Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
HMO WITHDRAWALS 
Impact on Medicare Beneficiaries 
JUNE GIBBS BROWN 
Inspector General 
AUGUST 2000 
OEI-04-00-00390  OFFICE OF INSPECTOR GENERAL 
Public Law 95-452, as amended by Public Law 100-504, mandated the mission of the Office of 
Inspector General (OIG).  That mission 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, 
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and management problems and recommends legislative, regulatory, and operational approaches to 
correct them. 
Office of Evaluation and Inspections 
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OEI's Atlanta Regional Office prepared this report under the direction of Jesse J. Flowers, 
Regional Inspector General, and Christopher H. Koehler, Deputy Regional Inspector General. 
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To obtain copies of this report, please call the Atlanta Regional Office at 404-562-7732. 
Reports are also available on the World Wide Web at our home page address: 
http://www.hhs.gov/oig/oei  Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
HMO WITHDRAWALS 
Impact on Medicare Beneficiaries 
JUNE GIBBS BROWN 
Inspector General 
AUGUST 2000 
OEI-04-00-00390  T A B L E  O F  C O N T E N T S  
PAGE

EXECUTIVE SUMMARY  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  1

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  4

FINDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Affected Beneficiaries  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Replacement Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  8

Transition  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

Characterization of Care  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Financial Impact . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

Future HMO Withdrawals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

CONCLUSION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17

APPENDICES

A.  Summary Comparison: 1999 and 1998 Findings.  . . . . . . . . . . . . . . . . . . . . . . . . .  .18

B.  Non-Response vs. Respondent Analysis. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

C.  Confidence Intervals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

D.  Risk HMOs and Enrollment: December 1997 to June 2000.  . . . . . . . . . . . . . . . . . . 27

E.  Agency Comments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
 E X E C U T I V E  S U M M A R Y  
PURPOSE 
To determine the impact on beneficiaries when their health maintenance organization 
withdrew from Medicare or reduced its service area. 
BACKGROUND 
About 6.3 million beneficiaries receive their Medicare benefits through Medicare-
contracted risk health maintenance organizations (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. 
Risk HMOs sign annual contracts with HCFA, and have an option to withdraw from the 
Medicare program totally or in a particular service area.  At the end of 1999, 99 risk 
HMOs either withdrew from their Medicare contracts or reduced their service areas.  At 
the end of 1998, 100 risk HMOs did likewise.  When risk HMOs withdraw, beneficiaries 
enrolled with those plans must choose traditional coverage under Medicare or enroll with 
another HMO, if one provides coverage in their area. 
This report shows the impact of the HMO withdrawals on Medicare beneficiaries. 
FINDINGS 
HMO withdrawals at the end of 1999 affected fewer beneficiaries than the 1998 
withdrawals, but a much greater percentage of them were left without an HMO option 
About 300,000 beneficiaries were affected by HMO withdrawals at the end of 1999, 
compared to about 400,000 at the end of 1998.  As a result of the 1999 withdrawals, 30 
percent had no HMO available to join; only 12 percent had no HMO available to join after 
the 1998 withdrawals. 
About one-half of beneficiaries joined another HMO when their HMO withdrew at the end 
of 1999 as compared to about two-thirds after the 1998 withdrawals 
When their HMOs withdrew at the end of 1999, 55 percent of the beneficiaries joined 
another HMO, and 45 percent went to traditional Medicare.  Statistically, this is a 
significant shift from the 1998 results.  At that time, 66 percent joined another HMO and 
34 percent went to traditional Medicare. 
HMO Withdrawals  1  OEI-04-00-00390  Affected beneficiaries seemed to prefer risk HMOs over traditional Medicare.  To illustrate, 
of the 233 beneficiaries we interviewed who had another HMO available to join after the 
1999 withdrawals, 193 joined another one. 
Most beneficiaries encountered few transition problems when their HMO withdrew at the 
end of 1999, but some experienced difficulty 
Transition: About 82 percent of beneficiaries whose HMO withdrew at the end of 1999 
said their transition to alternative health care coverage was easy to somewhat easy.  Of 
those who had no HMO available, 74 percent expressed that opinion, compared to 85 
percent of those who did have an HMO available. 
The remaining beneficiaries expressed some difficulty.  Mostly, they cited problems of 
increased cost, primarily related to prescription drugs. 
Timely Information:  Eighty-seven percent of beneficiaries said they received notices in 
sufficient time to make decisions about their health care coverage. 
Adequate Information:  About 73 percent of beneficiaries said they received adequate 
information about other health care options. 
About 77 percent of beneficiaries who went to traditional Medicare said they received 
adequate information about supplemental insurance. 
Beneficiaries characterized their health care to be about the same or better after their HMO 
withdrew 
Ninety-two percent of beneficiaries who went to another HMO, and 87 percent of those 
who went to traditional Medicare, characterized the health care they received after their 
HMO withdrew as about the same as, or better than, that received in their former HMO. 
This may be partly attributable to beneficiary ability to keep the same medical care 
providers.  About 90 percent of beneficiaries who went to traditional Medicare, and 69 
percent of those who went to another HMO said they kept the same primary care 
physician.  Likewise, the majority of beneficiaries also kept at least some of their 
specialists.  Continuity of care is important to Medicare beneficiaries, and changing 
physicians was a major concern for those who had to do so. 
Financial impact was greater on beneficiaries who went to traditional Medicare 
Monthly Premium:  According to information from surveyed beneficiaries, the average 
monthly insurance premium was $108.82 for those who went to traditional Medicare -- an 
increase of $84.06 after their HMO withdrew.  The average new HMO premium was 
$20.27 -- an increase of $9.08 for beneficiaries who joined another HMO. 
HMO Withdrawals  2  OEI-04-00-00390  Supplemental Insurance:  Seventy-five percent of beneficiaries who had no HMO 
available, and went to traditional Medicare, obtained supplemental insurance.  Sixty-nine 
percent of beneficiaries who had another HMO available, but chose traditional Medicare 
obtained supplemental insurance.  Of beneficiaries who did not, 55 percent said it was too 
expensive. 
Non-Covered Services:  Some HMOs provided coverage for services, such as prescription 
drugs, that are not covered by Medicare.  Of beneficiaries who went to traditional 
Medicare, 63 percent said they would now have to pay for some services which had been 
covered by their former HMO.  Of beneficiaries who joined another HMO, 19 percent said 
their new HMO would cover fewer services than their former HMO. 
More than one-fourth of beneficiaries expressed concern about future HMO withdrawals 
Thirty-two percent of beneficiaries who went to traditional Medicare, and 24 percent of 
those who chose another HMO expressed concern about future HMO withdrawals.  Fifteen 
percent said they had already experienced an HMO withdrawal at the end of 1998. 
CONCLUSION 
When their HMO withdrew, more beneficiaries lost their option to join another HMO for 
1999, as compared to 1998.  The transition to new health care was relatively easy for most, 
but it was difficult for some.  When they had the option, the affected beneficiaries seemed 
to prefer to join another HMO, rather than returning to traditional Medicare.  However, 
beneficiaries were concerned about availability of risk HMOs in the future, obtaining 
information on health care options, and increasing cost -- especially for prescription drugs. 
AGENCY COMMENTS 
HCFA commented on our draft report and described various actions to assist beneficiaries 
affected by future HMO withdrawals.  For example, HCFA has released final Medicare 
regulations designed to broaden health care options for beneficiaries.  HCFA is also 
enhancing outreach efforts for the fall of 2000 to better inform beneficiaries of their health 
care options.  Appendix E contains the full text of HCFAs comments. 
HMO Withdrawals  3  OEI-04-00-00390  I N T R O D U C T I O N  
PURPOSE 
To determine the impact on beneficiaries when their health maintenance organization 
withdrew from Medicare or reduced its service area. 
BACKGROUND 
Medicare Health Care Options 
Medicare is a Federal health program for individuals age 65 and older, and for certain 
categories of disabled people.  In 1999, Medicare served approximately 39.3 million 
beneficiaries, and paid benefits totaling over $204.9 billion. 
The 1997 Balanced Budget Act created Medicare+Choice to broaden beneficiary health 
plan options.  Along with traditional Medicare and risk health maintenance organization 
(HMOs), new health care options may include provider-sponsored organizations, preferred 
provider organizations, and medical savings account plans. 
The Health Care Financing Administration (HCFA), Department of Health and Human 
Services, has oversight responsibility for the Medicare program, including Medicare-
contracted HMOs. 
Throughout this report, we use the terms health maintenance organizations or HMOs to 
refer to risk HMOs.  We do not include Cost or Demonstration HMOs in this report. 
Medicare Risk HMOs 
About 6.3 million beneficiaries receive Medicare benefits through Medicare-contracted risk 
HMOs.  Risk HMOs sign annual contracts with HCFA.  However, they can withdraw from 
the Medicare program totally or in a particular service area after the contract period. 
HMOs may decide to withdraw from service areas where they fail to realize a profit, have 
diminishing profits, or are unable to attract a sufficient number of beneficiaries. 
Risk HMOs receive a fixed monthly Medicare payment per beneficiary.  Such HMOs must 
provide a full range of Medicare services, and they are at risk for any health care cost that 
exceeds the fixed payment.  In addition, many risk HMOs offer extra benefits that are not 
covered by Medicare.  For example, some do not require beneficiaries to pay premiums and 
deductibles.  Others provide additional health care services such as coverage for 
prescription drugs. 
HMO Withdrawals  4  OEI-04-00-00390  Beneficiaries Who Lost HMO Coverage 
At the end of 1999, 99 risk HMOs either withdrew from their Medicare contracts or 
reduced their service areas.  At the end of 1998, 100 risk HMOs did likewise. 
When risk HMOs withdraw, beneficiaries enrolled with those plans must choose traditional 
coverage under Medicare or enroll with another HMO, if one provides coverage in their 
area.  In such instances, however, beneficiaries are inconvenienced, may incur additional 
costs, and may have to find different physicians and other health care providers.  Further, 
beneficiaries who develop End-Stage Renal Disease after enrolling in an HMO may not 
subsequently enroll in another HMO, even if one is available.  This remains true even if 
their HMO withdraws from Medicare. 
SCOPE AND METHODOLOGY 
Our findings are based largely on beneficiary views of the impact that HMO withdrawals 
had on their health care.  We interviewed a sample of beneficiaries who were actually 
disenrolled from HMOs that withdrew from Medicare.  We also interviewed HCFA 
regional and central office officials who had oversight responsibilities for HMOs.  Further, 
we reviewed relevant documentation, such as HCFA files on the withdrawals, 
Medicare+Choice regulations, and instructions on HMO responsibilities to beneficiaries. 
We examined the extent that beneficiaries were informed about HMO withdrawals, the 
health care options available to them, the choices they made, and their opinions on the 
characteristics and cost of care before and after their HMO withdrew from Medicare.  We 
did not track and compare detailed aspects of coverage for individual beneficiaries before 
and after the withdrawals. 
Data Collection 
Sample:  We interviewed 502 randomly selected disenrolled beneficiaries stratified by 
whether or not they had another HMO available to join after their HMO withdrew at the 
end of 1999.  Table 1 shows our sample details. 
Table 1

Sample Selection and Results

Universe  Sample  Adjustments  Adjusted  Interviewed  Response 
Sample  Rate 
Number of HMOs  99  N/A  N/A  N/A  N/A  N/A 
Disenrolled Beneficiaries  298,855  700  -14*  686  502  73% 
Stratification 
1. No HMO Available  90,211  350  -6  344  242  70% 
2. Had HMO Available  208,644  350  -8  342  260  76% 
*13 sample members were deceased and one resides in an assisted living facility 
HMO Withdrawals  5  OEI-04-00-00390  To select our sample, we used HCFAs list of HMOs that withdrew from Medicare or 
reduced service areas at the end of 1999.  Next, we used HCFAs Group Health Plan 
Master File to identify beneficiaries who had disenrolled from those HMOs between 
September 1, 1999 and December 31, 1999.  Finally, we used HCFAs Medicare Plan 
Withdrawal Information File to stratify disenrolled beneficiaries by whether or not they had 
another HMO available to join. 
Survey:  We surveyed beneficiaries by telephone, using a standardized questionnaire.  On 
May 16, 2000, we advised, by mail, all sampled beneficiaries, of our survey objective, and 
that we would call them later about their experience in obtaining health care coverage after 
their HMO withdrew from Medicare. 
We conducted our interviews between May 22, 2000 and June 2, 2000.  We completed 
telephone interviews with 502 of our 686 sampled beneficiaries--a response rate of 73 
percent.  Not all beneficiaries we interviewed responded to every question.  Where fewer 
than all 502 beneficiaries answered a particular question, we point that out in the applicable 
findings of the report. 
Data Reliability:  HCFAs Medicare Plan Withdrawal Information File contained the most 
reliable data available on HMOs that withdrew and those which continue to operate.  The 
file was created specifically to track and provide current information to Medicare 
beneficiaries and HCFA program staff on HMO withdrawals. 
In July 2000, HCFA staff advised us that 326,689 beneficiaries were actually disenrolled by 
the 1999 HMO withdrawals rather than the 298,855 shown in Table 1.  Also, HCFAs 
recent numbers showed that 79,000 had no other HMO available rather than the 90,211 we 
show in Table 1. 
Two methodological factors accounted for the difference in disenrollment numbers we used 
in Table 1 and those reported to us by HCFA in July.  First, Table 1 reflects disenrollments 
in HCFAs Medicare Plan Withdrawal Information File during the September - December 
1999 time period.  We obtained these numbers from HCFA in May 2000.  HCFAs July 
numbers reflect disenrollments during the June - December 1999 time period. 
Second, HCFAs July numbers on disenrollments included beneficiaries in five counties of 
one State where an HMO had reduced its service area, but excluded all beneficiaries in the 
remaining counties of that State who were involuntarily disenrolled because HCFA had 
terminated the HMOs Medicare participation.  In May 2000, HCFAs Medicare Plan 
Withdrawal Information File that we used had included those beneficiaries who were 
involuntarily disenrolled when HCFA terminated the HMO. 
We determined that our sample included only 33 beneficiaries who were involuntarily 
disenrolled from the terminated HMO.  Our analysis indicated that excluding those 33 
beneficiaries would not have significantly changed our findings.  Furthermore, these 
beneficiaries were in a situation similar to those whose HMO voluntarily withdrew. 
HMO Withdrawals  6  OEI-04-00-00390  Hence, we believe it is appropriate to report our results according to the sample we used at 
the time we conducted the survey. 
Data Analysis 
We aggregated responses to each survey question.  Our results are projectable to our 
studys universe of 298,855 beneficiaries.  To project our results to this universe, we 
weighted survey responses in accordance with each stratas proportion to the universe. 
Further, our projections are based on the number of beneficiaries who actually answered 
each question. 
We compared the results of our analysis of the 1999 HMO withdrawals to results of a 
similar analysis we did of the 1998 withdrawals.  Appendix A provides a detailed 
comparison.  However, unless otherwise noted, data analysis presented in this report refer 
to the 1999 withdrawals. 
. 
We conducted a nonresponse analysis to determine whether or not significant differences 
exist between respondents and nonrespondents.  We found no nonresponse bias based on 
age, gender, and whether or not beneficiaries had another HMO available to join. 
Appendix B shows our nonresponse analysis. 
Finally, we determined confidence intervals for each key finding in the report.  Appendix C 
shows the confidence intervals for those findings. 
_  _  _  _  _  _  _ 
We conducted our inspection between May 2000 and June 2000.  We conducted the 
inspection in accordance with the Quality Standards for Inspections issued by the 
President's Council on Integrity and Efficiency. 
HMO Withdrawals  7  OEI-04-00-00390  F I N D I N G S  
HMO withdrawals at the end of 1999 affected fewer 
beneficiaries than the 1998 withdrawals, but a much greater 
percentage of them were left without an HMO option 
Fewer beneficiaries were affected as a result of the 1999 withdrawals, although the number 
of HMO withdrawals was virtually the same as in 1998.  To illustrate, about 300,000 were 
affected by the 1999 withdrawals, compared to about 400,000 at the end of 1998. 
A greater number of beneficiaries, however, were left without a risk HMO option for 
health care after their HMO withdrew.  According to HCFA managed care information 
system data, about 30 percent of the beneficiaries in our study population had no HMO 
available to join when their HMO withdrew at the end of 1999, compared to about 12 
percent for 1998. 
About one-half of beneficiaries joined another HMO when 
their HMO withdrew at the end of 1999 as compared to about 
two-thirds after the 1998 withdrawals 
When their HMOs withdrew at the end of 1999, 55 percent of the beneficiaries joined 
another HMO, and 45 percent went to traditional Medicare.  After the 1998 HMO 
withdrawals, 66 percent of the beneficiaries joined another HMO and 34 percent went to 
traditional Medicare, a statistically significant difference. 
The shift in beneficiary enrollment away from HMOs is mostly attributable to decreased 
availability of HMOs for them to join.  Between December 31, 1998 and December 31, 
1999, the number of risk HMOs available for serving beneficiaries decreased by 37 -- from 
346 to 309.  Conversely, during the same time period, beneficiary enrollment in HMOs 
actually increased from about 6 million to about 6.3 million.  Appendix D gives additional 
information on the reduced number of HMOs and increase in enrollees. 
HMO Withdrawals  8  OEI-04-00-00390  Given a choice, beneficiaries seemed to prefer risk HMO coverage over traditional 
Medicare coverage.  We obtained usable responses from 233 beneficiaries who had another 
HMO available to join after their HMO withdrew at the end of 1999.  Of those, 193 (83 
percent) joined another HMO.  Only 40 (17 percent) chose traditional Medicare instead of 
another HMO. 
The reasons cited most often for choosing another HMO over traditional Medicare were 
that beneficiaries did not have to purchase supplemental insurance and their overall costs 
were lower. 
The reasons cited most often for choosing traditional Medicare over another HMO were to 
have more freedom of choice in services, fear of losing access to their doctors and other 
providers, and a dislike for HMOs. 
Most beneficiaries encountered few transition problems 
when their HMO withdrew at the end of 1999, but some 
experienced difficulty 
Transition to alternative health care coverage was relatively easy for most 
beneficiaries 
Eighty-two percent of beneficiaries said their transition to alternative health care coverage 
was easy to somewhat easy.  Of beneficiaries who had no HMO available to join, 74 
percent expressed that opinion.  Additionally, 85 percent of those who did have an HMO 
available expressed the same opinion.  Beneficiaries frequently attributed the ease to 
adequate information about alternative health care coverage and former employer help in 
arranging for health care. 
HMO Withdrawals  9  OEI-04-00-00390  Those beneficiaries who expressed difficulty in their transition to alternative health care 
coverage mainly cited cost problems, particularly costs for prescription drugs.  Both those 
beneficiaries who joined another HMO and those who went to traditional Medicare cited 
this problem. 
Most beneficiaries received timely information on the withdrawal of their HMO and 
on how to find other health care coverage 
HCFA required HMOs who were withdrawing or reducing service areas to mail final non-
renewal notices to affected Medicare beneficiaries by September 15, 1999. 
Eighty-seven percent of beneficiaries said they received notices in sufficient time to make 
decisions for continuing their health care coverage under other options. 
Most beneficiaries received adequate information about other health care options 
HCFA encouraged HMOs to provide beneficiaries with information to assist them in 
making informed decisions about other health care coverage.  Such information included a 
list of available health care options, including how to obtain supplemental insurance.  It also 
identified local outreach activities, such as health fairs, presentations, and public meetings. 
About 73 percent of beneficiaries told us they received adequate information about other 
health care options.  About 63 percent of beneficiaries who had no HMO available to join, 
and 77 percent of those who did, told us they received adequate information. 
Conversely, 37 percent of beneficiaries who had no HMO available to join, and 23 percent 
of those who did, said they received inadequate information or none at all.  They said that 
they wanted more detailed information about supplemental insurance and other specific 
health plans that were available to them. 
Table 2

Extent That Beneficiaries Were Informed

Beneficiaries Who Did Not  Beneficiaries Who Did 
Have HMO Available  Have HMO Available 
( n=236)*  (n=252)** 
Received adequate information  63%  77% 
Received inadequate information  32%  17% 
Received no information  5%  6% 
TOTAL  100%  100% 
*Six beneficiaries did not answer the question about health care information. 
**Eight beneficiaries did not answer the question about health care information. 
HMO Withdrawals  10  OEI-04-00-00390  The most prevalent sources of information cited by beneficiaries included former or current 
HMOs, insurance sales people, former or current employers, spouses employer, media, 
and meetings which included HMO representatives. 
Most beneficiaries who went to traditional Medicare received adequate 
information on supplemental insurance 
About 77 percent of beneficiaries who went to traditional Medicare said they received 
adequate information on supplemental insurance.  However, about 18 percent of the 
beneficiaries told us they received inadequate information or none at all on supplemental 
insurance.  They frequently said they wanted more detailed information.  Table 3 shows 
what beneficiaries said about information they received on supplemental insurance. 
Table 3

Information on Supplemental Insurance

Beneficiaries Who Had  Beneficiaries Who Had 
No HMO Available  HMO Available 
( n = 225)*  (n = 35)** 
Received adequate information  78%  71% 
Received inadequate information  10%  6% 
Received no information  7%  9% 
Did not need information  5%  14% 
TOTAL  100%  100% 
*Eleven beneficiaries did not answer the question on supplemental insurance. 
**Five beneficiaries did not answer the question. 
Beneficiaries characterized their health care to be about the 
same or better after their HMO withdrew 
Rating of care remained relatively constant 
The majority of beneficiaries who had used their new health plans characterized their care 
after their HMO withdrew to be about the same as that received in their former HMO. 
Table 4 shows beneficiary ratings of health care after the transition. 
HMO Withdrawals  11  OEI-04-00-00390  Table 4

Beneficiaries Rating of Their Health Care

Beneficiaries Who Went to  Beneficiaries Who Went to 
Other HMOs  Traditional Medicare 
(n = 169)*  (n = 234)** 
Better  8%  19% 
About the Same  84%  68% 
Worse  8%  13% 
*Thirteen beneficiaries did not rate their health care. 
**Nine beneficiaries did not rate their health care. 
Beneficiaries who went to traditional Medicare rated their current care as better because of 
increased choice in physicians, ability to see specialists without referrals, shorter waits for 
appointments, and shorter waits at the doctors office. 
Beneficiaries who went to traditional Medicare rated their care as worse because of the 
increase in their costs.  For example, one beneficiary said he now pays $60 per month for 
supplemental insurance, whereas no monthly payment was required for coverage with his 
former HMO. 
Likewise, beneficiaries who went to another HMO said their care was better or worse 
depending on whether their new HMO provided more or fewer services than the former 
HMO.  The beneficiaries noted that fewer covered services generally result in additional 
costs for beneficiaries who need the services. 
Most beneficiaries kept the same health care providers 
Ninety percent of beneficiaries who went to traditional Medicare and 69 percent of 
beneficiaries who went to another HMO told us they kept the same primary care physician. 
Additionally, most beneficiaries were able to keep their same specialists.  To illustrate, 64 
percent of beneficiaries who went to traditional Medicare said they had specialists.  Of 
those, 95 percent were able to keep some or all of them.  Further, 67 percent of 
beneficiaries who went to another HMO said they had specialists.  Of those, 75 percent 
were able to keep some or all of them. 
However, for beneficiaries who had to change physicians, it was a major concern.  This 
concern was expressed by both beneficiaries who went to another HMO and those who 
went to traditional Medicare. 
Most of the HMOs that withdrew from Medicare at the end of 1999 had contracted with 
local physicians, rather than operating HMO-employee clinics.  This helps explain why 
most beneficiaries kept the same physician when they changed health care delivery systems. 
HMO Withdrawals  12  OEI-04-00-00390  Financial impact was greater on beneficiaries who went to 
traditional Medicare 
Monthly premiums were greater 
Beneficiaries in traditional Medicare usually purchase supplemental insurance to help pay 
expenses that traditional Medicare does not cover.  Conversely, beneficiaries in HMOs 
usually do not need additional insurance.  However, many beneficiaries who join HMOs 
pay a monthly premium to the HMO. 
On average, beneficiaries who went to traditional Medicare after their HMO withdrew paid 
$84.06 per month more than they were paying in their former HMO.  Comparatively, 
beneficiaries who went to another HMO experienced an average premium increase of $9.08 
per month.  Table 5 compares the average monthly premiums for beneficiaries who went to 
another HMO to that paid by beneficiaries who went to traditional Medicare. 
Table 5

Premiums Paid by Beneficiaries

Beneficiaries Who  Beneficiaries Who Went 
Went to HMOs  to Traditional Medicare 
Premium in Former HMO  $11.19  $24.76 
Premium in Current HMO  $20.27  NA 
Cost of Supplemental Insurance  NA  $108.82 
Difference per Month  + $9.08  + $84.06 
Average monthly premiums based on beneficiary self-reported data. 
In computing the difference in average premiums, we included beneficiaries who said they 
had $0 costs.  For example, about 51 percent of beneficiaries who went to traditional 
Medicare did not pay a monthly premium in the former HMO.  Further, after their HMO 
withdrew and the beneficiaries went to traditional Medicare, some said they have $0 costs 
for supplemental insurance.  Their costs for supplemental insurance was $0 because a 
former employer or another party paid the premium for them. 
Likewise, 65 percent of beneficiaries who went to another HMO did not pay a monthly 
premium in the former HMO.  Also, 51 percent of beneficiaries who went to another HMO 
after 1999 still do not have to pay a monthly premium.  The HMOs do not charge a 
premium as means of attracting enrollees. 
The average monthly premium for those beneficiaries who said they actually incurred a cost 
was much greater than that shown in table 5.  To illustrate, for beneficiaries who joined 
another HMO, the average monthly premium for their former HMO is about $42.14, if we 
exclude those who had $0 cost.  Likewise, excluding beneficiaries who had 
HMO Withdrawals  13  OEI-04-00-00390  $0 costs shows that the premium for beneficiaries who actually pay a premium in their 
current HMO is about $51.22. 
Similarly, for beneficiaries who went to traditional Medicare, if we exclude those who had 
$0 cost, the average monthly premium for their former HMO was about $54.22.  After 
their HMO withdrew, the average costs for supplemental insurance is about $110.53 for 
beneficiaries who actually paid a monthly premium for that insurance. 
Beneficiaries incurred supplemental insurance cost 
It is important to note that our analysis does not take into consideration deductibles and 
copayments incurred by beneficiaries before and after the withdrawal, or in either HMO or 
traditional Medicare settings.  However, we did examine the cost of supplemental insurance 
which is widely purchased by beneficiaries in the traditional Medicare program to offset 
some of these expenses. 
The Balanced Budget Act guaranteed beneficiaries a right to buy certain Medigap 
insurance policies if available in their State. When a beneficiary applies for the Medigap 
insurance within 63 days of HMO disenrollment, insurance companies cannot (1) place 
preexisting conditions on the policies such as exclusion of benefits, and (2) discriminate in 
policy cost based on health status, claims experience, medical condition, or amount of 
health care services used. 
About 75 percent of beneficiaries who had no HMO available, and went to traditional 
Medicare, told us they had obtained supplemental insurance to cover expenses that 
traditional Medicare does not cover.  Also, 69 percent of beneficiaries who had another 
HMO available, but chose traditional Medicare, said they obtained supplemental insurance. 
Beneficiaries who did not purchase supplemental insurance typically gave the reasons 
shown in table 6. 
Table 6

Reasons Beneficiaries Did Not Purchase Supplemental Insurance

Beneficiaries Who Had  Beneficiaries Who Had 
No HMO Available*  HMO Available 
Too Expensive  31 (69%)  6 (55%) 
On Medicaid  1 (2%)  0 (0%) 
Other**  13 (29%)  5 (45%) 
TOTAL  45 (100%)  11 (100%) 
*Four beneficiaries did not answer the question about reasons for not purchasing supplemental insurance.. 
**There was no consistent pattern for responses in the other category. Responses ranged from personal preference 
for not purchasing supplemental insurance to lack of understanding and lack of information about supplemental 
insurance. 
HMO Withdrawals  14  OEI-04-00-00390  Most beneficiaries who had supplemental insurance coverage obtained it on their own. 
Table 7 shows how beneficiaries who went to traditional Medicare obtained supplemental 
insurance. 
Table 7

How Beneficiaries Who Went to Traditional Medicare

Obtained Supplemental Insurance

Beneficiaries Who Had  Beneficiaries Who Had 
No HMO Available*  HMO Available 
Purchased Themselves  158 (90%)  21 (88%) 
Through Former Employment  12 (7%)  2 (8%) 
Medicaid, Union or Other  5 (3%)  1 (4%) 
TOTAL  175 (100%)  24 (100%) 
*Thirty-four beneficiaries did not answer the question about reasons for not purchasing supplemental insurance.. 
Costs for noncovered services were greater 
About 63 percent of beneficiaries who went to traditional Medicare said they would now 
have to pay for services which had been covered by their former HMO.  Some HMOs 
provided coverage for services, such as prescription drugs, that are not covered by 
Medicare.  They did so to enhance their ability to compete for enrollees.  About 11 percent 
of beneficiaries said they did not know if they would have to pay for services previously 
provided by their HMO because they had not yet needed the services. 
Conversely, only 19 percent of beneficiaries who joined another HMO said their new HMO 
would cover fewer services than their former HMO.  Another 10 percent did not know yet 
if they would have to pay for previously covered services. 
More than one-fourth of beneficiaries expressed concern 
about future HMO withdrawals 
Fifteen percent of the beneficiaries told us that their 1999 HMO withdrawal was not their 
first experience with an HMO withdrawing from Medicare.  Of those beneficiaries, 71 
percent said their first experience was at the end of 1998. 
About 30 percent of beneficiaries who went to traditional Medicare were 
concerned 
Thirty-two percent of beneficiaries who went to traditional Medicare said the fact that 
HMOs could withdraw from Medicare would keep them from joining another one. 
However, another 41 percent of beneficiaries who went to traditional Medicare told us that 
this would not keep them from joining another HMO. 
HMO Withdrawals  15  OEI-04-00-00390  The remaining 27 percent of beneficiaries who went to traditional Medicare said they did 
not know if the fact that  can withdraw from Medicare would keep them from joining one. 
Some beneficiaries told us it would depend on the services offered by the HMO.  If it 
would be less costly to be in an HMO, they said they would join it, even if they knew the 
HMO could withdraw a year later. 
Almost one-fourth of beneficiaries who went to another HMO were concerned 
Twenty-four percent of beneficiaries who went to another HMO told us they were very 
concerned about their new HMO canceling its contract with Medicare.  Thirty-six percent 
were slightly concerned.  Forty percent said they were not concerned at all. 
HMO Withdrawals  16  OEI-04-00-00390  C O N C L U S I O N  
When their HMO withdrew, more beneficiaries lost their option to join another HMO for 
1999, as compared to 1998.  The transition to new health care was relatively easy for most, 
but it was difficult for some.  However, when they had the option, the affected beneficiaries 
seemed to prefer another HMO, rather than returning to traditional Medicare. 
Beneficiaries were concerned about availability of risk HMOs in the future, obtaining 
information on health care options, and increasing cost -- particularly for prescription 
drugs. 
AGENCY COMMENTS 
HCFA commented on our draft report and described various actions to assist beneficiaries 
affected by future HMO withdrawals.  For example, HCFA has released final Medicare 
regulations designed to broaden health care options for beneficiaries.  HCFA is also 
enhancing outreach efforts for the fall of 2000 to better inform beneficiaries of their health 
care options.  Appendix E contains the full text of HCFAs comments. 
HMO Withdrawals  17  OEI-04-00-00390  AAPPPPEENNDDIIXX  AA 
COMPARISON OF 1999 AND 1998 FINDINGS 

ON HMO WITHDRAWALS

Statistics in Section I are based on population data.  The remaining statistics in Sections II -VI are 
based on sample data. 
KEY FINDINGS  1998  1999  Difference 
I.  Affected Beneficiaries 
Risk HMOs available @ 12/98 and 99  346  309  -37 
Beneficiaries served  6 million  6.3 million  .3 million 
HMO withdrawals  100  99  -1 
Beneficiaries displaced  404,417  298,855  -105,562 
Beneficiaries with no available HMO  50,015 (12%)  90,211 (30%)  40,196 
II.  Replacement Coverage 
a 
Beneficiaries joined another HMO  66%  55%  -11%
a 
Beneficiaries went to regular Medicare  34%  45%  11%
Beneficiaries had a choice and chose 
regular Medicare over another HMO  20%  17%  -3% 
Beneficiaries had a choice and chose 
another HMO  80%  83%  3% 
III.  Transition Problems 
Transition easy 
All Beneficiaries  86%  82%  -4% 
Beneficiaries with no available HMO  N/A  74%  N/A 
Beneficiaries with an available HMO  N/A  85%  N/A 
Received timely information 
All Beneficiaries  82%  87%  5% 
Beneficiaries with no available HMO  N/A  86%  N/A 
Beneficiaries with available HMO  N/A  87%  N/A 
Received adequate information 
All Beneficiaries  70%  73%  3% 
Beneficiaries with no available HMO  N/A  63%  N/A 
Beneficiaries with available HMO  N/A  77%  N/A 
HMO Withdrawals  18  OEI-04-00-00390  KEY FINDINGS  1998  1999  Difference 
Received adequate information on 
supplemental insurance 
a 
All Beneficiaries  69%  77%  8% 
Beneficiaries with no available HMO  N/A  78%  N/A 
Beneficiaries with HMO available  N/A  71%  N/A 
Did not need information  13%  5%  -8% 
IV.  Characterization of Health Care 
Characterization of care the same or 
better than former HMO 
Beneficiaries went to another HMO 
About the same  82%  84%  2% 
Better  12%  8%  -4% 
Beneficiaries went to regular Medicare 
About the same  69%  68%  -1% 
Better  21%  19%  -2% 
Kept the same primary physician 
Beneficiaries went to regular Medicare  84%  90%  6% 
Beneficiaries went to another HMO  77%  69%  -8% 
Kept the same specialist 
Beneficiaries went to regular Medicare  87%  95%  8% 
Beneficiaries went to another HMO  80%  75%  -5% 
V.  Financial Impact 
New monthly premiums after HMO 
withdrew 
Supplemental insurance  N/A  $108.82  N/A 
HMO premium  N/A  $ 20.27  N/A 
No monthly premium in former HMO 
Beneficiaries went to regular Medicare  52%  51%  -1% 
a 
Beneficiaries went to another HMO  79%  65%  -14%
No monthly premium after HMO 
withdrew 
Beneficiaries went to another HMO  72%  51%  -21% 
Obtained supplemental insurance 
All Beneficiaries  N/A  75%  N/A 
Beneficiaries had no available HMO  N/A  78%  N/A 
Beneficiaries had available HMO  N/A  69%  N/A 
Costs for noncovered services 
Beneficiaries went to regular Medicare  62%  63%  1% 
Beneficiaries went to another HMO  13%  19%  6% 
HMO Withdrawals  19  OEI-04-00-00390  KEY FINDINGS  1998  1999  Difference 
Dont know if services are covered after 
transition 
Beneficiaries went to regular Medicare  19%  11%  -8% 
Beneficiaries went to another HMO  16%  10%  -6% 
VI.  Future HMO Withdrawals 
Beneficiaries went to regular Medicare 
Would not join another HMO  34%  32%  -2% 
Would still consider another HMO  43%  41%  -2% 
Undecided  23%  27%  4% 
Beneficiaries went to another HMO 
Very concerned  26%  24%  -2% 
Slightly concerned  36%  36%  0% 
Not concerned  38%  40%  2% 
a 
The differences between 1998 and 1999 are statistically significant at the 95 percent confidence level.
HMO Withdrawals  20  OEI-04-00-00390  APPENDIX B 
ANALYSIS OF RESPONDENTS VS. NON-RESPONDENTS 
A consideration in surveys of this type is whether the results may be biased by significant differences 
between respondents and non-respondents.  To determine whether significant differences exist in 
this survey, we compared age, gender, and whether or not beneficiaries had another HMO to join. 
Although we had 502 respondents to our telephone calls, some of the beneficiaries responses were 
not usable.  As a result, we had 463 responses and 223 non-responses to use for this analysis.  The 
analysis suggests that our survey results were not biased with regard to these factors. 
Analysis by Age 
A t-test was used to compare the average age of respondents and non-respondents.  This difference 
was not statistically significant. 
AGE 
Sample (n=686)  Average Age 
Respondents (n=463)  72.64 
Non-respondents (n=223)  73.19 
t=-.8104 (not significant) 
Analysis by Gender 
A chi-square test showed no relationship between respondents and non-respondents with respect to 
gender. 
Males  Females 
Number  Percent  Number  Percent 
Sample(n=686)  326  48%  360  52% 
Respondents (n=463)  221  48%  242  52% 
Non-respondents  105  47%  118  53% 
(n=223) 
Chi-square=.025 (not significant) 
HMO Withdrawals  21  OEI-04-00-00390  Analysis by Whether or Not Beneficiaries Had Another HMO Available to Join 
A chi-square test was performed to determine if there was a relationship between the availability of 
another HMO to join and response to the survey.  The chi-square test showed no significant 
difference. 
HMO Not  HMO Available 
Available 
Number  Percent  Number  Percent 
Sample (n=686)  338  49%  348  51% 
Respondents (n=463)  225  49%  238  51% 
Non-respondents (n=223)  113  51%  110  49% 
Chi-square= .260 (not significant) 
HMO Withdrawals  22  OEI-04-00-00390  APPENDIX C 
CONFIDENCE INTERVALS

KEY FINDINGS  POINT  95% 
ESTIMATE  CONFIDENCE 
INTERVALS AND 
BOUNDARIES 
Beneficiaries who went to another HMO  55%  +/- 3.7% 
when former HMO withdrew. 
51.3% - 58.7% 
Beneficiaries who went to traditional  45%  +/- 3.7% 
Medicare when former HMO withdrew. 
41.3% - 48.7% 
Beneficiaries who had no HMO available to  74%  +/- 4.7% 
join said their transition to another health care 
delivery system was easy to somewhat easy.  69.3% - 78.7% 
Beneficiaries who had another HMO available  85%  +/- 4.5% 
to join said their transition to another health 
care delivery system was easy to somewhat  80.5% - 89.5% 
easy. 
Beneficiaries who went to another HMO said  69%  +/- 6.6% 
they kept same primary doctor they had in 
former HMO.  62.4% - 75.6% 
Beneficiaries who went to traditional  90%  +/- 3.7 
Medicare said they kept same primary doctor 
they had in former HMO.  86.3% - 93.7% 
Beneficiaries who had specialists and went to  75%  +/- 7.6% 
another HMO said they kept some or all 
specialists they had in former HMO.  67.4% - 82.6% 
Beneficiaries who had specialists and went to  95%  +/- 3.2% 
traditional Medicare said they kept some or all 
specialists they had in former HMO.  91.8% - 98.2% 
Beneficiaries who went to another HMO said  8%  +/- 4.1% 
their health care is better than that received in 
former HMO.  3.9% - 12.1% 
HMO Withdrawals  23  OEI-04-00-00390  KEY FINDINGS  POINT  95% 
ESTIMATE  CONFIDENCE 
INTERVALS AND 
BOUNDARIES 
Beneficiaries who went to traditional  19%  +/- 5.0% 
Medicare said their health care was better 
after their HMO withdrew from Medicare.  14% - 24% 
Beneficiaries who went to another HMO said  84%  +/- 5.5% 
their health care is about the same as that 
received in former HMO.  78.5% - 89.5% 
Beneficiaries who went to traditional  68%  +/- 6.3% 
Medicare said their health care is about the 
same as that received in former HMO.  61.7% - 74.3% 
Beneficiaries who went to another HMO said  8%  +/- 4.1% 
their health care is worse than that received in 
former HMO.  3.9% - 12.1% 
Beneficiaries who went to traditional  13%  +/- 4.4% 
Medicare said their health care was worse 
after their HMO withdrew from Medicare.  8.6% - 17.4% 
Beneficiaries who had no HMO available to  86%  +/- 4.5% 
join had sufficient time to make a decision 
about their health care.  81.5% - 90.5% 
Beneficiaries who had another HMO available  87%  +/- 4.2% 
to join had sufficient time to make a decision 
about their health care.  82.8% - 91.2% 
Beneficiaries who had no HMO available  63%  +/- 6.2% 
received adequate information about other 
health care coverage.  56.8% - 69.2% 
Beneficiaries who had another HMO available  77%  +/- 5.2% 
received adequate information about other 
health care coverage.  71.8% - 82.2% 
Beneficiaries who had no HMO available said  32%  +/- 6.0% 
they did not receive adequate information 
about other health care coverage.  26% - 38% 
Beneficiaries who had another HMO available  17%  +/- 4.6% 
said they did not receive adequate information 
about other health care coverage.  12.5% - 21.6% 
Beneficiaries who had no HMO available said  5%  +/- 4.0% 
they did not receive any information about 
other health care coverage.  1% - 9% 
HMO Withdrawals  24  OEI-04-00-00390  KEY FINDINGS  POINT  95% 
ESTIMATE  CONFIDENCE 
INTERVALS AND 
BOUNDARIES 
Beneficiaries who had another HMO available  6%  +/- 4.4% 
said they did not receive any information 
about other health care coverage.  1.6% - 10.4% 
Beneficiaries who had no HMO available said  78%  +/- 5.4% 
they received adequate information about 
supplemental insurance.  72.6% - 83.4% 
Beneficiaries who had no HMO available said  10%  +/- 3.9% 
they did not receive adequate information 
about supplemental insurance.  6.1% - 13.9% 
Beneficiaries who had no HMO available said  7%  +/- 3.3% 
they did not receive any information about 
supplemental insurance.  3.7% - 10.3% 
Beneficiaries who had no HMO available said  5%  +/- 2.8% 
they did not need any information about 
supplemental insurance.  2.2% - 7.8% 
Beneficiaries who went to another HMO did  65%  +/- 6.8% 
not have to pay a monthly HMO premium in 
the former HMO.  58.2% - 71.8% 
Beneficiaries who went to traditional  51%  +/- 6.4% 
Medicare did not have to pay a monthly HMO 
premium in the former HMO.  44.6% - 57.4% 
Beneficiaries who went to another HMO said  19%  +/- 5.6% 
their new HMO would cover fewer services 
than their former HMO.  13.4% - 24.6% 
Beneficiaries who went to traditional  63%  +/- 6.2 
Medicare said they would now have to pay for 
some services not covered by traditional  56.8% - 69.2% 
Medicare. 
Beneficiaries who went to another HMO said  10%  +/- 4.3% 
they did not know yet if they would have to 
pay for previously covered services.  5.7% - 14.3% 
Beneficiaries who went to traditional  11%  +/- 3.9% 
Medicare said they did not know if they would 
have to pay for services previously provided  7.1% - 14.9% 
by their former HMO. 
HMO Withdrawals  25  OEI-04-00-00390  KEY FINDINGS  POINT  95% 
ESTIMATE  CONFIDENCE 
INTERVALS AND 
BOUNDARIES 
Beneficiaries who went to traditional  75%  +/- 5.2% 
Medicare had supplemental insurance to cover 
expenses that traditional Medicare does not  69.8% - 80.2% 
cover. 
Beneficiaries who went to another HMO said  24%  +/- 6.1% 
they were very concerned that the new HMO 
would withdraw from Medicare.  17.9% - 30.1% 
Beneficiaries who went to another HMO said  36%  +/- 6.8% 
they were slightly concerned that the new 
HMO would withdraw from Medicare.  29.2% - 42.8% 
Beneficiaries who went to another HMO said  40%  +/- 7.0% 
they were not concerned at all that the new 
HMO would withdraw from Medicare.  33% - 47% 
Beneficiaries who went to traditional  32%  +/- 5.6% 
Medicare said the fact that HMOs can 
withdraw from Medicare would keep them  26.4% - 37.6% 
from joining another HMO. 
Beneficiaries who went to traditional  41%  +/- 6.2% 
Medicare said the fact that HMOs can 
withdraw from Medicare would not keep  34.8% - 47.2% 
them from joining another HMO. 
Beneficiaries who went to traditional  27%  +/- 5.5% 
Medicare said they did not know if the fact 
that HMOs can withdraw from Medicare  21.5% - 32.5% 
would keep them from joining another HMO. 
HMO Withdrawals  26  OEI-04-00-00390  APPENDIX D 
MEDICARE RISK HMOs AND ENROLLMENT 
DECEMBER 1997 TO JUNE 2000

MONTH/YEAR  # PLANS  # ENROLLEES  % CHANGE 
12/97  307  5,211,339 
01/98  330  5,328,308  2.2% 
06/98  346  5,710,550  7.2% 
12/98  346  6,055,546  6.0% 
01/99  295  5,901,853  -2.5% 
06/99  303  6,192,892  4.9% 
12/99  309  6,347,434  2.5% 
01/00  264  6,189,971  -2.5% 
06/00  261  6,238,549  0.8% 
HMO Withdrawals  27  OEI-04-00-00390  APPENDIX E 
AGENCY COMMENTS

HMO Withdrawals  28  OEI-04-00-00390  HMO Withdrawals  29  OEI-04-00-00390  HMO Withdrawals  30  OEI-04-00-00390  HMO Withdrawals  31  OEI-04-00-00390  HMO Withdrawals  32  OEI-04-00-00390   STAFF PARTICIPATING ON THIS INSPECTION

(OEI-04-00-00390)

OEI Headquarters
 Region V 
Tricia Davis, Program Specialist
 Ianna Kachoris 
Scott Horning, Technical Support 
 Emily Melnick 
Brian Ritchie, Director, TSS
 Joe Penkrot 
Barbara Tedesco, Statistician
 Stacy Thompson 
Region VI 
OEI Regional Offices  Jennifer Kahende 
Jeannette Oshitoye 
Region I  Scott Whitaker 
Joyce Greenleaf 
Norman Han  Region VII 
Russell Hereford  Zula Crutchfield 
Aimee Kasenga  Timothy Dold 
Nancy London  Tricia Fields 
Maria Maddaloni  Linda Paddock 
Laura McBride  Elander Phillips 
Nicola Pinson  Dennis Tharp 
Ken Price 
Elizabeth Robboy  Region IX 
Mark Yessian  Tom Purvis 
Region III 
Lauren McNulty

Stacey Uhl

Office of Audit Services 
Region IV

Peggy Daniel, Lead Analyst
 Region IV 
Joe Townsel, Team Leader
 Yesenia Ramirez 
Allison Grablowsky

Dwayne Grant

Rodney Holliman

Greg Jones

Janet Miller

Graham Rawsthorn

Seth Rosenblatt

Glen Thomas

33