However, rising drug prices, federal belt tightening, and management problems plague HMOs, making Medicare managed care an expensive proposition. As a result, health plans are either increasing fees, cutting benefits or leaving markets where federal payments are too low. According to HCFA, as of October 1998, a total of 43 plans have withdrawn from the Medicare program, affecting nearly 415,000 beneficiaries now enrolled in HMOs. Twenty-one HMOs currently operate in New Jersey, serving 2.45 million members, an increase of 20,000 enrollees since the prior quarter. Total HMO market penetration continues to increase steadily since 1997, as illustrated below.
Commercial products continue to be the source of most growth for HMOs.
At the end of 1997, HMOs served more than 40 percent of the commercially-insured population, according to data released by Interstudy, a leading researcher and publisher of managed care data. Five HMOs capture 73.1 percent of the New Jersey HMO market as shown below, down 1.2 percentage points from the prior quarter. In contrast, Oxford, HIP, and First Option experienced modest declines in membership since the last quarter, with Oxford reporting the largest drop of 17,000 members. Oxford, though struggling, remains the third largest HMO in New Jersey. To achieve its goal of profitability by mid 1999, Oxford is raising premiums and cutting costs sharply.