Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Medicare Beneficiary Interest 
in HMOs in 1997 
JUNE GIBBS BROWN 
Inspector General 
SEPTEMBER 1998 
OEI-04-97-00032  OFFICE OF INSPECTOR GENERAL 
The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 
protect the integrity of the Department of Health and Human Services programs as well as the 
health and welfare of beneficiaries served by them.  This statutory mission is carried out through a 
nationwide program of audits, investigations, inspections, sanctions, and fraud alerts.  The 
Inspector General informs the Secretary of program and management problems and recommends 
legislative, regulatory, and operational approaches to correct them. 
Office of Evaluation and Inspections 
The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 
Inspector General.  It conducts short-term management and program evaluations (called 
inspections) that focus on issues of concern to the Department, the Congress, and the public.  The 
inspection reports provide findings and recommendations on the efficiency, vulnerability, and 
effectiveness of departmental programs. 
OEI's Atlanta Regional Office prepared this report under the direction of Jesse J. Flowers, 
Regional Inspector General, and Christopher Koehler, Deputy Regional Inspector General. 
Principal OEI staff included: 
REGION IV  HEADQUARTERS 
Betty Apt, Project Leader
 Wynethea Walker,  Program Specialist 
Jason Stanfield, Contractor
 LindaMoscoe, Technical Support 
Joe Townsel, Program Analyst
 Barbara Tedesco, Statistician 
Paula Bowker, Program Analyst

Janet Miller, Program Analyst

To obtain copies of this report, please call the Atlanta Regional Office at 404-562-7743. 
Reports are also available on the World Wide Web at our home page address: 
http://www.dhhs.gov/progorg/oei  E X E C U T I V E  S U M M A R Y

PURPOSE 
To determine Medicare beneficiary awareness of and interest in joining health maintenance 
organizations in 1997. 
BACKGROUND 
In all geographic areas, Medicare beneficiaries can obtain medical care through a fee-for-service 
arrangement.  Many beneficiaries also have an option of obtaining medical care through managed 
care plans known as health maintenance organizations (HMOs).  As of April 1998, approximately 
5.6 million beneficiaries were members in one of 336 Medicare-contracted risk HMOs.  Risk 
HMOs receive a fixed monthly Medicare payment per beneficiary.  Such HMOs must provide a 
full range of Medicare services, and are at risk for any health care cost that exceeds the fixed 
payment. 
During our 1997 survey of Medicare beneficiary satisfaction, we asked beneficiaries about their 
awareness of Medicare-contracted HMOs, and their interest in joining one.  Several Health Care 
Financing Administration (HCFA) staff expressed an interest in this subject, and suggested 
questions for our survey. 
We included in our sample only beneficiaries who were enrolled in Medicares fee-for-service 
program.  Where possible, we compared beneficiary responses to those of similar surveys we 
conducted in 1994 and 1995. 
FINDINGS 
General Awareness of HMOs by Beneficiaries Increased Each Year 
!	 In 1997, 79 percent of beneficiaries said they had heard of HMOs.  This is a statistically 
significant increase from 1995 and 1994 when 70 percent and 62 percent, respectively, 
said they knew about HMOs. 
!	 In 1997, 40 percent of the beneficiaries said they would like to learn more about 
Medicare-contracted HMOs.  This is a statistically significant decrease from 1995 and 
1994 when 54 percent and 64 percent, respectively, said they wanted more information. 
This decrease may be because more beneficiaries are aware of HMOs, and do not think 
they need more information. 
!	 About 75 percent of the beneficiaries were not aware they could appeal HMO decisions 
about their health care. 
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iii  Beneficiary Awareness of Medicare HMOs in Their Area Remained the Same 
!	 In both 1997 and 1995, 44 percent of beneficiaries said they knew whether or not they 
lived in locations where they could join an HMO.  This lack of increase in awareness of 
local Medicare HMOs is puzzling since the number of HMOs available to beneficiaries has 
increased.  Also, as shown above, the number of beneficiaries who had heard of HMOs 
has increased. 
Beneficiary Interest in Joining an HMO Decreased 
!	 In 1997, only 23 percent of beneficiaries expressed an interest in joining an HMO, 
compared to 35 percent in 1995. This is a statistically significant decrease. 
!	 Of the beneficiaries who cited a reason for not joining an HMO, about 46 percent said 
inability to select their own physicians was the main reason. 
!	 Only 7 percent of beneficiaries expressed concern about quality of care in an HMO.  This 
is similar to beneficiary responses to our 1995 and 1994 surveys. 
CONCLUSION 
The Balanced Budget Act of 1997 expanded the types of managed care plans that will be available 
to beneficiaries.  Accordingly, HCFA is currently negotiating contracts with managed care 
providers, and developing educational materials for beneficiaries.  Our past studies and this study 
have shown, however, that over half of beneficiaries do not know whether or not a managed care 
plan is available that they can join.  In preparing educational materials, HCFA could provide 
beneficiaries with information on managed care plans available in their local areas.  Furthermore, 
in view of our survey results, it would also be useful for educational materials to emphasize 
beneficiaries rights to appeal managed care decisions about their medical care. 
We plan to continue our work on managed care issues.  Accordingly, we will continue to monitor 
beneficiary knowledge and understanding of their choices.  To this end, we hope to continue 
working with HCFA to develop information that will help them better meet beneficiary managed 
care needs. 
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iv  T A B L E  O F  C O N T E N T S

PAGE 
EXECUTIVE SUMMARY 
INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

FINDINGS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

General Awareness of HMOs Increased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Awareness of Local Medicare HMOs Remained the Same  . . . . . . . . . . . . . . . . . . . . . . . 5

Beneficiary Interest in Joining an HMO Decreased . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

APPENDICES 
Responses to 1997 Survey of Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  A-1

Confidence Intervals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
 I N T R O D U C T I O N

PURPOSE 
To determine Medicare beneficiary awareness of and interest in joining health maintenance 
organizations in 1997. 
BACKGROUND 
The Medicare Program 
Medicare is a Federal health insurance program for individuals age 65 and older, and for certain 
categories of disabled people.  In 1997, Medicare served approximately 38 million beneficiaries, 
and paid benefits totaling over $211 billion.1  The Health Care Financing Administration (HCFA) 
within the Department of Health and Human Services has responsibility for the Medicare 
program. 
In all geographic areas, Medicare beneficiaries can obtain medical care through a fee-for-service 
arrangement.  Many beneficiaries also have an option of obtaining medical care through managed 
care plans known as health maintenance organizations (HMOs). 
Several people in HCFA asked us to determine beneficiary interest in joining HMOs when we 
conducted our 1994 beneficiary satisfaction survey.  Because Congress and HCFA continue to 
seek ways to expand health care options for Medicare beneficiaries, we included the questions 
about HMOs in our 1995 and 1997 surveys. 
Two Methods of Obtaining Medical Care 
Fee-for-Service - Beneficiaries choose their own physicians, hospitals, and other medical care 
providers.  Providers submit claims to Medicare for services to Medicare beneficiaries.  For 
physician and most other outpatient services, Medicare pays 80 percent of the amount allowable 
for a covered service.  Beneficiaries, or their secondary insurance, pay the remaining 20 percent of 
allowable charges, plus Medicare premiums and deductibles. 
Managed Care: Beneficiaries enroll in Medicare-contracted organizations which manage their 
medical care.  The managed care plan may determine the type of care a beneficiary receives, and 
may limit access to specialists and other providers.  There are several types of managed care 
plans.  Risk HMOs are the most prevalent. 
1Health Care Financing Administration, United States Department of Health and Human Services, HCFA 
Statistics, October 1997. 
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1  Each risk HMO has a defined geographic area, and serves beneficiaries who live in that area. 
HMOs are responsible for providing a full range of Medicare services, and may offer other 
benefits not covered by Medicare, such as prescription drugs. 
Medicare pays HMOs a set amount each month to provide beneficiaries all hospital and medical 
services available under fee-for-service.  Beneficiaries continue to pay Medicare Part B premiums. 
They may also have to pay managed care providers a monthly premium and a copayment for 
services received.  However, they do not pay Medicare deductibles or 20 percent of physician and 
outpatient charges that are required under the fee-for-service program. 
Typically, after joining an HMO, a beneficiary selects a primary care physician who is affiliated 
with the HMO.  All medical care is managed by that physician or a case manager.  The primary 
care physician either provides needed services or refers a beneficiary to appropriate specialists or 
other health care providers associated with the HMO.  In most instances, beneficiaries are 
required to obtain all their medical care through providers affiliated with the HMO they joined. 
However, emergency services may be obtained anywhere, and urgently needed care may be 
obtained elsewhere when a beneficiary is temporarily out of the HMO service area.  Further, some 
HMOs have a point of service option which allows beneficiaries to obtain some care outside an 
HMOs contracted provider network by paying higher copayments for those services. 
As of April 1998, approximately 5.6 million beneficiaries were members in one of  336 Medicare-
contracted risk HMOs.2 
METHODS 
As part of a broad 1997 national survey to determine beneficiary satisfaction with Medicare,3 we 
asked beneficiaries about their awareness of and interest in joining HMOs.  HCFA staff assisted in 
developing the questions we used. 
In July 1997, we mailed a questionnaire to 1269 randomly-selected Medicare beneficiaries for 
whom Part B claims had been filed in Calendar Year 1996.  Beneficiaries were located both in 
areas that had Medicare HMOs and in areas that did not have Medicare HMOs.  We excluded 
from our sample beneficiaries who were already enrolled in an HMO.  We used standard 
equations for estimating sample size with a binary response variable. 
Beneficiary participation in the survey was voluntary.  A total of 977 beneficiaries returned 
completed questionnaires, for a response rate of 77 percent.  Percentages in the report are based 
on the number of beneficiaries answering each question.  Based on the response rate, estimates 
are within 3.2 percent of the true value at the 95 percent confidence level.  Some individual 
2Health Care Financing Administration, Medicare Managed Care Contract Report, April 1998. 
3Office of Inspector General, United States Department of Health and Human Services. Medicare Beneficiary 
Satisfaction: 1997. OEI-04-97-00030. 
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2  findings may be less precise, depending on the number of beneficiaries who responded to specific 
questions.  Appendix A shows beneficiary responses.  Appendix B shows the confidence intervals. 
Comparison to Previous Surveys 
In 1994 and 1995, we conducted similar national surveys of Medicare beneficiaries to assess their 
awareness of and interest in joining an HMO.4  Since most of the questions used in the 1997 
survey were also used in our 1994 and 1995 surveys, we compared beneficiary responses in the 
three surveys. 
We determined significant differences in beneficiary responses through use of a t-test.  If there 
was a statistical difference between responses to the surveys, we stated the percent increased or 
decreased in the report.  If there was not a statistical difference, we stated that the percent stayed 
about the same. 
A consideration in surveys of this type is that the results may be biased if non-respondents are 
significantly different from respondents.  To determine whether or not significant bias exist in this 
survey, we performed various analyses, including a comparison of age and gender for the 977 
respondents and the 272 non-respondents.  Our analyses revealed no significant difference, which 
suggests that our survey results were not biased based on age and gender.  We were unable to 
determine if any non-response bias existed as a result of other factors, such as health, disability, 
and income. 
-----    ----    ----   ----   ----
We conducted this inspection in accordance with the Quality Standards for Inspections issued by 
the President's Council on Integrity and Efficiency. 
4Office of Inspector General, United States Department of Health and Human Services. Medicare Beneficiary 
Interest in HMOs (OEI-04-93-00142). Medicare Beneficiary Interest in Joining HMOs in 1995 (OEI-04-93-
00151). 
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3  F I N D I N G S

GENERAL AWARENESS OF HMOs BY BENEFICIARIES INCREASED EACH YEAR 
Seventy-nine percent of 933 beneficiaries who responded to our question about awareness said 
they had heard of HMOs.  Table 1 shows that the percent of beneficiaries aware of HMOs has 
increased over the last two years.  This is logical as the number of HMOs available to beneficiaries 
increased from 200 in 1994 to over 335 in 1998.  The increase in awareness each year was 
statistically significant. 
TABLE 1

BENEFICIARY AWARENESS OF HMOs

1994  1995  1997 
Beneficiaries Aware 
62%  70%  79% 
of HMOs 
Fewer Beneficiaries Wanted More Information About HMOs 
Forty percent of 883 beneficiaries who answered our question said they would like to learn more 
about Medicare-contracted HMOs.  Table 2 shows that the percent of beneficiaries who want 
more information has declined each of the last two years.  The decrease each year was statistically 
significant.  This decrease may be because more beneficiaries are aware of HMOs, and do not 
think they need more information. 
TABLE 2

BENEFICIARY DESIRE FOR MORE INFORMATION

1994  1995  1997 
Yes  64%  54%  40% 
No  36%  46%  60% 
Although Beneficiary Awareness of HMO Appeal Rights Increased, Over Three-fourths Still 
Were Unaware 
In the 1995 and 1997 surveys, we asked beneficiaries if they were aware that Medicare HMO 
members could appeal decisions HMOs made about their medical care.  Table 3 shows that the 
percent of beneficiaries aware of these rights increased.  However, over three-fourths are still 
unaware. 
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4  TABLE 3

BENEFICIARY AWARENESS OF APPEAL RIGHTS IN HMOs

1995  1997 
Yes  18%  24% 
No  82%  76% 
Respondents to our survey were not members of an HMO.  An OIG survey of HMO members 
conducted in 1995 showed that HMO members were knowledgeable about their general right to 
complain about HMO services--OEI-07-94-00281. 
BENEFICIARY AWARENESS OF MEDICARE HMOs IN THEIR LOCAL AREA 
REMAINED THE SAME 
We asked beneficiaries if they lived in a location where they could join an HMO.  Over half said 
they did not know, which is the same as in our 1995 survey.  This is somewhat puzzling since the 
number of HMOs available to beneficiaries has increased, and the number of beneficiaries who 
had heard of HMOs increased.  Table 4 shows that responses to the 1997 survey are about the 
same as in 1995. 
TABLE 4

BENEFICIARY RESPONSES ON AVAILABILITY OF HMOs TO  JOIN

1994  1995  1997 
Beneficiaries who said they did live in an area  26%  34%  36% 
with Medicare HMOs 
Beneficiaries who said they did not live in an  10%  10%  8% 
area with Medicare HMOs 
Beneficiaries who said they did not know if  64%  56%  56% 
they lived in an area with Medicare HMOs 
We asked the 341 beneficiaries who said they lived in a location with an HMO to tell us how they 
heard about the HMO.  Seventy-two percent (246 of 341) of them responded.  Table 5 shows that 
most of those who had heard of HMOs did so through advertisements. 
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5  TABLE 5

HOW BENEFICIARIES BECAME AWARE OF HMOs

METHOD  BENEFICIARIES RESPONDING 
TO QUESTION 
Number  Percent* 
Advertising  169  69 
(Media Ads, Direct Mail, Salesmen,) 
Family and Friends  61  25 
Health Care Provider  20  8 
(Physician, Home Health Agency, 
Hospital) 
Former or Current Employment  16  7 
Insurance Companies  6  2 
Presentations  3  1 
(Meeting, Seminar, Conference) 
Previous Experience in an HMO  1  .4 
Other  2  1 
(Senior Citizen Center, Newscasts) 
*Some beneficiaries mentioned two ways of learning about HMOs. Therefore, the percentages 
total more than 100%. 
These methods of awareness are similar to those identified by beneficiaries during our 1994 and 
1995 surveys. 
BENEFICIARY INTEREST IN JOINING AN HMO DECREASED 
In 1997, 23 percent of 843 beneficiaries who answered our question expressed an interest in 
joining an HMO.  In 1995, 35 percent said they would be interested.  The decrease in percent of 
Medicare beneficiaries who said they would be interested in joining an HMO is statistically 
significant.  Comparisons to 1994 should be made with the knowledge that we changed our 
question in 1995.  As shown in Table 6, we offered a "Don't Know" response in the 1994 survey 
which we did not include in the 1995 and 1997 surveys. 
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6  TABLE 6

BENEFICIARY INTEREST IN JOINING AN HMO

1994  1995  1997 
Yes  27%  35%  23% 
No  39%  65%  77% 
Dont Know  34%  Not Asked  Not Asked 
Beneficiaries responding to this survey were enrolled in Medicares fee-for-service program.  It is 
possible that most beneficiaries who wish to join an HMO have done so, and most beneficiaries 
who have not joined an HMO wish to remain in fee-for-service. 
Beneficiaries Want to Select Their Physicians 
Of the 77 percent  who said they would not be interested in joining an HMO, half (344) cited one 
or more objection.  Table 7 shows that most beneficiaries were concerned about their inability to 
select their doctors if they joined an HMO. 
TABLE 7

WHY BENEFICIARIES OBJECT TO JOINING AN HMO

OBJECTION  BENEFICIARIES RESPONDING 
TO QUESTION 
Number  Percent* 
Inability to Select Physician(s)  158  46 
Satisfied with Present Situation/Insurance  75  22 
Perceived Poor Reputation of HMOs  45  13 
Perceived Restrictions in an HMO  37  11 
Perceived Poor Quality of Care  23  7 
Lack of Enough Information on HMOs  8  2 
Desire to Keep Present Physician  5  1 
Other (Too Far to Drive,  Too Expensive,  5  1 
and Perceived Loss of Benefits) 
*Some beneficiaries mentioned two objections to joining HMOs. Therefore, the percentages total 
more than 100%. 
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7  C O N C L U S I O N

The Balanced Budget Act of 1997 expanded the types of managed care plans that will be available 
to beneficiaries.  Accordingly, HCFA is currently negotiating contracts with managed care 
providers, and developing educational materials for beneficiaries.  Our past studies and this study 
have shown, however, that over half of beneficiaries do not know whether or not a managed care 
plan is available that they can join.  In preparing educational materials, HCFA could provide 
beneficiaries with information on managed care plans available in their local areas.  Furthermore, 
in view of our survey results, it would also be useful for educational materials to emphasize 
beneficiaries rights to appeal managed care decisions about their medical care. 
We plan to continue our work on managed care issues.  Accordingly, we will continue to monitor 
beneficiary knowledge and understanding of their choices.  To this end, we hope to continue 
working with HCFA to develop information that will help them better meet beneficiary managed 
care needs. 
)))))))))))
8  A P P E N D I X  A

RESPONSES TO 1997 SURVEY OF BENEFICIARIES 
In some cities, Medicare beneficiaries, like yourself, can join managed care plans such as health 
maintenance organizations (HMOs).  In an HMO, the primary care doctor authorizes, arranges 
for, and coordinates all medical services for you.  You are usually required to receive all your 
medical care from the HMO's doctors, hospitals, and other providers that belong to the HMO. 
QUESTION  RESPONSES 
___________________________________________________________________________ 
1.  Before today, had you ever heard of HMOs? 
Yes  733 
No  200 
Not Answering: 44 
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2.  a.  Are there HMOs in your city or town that Medicare beneficiaries can join? 
Yes  341 
No  71 
Don't Know  524 
Not Answering: 41 
b.  If yes, how did you hear about those HMOs?  (Open-ended question) 
(N = 246, Number Answering Question) 
HMO Advertising  169 
Family and Friends  61 
Health Care Providers  20 
Former or Current 
Employers  16 
Insurance Company  6 
Presentations  3 
Previously in HMO  1 
Other  2 
Not Answering: 95 
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A - 1  QUESTION  RESPONSES 
___________________________________________________________________________ 
3.	 a.  If there were HMOs in your city or town that Medicare beneficiaries could join, 
would you be interested in joining? 
Yes  193 
No  650 
Not Answering: 134 
b. 	 If no, what would be your objections?  (Open-ended question) 
(N = 344, Number Answering Question) 
Inability to Select 
Physician  158 
Satisfied with Present 
Situation/Insurance  75 
Perceived Poor Reputation  45 
Perceived Restrictions  37 
Perceived Poor Quality 
of Care  23 
Lack of Information 
on HMOs  8 
Desire to Keep Present 
Physician  5 
Other  5 
Not Answering: 306 
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4.	 Before today, were you aware that Medicare HMO members can appeal decisions HMOs 
make about their medical care? 
Yes  201 
No  627 
Not Answering: 149 
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5.  Would you like to learn more about Medicare HMOs? 
Yes  351 
No  532 
Not Answering: 94 
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A - 2  A P P E N D I X  B

Confidence Intervals 
Estimate  Boundaries for the 95% 
Description 
Confidence Intervals 
Beneficiaries who had heard of HMOs  79%  +/- 2.6% 
Beneficiaries who wanted to learn more 
about HMOs  40%  +/- 3.2% 
Beneficiaries not aware of HMO 
appeal rights  76%  +/- 2.9% 
Beneficiaries who did not know if 
Medicare HMOs were available in 
their area  56%  +/- 3.2% 
Beneficiaries interested in joining 
an HMO  23%  +/- 2.8% 
Beneficiaries not interested in HMOs due 
to inability to select physician  46%  +/- 5.3% 
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B - 1