About 17 percent of the 36 million seniors on Medicare get their health care through health maintenance organizations. But new Medicare regulations have caused a startling number of HMOs to withdraw service to their elderly clients. The organizations say they can no longer expect decent compensation from the government.

• Thirty-three of the 347 HMOs that offer Medicare services to seniors have announced that they intend to pull out of some 300 counties they currently serve -- affecting the care of some 195,000 older persons.

• Another 31 HMOs have decided to curtail benefits for some 44,000 members -- with several more organizations saying they plan to initiate similar actions soon.

• New regulations under the Medicare+ Choice program -- which was part of the 1997 budget agreement -- have raised HMOs' administrative costs and the government won't allow them to resubmit bids.

• While some analysts argue that HMOs are making adequate profits, their decision to retreat should be evidence that their margins are inadequate.

A recent analysis of 506 HMOs by Weiss Ratings Inc. found that 57 percent of them lost money in 1997.

Under the proposed new rate increases, many plans would get only the minimum of 2 percent. But costs are rising 5 percent to 6 percent, as private health spending is expected to increase -- from a 2.9 percent average annual rate to a 7.2 percent rate by 2001.

Seniors who live in rural areas will be particularly hard hit -- since the government has decided that reimbursement increases will be disproportionately lower for many rural areas.

Source: Merrill Matthews Jr. (National Center for Policy Analysis), "Killing Them Softly With Medicare," Investor's Business Daily, October 26, 1998.