Health-Care Costs Up, Coverage Down

Nov. 7 -- Josephine Giacalone knows that health-care costs only go in one direction: up.

Still, Giacalone, a 67-year-old retired office worker in suburban New York, was shocked when she received a letter from Empire Blue Cross. The Medicare HMO informed her that monthly premiums were increasing from $85 to $140.

"I'm a senior citizen on a fixed income, so $55 more a month is going to be a problem for me," said Giacalone.

The story is the same for many of the five million Medicare recipients enrolled in HMOs: They're facing higher prices and fewer benefits.

For example, Health Net has dropped coverage for brand-name drugs and will be charging for chemotherapy. Kaiser Permanente is raising premiums in the Mid-Atlantic states by as much as 75 percent. Aetna is altering its charges for hospital stays. Some patients would end up paying less under the new system, while others would pay 15 percent more.

The managed-care industry claims it has no choice. The American Association of Health Plans says Medicare reimbursements have not been keeping pace with the rate of health-care inflation.

"It doesn't really take a lot of math skills to understand if your costs are going up 10 percent a year and payments are going up 2 percent a year, and it happens year after year, that becomes a crisis. And it becomes a crisis for the financially vulnerable beneficiaries who really are relying on this program," said Susan Pisano, a vice president of AAHP.

Higher Costs Affect Everyone

While higher prices are tough for older Americans who are on fixed incomes, they are not alone in the efforts to make ends meet.

Working Americans are struggling, too. Hewitt Associates estimates companies will pass on to their workers one-third to one-half of the rise in premiums next year.

Nate McKay, 39, who works in a group home for the disabled in Colorado, says if he is lucky enough to get a raise, it would be eaten up by rising medical costs.

"It affects us a lot financially, because it's not like I make $100,000 a year to start off with," he told ABCNEWS.