO, but often they are not as restrictive as an HMO. Peter Gulatto has been associated with the insurance industry for more than 30 years. He has held a Certified Insurance Counselors (CIC) designation since 1983. His responsibilities have included those of an insurance agent, risk manager, consultant and insurance educator. His interest now is focused on providing answers to the insurance challenges facing our senior population. Submit your questions to Peter J. Gulatto c/o The Centurion Group Inc., P.O. Box 3333, Rockford, IL 61106, or call at 815-229-0994.

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