Department of Health and Human Services 
OFFICE OF 
INSPECTOR GENERAL 
Medicare + Choice HMO Extra Benefits 
Beneficiary Perspectives 
JUNE GIBBS BROWN 
Inspector General 
FEBRUARY 2000 
OEI-02-99-00030  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 New York regional office prepared this report under the direction of John I. Molnar, 
Regional Inspector General, and Renee C. Dunn, Deputy Regional Inspector General.  Principal 
OEI staff included: 
REGION  HEADQUARTERS 
Demetra Arapakos, Team Leader
 Tricia Davis, Program Specialist 
Ellen Vinkey, Project Leader
 Scott Horning, Technical Support 
Lucille Cop
 Brian Ritchie, Technical Support 
Vincent Greiber
 Barbara Tedesco, Statistician 
To obtain copies of this report, please call the New York Regional Office at (212) 264-2000. 
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 the degree to which extra benefits influence beneficiaries decisions to join 
Medicare + Choice health maintenance organizations (HMOs) and the extent to which 
they value and understand the extra benefits offered by these health plans. 
BACKGROUND 
The Medicare managed care environment has recently undergone significant change. 
Medicare + Choice provisions established in the 1997 Balanced Budget Act resulted in an 
increased number of health plan options for beneficiaries.  In addition, a number of HMOs 
have recently dropped out of some markets, causing beneficiaries in these areas to 
consider other coverage options.  As of September 1999, 17 percent of beneficiaries 
nationwide had chosen HMOs over the traditional fee-for-service program.  This study 
will contribute important data to the body of knowledge on how and why beneficiaries 
choose Medicare HMOs, thereby assisting Medicare policy makers in their efforts to 
improve the Medicare program. 
Generally, HMOs are paid a prospective capitated payment to provide all Medicare-
covered services to their enrollees.  Additionally, many provide enrollees with coverage 
that exceeds Medicare-covered services in the form of extra benefits.  As of December 
1998, over 50 percent of HMOs offered the following extra benefits: outpatient drug 
coverage,  routine physicals, eye exams, ear exams, and immunizations.  Other extra 
benefits that were offered, but to a lesser degree, include: health education, dental 
coverage, foot care, eye glasses and hearing aids. 
We used three methods for this inspection.  First, we conducted a mail survey of a 
stratified random sample of 600 recent Medicare+Choice HMO enrollees.  Second, we 
conducted an analysis of beneficiary knowledge to determine their level of understanding 
of their extra benefits.  Third, we reviewed written marketing materials from the plans 
associated with our sample beneficiaries. 
FINDINGS 
Lower Costs Are More Important Than Extra Benefits 
Enrollees Say Lower Costs Main Reason For Joining.  Three out of four recent HMO 
enrollees report that lower costs were one of the reasons they decided to join their health 
1 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  plan.  In fact, half (49 percent) say it was the most important reason.  There are a number 
of different costs which may be lower for HMO enrollees than for Medicare beneficiaries 
in the fee-for-service program.  These can include lower co-payments for doctor visits and 
the lack of an annual deductible that must be met out-of-pocket prior to coverage by the 
Medicare program.  HMO enrollees can also be charged either no or a low monthly HMO 
premium.  The most recent HCFA data available indicate that, as of December 1998, 7 
percent of all HMOs do not require beneficiaries to make any co-payment for office visits 
and 70 percent of plans charge no monthly premium.  Forty percent of  beneficiaries 
report that they would not stay with their HMO if they did not get the benefit of lower 
costs. 
Prescription Drug Coverage Most Important Extra Benefit.  While half of recent 
enrollees say that extra benefits influenced their decision to join an HMO, one third of all 
recent enrollees indicate that prescription drug coverage was the single most important 
reason they chose their HMO.  Approximately 68 percent of all HMOs offered drug 
coverage as of December 1998. 
Most Enrollees Compare Plans and Extra Benefits When Joining a HMO.  The 
majority of recent enrollees (63 percent) report that they looked at more than one plan 
before they joined their HMO, almost all of whom compared extra benefits.  When 
deciding to join, many (64 percent) think they will get health care services with their HMO 
that they would not get if they chose the Medicare fee-for-service program. 
Once Enrolled In a HMO, Medicare Beneficiaries Value Prescription Drugs, 
Regular Physicals, and Vision Benefits The Most 
Three types of extra benefits are particularly valued by HMO enrollees.  When asked 
which three benefits are most important to them, 87 percent of recent enrollees say 
prescription drugs, 70 percent say regular physicals, and 68 percent say vision benefits. 
According to HCFA data over 50 percent of plans offer some coverage at no extra cost to 
beneficiaries for drugs, regular physicals, and eye exams.  The number of plans that offer 
eye glass coverage is much smaller; less than 5 percent.  Although highly valued, the 
prescription drug benefit is least likely to meet enrollees expectations.  Forty percent 
report that they are not receiving the kind of drug coverage they expected.  More 
specifically, a quarter say they spend more on drugs than they thought they would. 
HMO Enrollees Understanding of Their Extra Benefits is Uneven 
Enrollees accurately report coverage of regular physicals but their understanding of 
other benefits is not as high.  When we compared enrollees answers about the extra 
benefits their plan provides to Medicare HMO contract data, just under 90 percent of 
recent enrollees answers matched Medicare data with regard to coverage for regular 
2 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  physicals.  However, HMO enrollee understanding of other highly valued benefits, such as 
prescription drugs and vision care, is not has high. 
While generally easy to understand, sample HMO marketing materials vary greatly. 
Almost all HMO plans in our sample (99 percent) include information on extra benefits in 
their marketing materials.  However, significant variation exists in the format and length of 
these materials.  In addition, when we reviewed information on prescription drug 
coverage, we found potential for confusion.  For example, almost 10 percent of sample 
plan materials we reviewed did not indicate whether or not the plan provides prescription 
drug coverage. 
RECOMMENDATIONS 
The findings of this report indicate that lower costs and extra benefits, particularly drug 
coverage, are important to prospective HMO enrollees.  We  are also releasing two 
concurrent reports on HCFAs new marketing guidelines.  A common thread among all of 
these reports is that beneficiaries seek out but do not always find adequate information 
they can use to make informed comparisons among Medicare + Choice HMOs.  As noted 
in this study, many recent enrollees do not understand which extra benefits their plan 
offers and HMO marketing materials contain inconsistent marketing information. 
Therefore, we recommend that HCFA develop mechanisms to assure comparability 
of  Medicare + Choice HMO plan costs and benefits.  HCFA has been taking steps to 
develop a standard format for plan benefit summaries.  We support these steps and 
encourage the completion of this task.  We believe that greater standardization can 
improve prospective enrollees ability to make informed comparisons.  Furthermore, 
enrollees expectations are more likely to be fulfilled if standardized benefit information is 
available to them when choosing a Medicare + Choice health plan. 
3 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  T A B L E   O F   C O N T E N T S  
PAGE

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

INTRODUCTION  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

FINDINGS

Lower Costs Are More Important Than Extra Benefits  . . . . . . . . . . . . . . . . . . . . . . . . 10

Enrollees Value Drugs, Regular Physicals and Vision Benefits  . . . . . . . . . . . . . . . . . . .  11

Enrollee Understanding of Extra Benefits is Uneven  . . . . . . . . . . . . . . . . . . . . . . . . . . 12

RECOMMENDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

APPENDICES

A: Selected List of Recent OIG HMO Inspections  . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

B: Confidence Intervals for Key Questions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

C: Beneficiary Non-Respondent Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18

D: Agency Comments  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21

4 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  I N T R O D U C T I O N  
PURPOSE 
To determine the degree to which extra benefits influence beneficiaries decisions to join 
Medicare + Choice health maintenance organizations (HMOs) and the extent to which 
they value and understand the extra benefits offered by these health plans. 
BACKGROUND 
The Medicare managed care environment has recently undergone significant change.  The 
Balanced Budget Act of 1997 resulted in an increased number of health plan options for 
beneficiaries.  In addition, a number of HMOs have recently dropped out of some markets, 
causing beneficiaries in these areas to consider other coverage options.  This study will 
contribute important data to the body of knowledge on how and why beneficiaries choose 
Medicare HMOs, thereby assisting Medicare policy makers in their efforts to improve the 
Medicare program. 
The Office of Inspector General (OIG) has conducted numerous inspections on Medicare 
HMOs (see Appendix A).  Of primary relevance to this study are two concurrent reports 1 . 
The first, on new marketing guidelines, found that few approved marketing materials were 
in full compliance with HCFA requirements.  The second found that limitations exist in 
HCFAs review process.  The OIG is also conducting a study on the impact of HMO 
closures on Medicare beneficiaries.  Additionally, the GAO released a report2 in April 
1999 which found that Medicare + Choice HMO plan materials are often confusing and 
hard to compare. 
Increasing Health Care Plan Choices for Beneficiaries 
The 1997 Balanced Budget Act established Medicare + Choice provisions which set forth 
a number of different coordinated care options for beneficiaries to choose from.  These 
new options mean that beneficiaries now need to make informed choices between the 
traditional fee-for-service health care program and a number of different types of managed 
care organizations.  Managed care options include: Medicare + Choice HMOs (formerly 
called risk-HMOs) and newer alternatives such as Medicare + Choice preferred provider 
1Medicare Managed Care: 1998 Marketing Materials OEI-03-98-00271 and Medicare 
Managed Care: Goals of National Marketing Guide OEI-03-98-00270 
2Medicare + Choice- New Standards Could Improve Accuracy and Usefulness of Plan 
Literature GAO/HEHS-99-92 
5 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  organizations, provider sponsored organizations and private fee-for-service plans.  The 
Health Care Financing Administration (HCFA) continues to take steps to help 
beneficiaries make informed health plan choices in this new environment.  In November 
1998, they began a large scale informational campaign to send every beneficiary in the 
country a mailing that describes the new Medicare + Choice options. 
Medicare + Choice HMOs 
As indicated above, there are a variety of different types of Medicare + Choice managed 
care organizations.  Most use a gatekeeper (usually a primary care physician) who must 
approve additional medical services.  Historically, there have been a number of ways that 
managed care organizations  contracted with HCFA to provide services.  Most recently 
the majority of managed care organizations were Medicare risk-HMOs.  Under these 
contracts, established in the Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA), 
plans were paid a prospective capitated payment to provide all Medicare-covered services 
to beneficiaries.  Within the last year, Medicare risk-HMO contracts  have been converted 
to Medicare + Choice contracts.  All Medicare + Choice organizations are paid on a risk 
basis.  The amount of the capitated payment is based on a complicated formula which is 
currently under going change.  The formula includes factors such as: fee-for-service 
program historical expenditures; inflation estimates; differences in county level spending; 
and the individual characteristics of the plans enrollees. 
The percentage of Medicare beneficiaries who choose managed care health plans over the 
traditional fee-for-service program continues to grow.  In 1994, prior to the 
implementation of Medicare + Choice, 5 percent of  Medicare beneficiaries were enrolled 
in risk HMO plans, with the vast majority remaining in the traditional fee-for-service 
program.  As of September 1999, 17 percent of Medicare beneficiaries nationwide 
(approximately 6 million), had chosen risk HMOs over the traditional fee-for-service 
program.  Because the geographical distribution of enrollment varies widely, the 
percentage of beneficiaries enrolled in risk HMOs is much greater in some parts of the 
country.  In Arizona and California, for example, approximately 40 percent of beneficiaries 
were enrolled in a risk HMO as of September 1999.  In contrast, nine States had no 
Medicare beneficiaries enrollees in risk HMO enrollees (Alaska, Iowa,  Mississippi, 
Montana, North Dakota, South Dakota, Utah, Vermont, and Wyoming). 
Extra Benefits Offered by Medicare + Choice HMOs 
Many Medicare + Choice HMOs  provide enrollees coverage that exceeds the required 
Medicare benefits for beneficiaries in the fee-for-service program.  There are two kinds of 
extra benefits that these HMOs can provide for Medicare beneficiaries-- those funded out 
of savings (mandated by Medicare to the extent that the plan has savings) and optional 
benefits the HMO decides to provide (sometimes at an additional charge to beneficiaries). 
Historically, fee-for-service Medicare beneficiaries have purchased Medigap insurance to 
cover some of the health care expenses that Medicare does not cover and to reduce their 
6 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  out-of-pocket costs.  Medicare + Choice HMO beneficiaries who enroll in plans that offer 
extra benefits can get some of the same coverage that Medigap insurance provides without 
paying a Medigap premium.  Two examples of extra benefits offered include prescription 
drug coverage and eye exams, neither of which are covered in the fee-for-service program. 
Extra Benefits Funded Out of Savings.  Plans are required to use revenues that exceed 
their allowable profits to fund extra noncovered benefits for Medicare enrollees.  These 
extra benefits can take the form of either additional health care coverage or reduced 
beneficiary cost sharing, such as the elimination of the HMO monthly premium that 
Medicare gives HMOs the option to charge. 
As of December 1998, over 50 percent of plans offered each of the following: routine 
physicals, eye and ear exams, outpatient drug coverage and immunizations.  Other extra 
benefits that were  offered, but to a lesser degree, included the following: health 
education, dental coverage, foot care, eye glasses and hearing aids.  It is important to note 
that in many instances the amount of coverage being offered is limited.  For example, most 
HMOs limit the coverage they provide for drugs to some specified dollar amount each 
year. 
In addition to cost sharing benefits offered in the form of waived HMO monthly premiums 
some HMOs reduce costs by eliminating co-payments for office visits.  As of  December 
1998,  70 percent of plans waived the monthly premium and 7 percent of risk HMOs did 
not require beneficiaries to make any co-payment for office visits. 
Optional Extra Benefits.  As indicated earlier, Medicare + Choice HMOs are also 
allowed to offer extra benefits to Medicare beneficiaries beyond those required to spend 
the savings.  They are usually inclined to do so in response to local market forces.  Plans 
that offer extra benefits and no premiums are more likely to attract beneficiaries.  While 
plans are allowed to charge for these benefits, they must do so within certain guidelines. 
Often these benefits are offered to beneficiaries in the form of one or more high-option 
packages.  As of December 1998, just over half of Medicare risk HMOs offered a high-
option plan. 
In addition to the extra benefits and reduced cost sharing mentioned above, there are other 
cost advantages which affect many HMO enrollees.  Although they must pay the $45.50 
monthly Medicare Part B premium for doctor visit coverage, they generally pay 
significantly lower co-payments for office visits than they would in the fee-for-service 
program.  In addition,  Medicare + Choice HMOs generally do not require the payment of 
an annual deductible amount prior to covering services.  Interestingly, a number of State 
Health Insurance Program counselors report a recent significant increase in Medigap 
7 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  premiums and note that these increases are driving many beneficiaries to consider 
switching from traditional fee-for-service Medicare to HMOs. 
METHODOLOGY 
Multiple Methods 
We used three methods for this inspection.  First, we conducted a mail survey of recent 
Medicare+Choice HMO enrollees.  Second, we conducted an analysis of beneficiary 
understanding of their extra benefits.  Third, we reviewed written marketing materials 
from the plans associated with our sample beneficiaries. 
Sample Selection 
Using the HCFAs Group Health Plan (GHP) Master file, we selected a stratified random 
sample of 600 beneficiaries who had enrolled in Medicare+Choice HMOs between August 
1, 1998 and January 31, 1999.  (Throughout the balance of this report the term HMO will 
be used to refer to Medicare+Choice HMOs.)  The sample was stratified based on the size 
of the HMO plan the beneficiary was in.  The three strata included: beneficiaries enrolled 
in plans with less than 20,000 enrollees; beneficiaries in plans with 20,000-50,000 
enrollees and beneficiaries in plans with greater than 50,000 enrollees. 
We included only beneficiaries who had recently enrolled which improved the likelihood 
that survey respondents were able to recall the decision making process they went through 
when choosing between Medicare providers.  Beneficiaries who were new to their HMO 
only because their HMO merged with another HMO were  dropped from the universe. 
Beneficiary Survey 
A self-administered questionnaire was mailed to all 600 sample beneficiaries.  Follow-up 
postcards and a second mailing of questionnaires were used to achieve a 74 percent 
response rate.  Data collection was done during April and May 1999.  In order to ensure 
that the questions we asked used language that was familiar to respondents, we held a 
focus group at a local senior citizen center to get Medicare beneficiary input on a draft 
version of the questionnaire.  After incorporating what we learned from the focus group, 
we pre-tested the survey instrument again, by mailing it to beneficiaries who filled it out 
and then provided feedback through telephone discussions.  This helped us to ensure that 
the instructions were clear and the questions were relevant.  The mail survey included 
questions about the extra benefits beneficiaries HMOs offer and the relative importance 
of different factors when they were choosing a HMO plan. 
8 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  Analysis of Beneficiary Knowledge 
To assess beneficiaries understanding of the extra benefits covered by their HMO, we 
compared their answers to survey questions about the extra benefits their HMO provides 
to HCFA information on coverage offered by their HMOs.  HMO contract numbers were 
used to match beneficiaries HMOs with the pertinent HCFA coverage data.  In a small 
number of instances, HCFA data was not available for a given contract.  We performed 
this analysis for all beneficiaries in our sample who answered the pertinent survey 
questions  and for whom HCFA coverage data was available. 
Marketing Material Analysis 
We requested the written marketing materials used to communicate with prospective plan 
members from all HMOs associated with our sample beneficiaries.  We asked plans to 
submit materials used between June 1, 1998 and January 1, 1999, the period during which 
our sample beneficiaries would most likely have been comparing HMO plans.  Almost all 
of the sample plans submitted the materials requested; our analysis was performed on 191 
of the 206 plans included in our sample.  The total number of Medicare + Choice risk 
HMOs at the time we pulled our sample was 297.  Using a structured review sheet, we 
evaluated whether extra benefit coverage was provided, whether language was clear, if 
limitations were listed prominently, how thoroughly the drug benefit was explained, and, 
the degree to which variation existed among marketing materials. 
Methodology Limitations 
There are several limitations to our analysis of beneficiary knowledge.  The HCFAs data 
does not include all extra benefits HMOs offer, so our comparison of what beneficiaries 
say they get and what their HMO contracts with HCFA to provide is limited.  Two of the 
primary benefits we are unable to address in this analysis are dental care and transportation 
coverage.  Second, and most importantly, we did not have data indicating whether sample 
beneficiaries were enrolled in their HMOs basic or optional hi-rider plan.  As a result, to 
the extent that sample beneficiaries have opted for a hi-rider plan, our analysis may 
overstate the number of beneficiaries who overestimate their extra benefit coverage. 
This inspection was conducted in accordance with the Quality Standards for 
Inspections issued by the Presidents Council on Integrity and Efficiency. 
9 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  F I N D I N G S  
Lower Costs Are More Important Than Extra Benefits 
Enrollees Say Lower Costs Main Reason For Joining 
Three out of four recent HMO enrollees report that lower costs were one of the reasons 
they decided to join their health plan.  Of  the enrollees who say cost is the most important 
reason they joined their HMO, a quarter indicate that no monthly HMO premium was the 
most important factor, 15 percent cite low co-payments for doctors visits, and 9 percent 
cite their low monthly premium. 
As indicated in the background, there are a number of different costs which may be lower 
for HMO enrollees than for Medicare beneficiaries in the fee-for-service program.  These 
can include lower co-payments for doctor visits  and the lack of an annual deductible that 
must be met out-of-pocket prior to coverage by the Medicare program.  Enrollees can also 
be charged either no or a low monthly premium.  The most recent HCFA data available 
indicate that, as of December 1998, 7 percent of all HMOs do not require beneficiaries to 
make any co-payment for office visits and 70 percent of plans charge no monthly 
premium. 
Forty percent of  beneficiaries report that they would not stay with their HMO if they did 
not get the benefit of lower costs; they would either choose a less expensive HMO or 
switch to the Medicare fee-for-service program.  Many (38 percent) do not know what 
they would do if costs increased. 
Prescription Drug Coverage Most Important Extra Benefit 
While half of recent enrollees say that extra benefits in general influenced their decision to 
join an HMO, prescription drug coverage was particularly important.  One third of all 
recent enrollees indicate that this coverage was the single most important reason they 
chose their HMO.  Approximately 68 percent of all HMOs offered drug coverage as of 
December 1998.  Only 5 percent of recent enrollees cite any other individual extra benefit 
as their main reason, with almost all of these saying that coverage for regular physicals 
was of primary importance. 
Participating Doctors, Proximity, and Plan Reputation Also Considered 
Recent enrollees cite other factors as playing a role in their decision to join.  These include 
the HMOs participating doctors, its proximity, and its reputation.  Over half report that 
the doctors at the HMO are one of the reasons they decided to join.  Expressing this 
10 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  sentiment, one beneficiary reports, most of my doctors are with this HMO;  another 
recent HMO enrollee says, I went to an HMO because of cost and because my doctor 
was in the plan.  The proximity and reputation of the HMO are two other considerations 
that enrollees report influence their decision to join.  Just over 40 percent report that the 
plans close location to their home and reputation for quality care are important. 
Most Enrollees Compare Plans and Extra Benefits When Joining a HMO 
The majority of recent enrollees (63 percent) report that they looked at more than one 
plan before they joined their HMO, almost all of whom compared extra benefits.  Many 
recent enrollees  (64 percent) think they will get health care services with their HMO that 
they would not get if they were in the Medicare fee-for-service program.  The majority of 
recent HMO enrollees  report that they do not think they gave anything up in order to 
receive these extra benefits; the few who think they did make a trade-off  report that they 
lost the freedom to use a particular MD or specialist. 
Once Enrolled In a HMO, Medicare Beneficiaries Value Prescription 
Drugs, Regular Physicals, and Vision Benefits The Most 
These Three Benefits Are Also Used The Most 
Three types of extra benefits are particularly valued by HMO enrollees.  When asked 
which three  benefits are most important to them, 87 percent of recent enrollees say 
prescription drugs, 70 percent say regular physicals and 68 percent say vision benefits3.  In 
addition, just under a quarter of enrollees included dental care on their list of most valued 
extra benefits.  Of least importance to recent enrollees is acupuncture, with one half saying 
this is the benefit they value the least.  As indicated in the background, according to 
HCFA data over 50 percent of plans offer some coverage at no extra cost to beneficiaries 
for drugs, regular physicals, and eye exams.  The number of plans that offer eye glass 
coverage is much smaller; less than 5 percent. 
Recent enrollees report using a large number of their extra benefits, even within the 
relatively short time frame that they have been members of their HMO.  A majority of 
recent enrollees say they used five of eleven commonly offered extra benefits within six 
months of joining their plan.  These five benefits include, in order of frequency, 
prescription drugs, regular physicals, eye exams, eye glasses, and health education 
services.  Almost half of recent HMO enrollees say that they would choose another HMO 
or switch to the Medicare fee-for-service program if their HMO stopped offering extra 
benefits. 
3Eye exams and eye glasses 
11 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  However, The Prescription Drug Benefit Is Least Likely to Meet Enrollees 
Expectations 
Although a majority of all enrollees (80 percent) say that overall their expectations are 
being met, 40 percent report that they are not receiving the kind of drug coverage they 
expected when they joined their HMO.  More specifically, a quarter say they spend more 
on drugs than they thought they would.  Some of the reasons enrollees may be less than 
satisfied with drug coverage include: annual limits on drugs that they view as too low to 
meet their needs effectively; plan rules regarding generic vs. non-generic drugs; and, the 
amount of the co-payment required at the time a prescription is filled. 
Most HMO enrollees do, in fact, have some limitations on their drug coverage.  Ninety 
percent report that they are required to make a co-payment when they fill a prescription. 
In addition, over half of recent enrollees say their plan puts a limit on the amount of 
money the HMO will pay for drugs in a given year.  Enrollees report limits ranging from 
$200 to $4000. 
HMO Enrollees Understanding of Their Extra Benefits is Uneven 
Enrollees Most Accurately Report Coverage of Regular Physicals But Their 
Understanding of Other Benefits is Not as High 
When we compared  enrollees answers about extra benefits provided by their HMO to 
Medicare data on the benefits HMOs are contracted to provide, just under 90 percent of 
enrollees answers matched Medicare program data with regard to coverage for regular 
physicals.  However, HMO enrollee understanding of other benefits is not as accurate.  As 
the table on the next page indicates, enrollees  have a less accurate understanding about 
the other six benefits we analyzed.  These include three highly valued benefits: drug 
coverage, eye exams, and eye glasses. 
12 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  Table 1 
HMO Enrollee Understanding of Extra Benefit Coverage 
Enrollees Who 
Benefit  Accurately 
Report Coverage 
Regular Physicals  89% 
Prescription Drugs  80% 
Eye Exams  75% 
Ear Exams  42% 
Foot Care  39% 
Hearing Aid  25% 
Eye Glasses  14% 
Enrollees who do not accurately report their extra benefit coverage fall into three 
categories: those who overestimate their coverage, those who underestimate it, and  those 
who say they do not know whether or not they have coverage for a particular benefit. 
Generally, HMO enrollees are more likely to overestimate, rather than underestimate, the 
benefits their HMO provides.  Furthermore, many enrollees do not know whether or not 
they are receiving extra benefits.  For example, over one third of all recent enrollees report 
that they do not know whether their HMO provides coverage for hearing aids, ear exams 
or foot exams. 
While Generally Easy to Understand, Sample Marketing Materials Vary Greatly 
We reviewed sample HMO marketing materials used to communicate with prospective 
Medicare HMO plan members.  These materials included marketing pamphlets, booklets 
describing plan benefits, as well as plan applications.  Our analysis focused primarily on 
whether the materials provide clear information on extra benefits.  Almost all HMO plans 
in our sample include information on extra benefits in their marketing materials.  Also, we 
found that the majority of plans list this information prominently and use language that we 
judged relatively easy to understand. 
However, when we reviewed marketing material information on prescription drug 
coverage, we found potential for confusion.  Almost 10 percent of sample plan marketing 
13 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  materials we reviewed did not indicate whether or not the plan provides prescription drug 
coverage.  When drug coverage is addressed, a few plans do not indicate the amount of 
the annual dollar limit. 
Additionally, our review found significant variation in marketing information.  For 
example, we found variation in the length of materials, with some plan materials being 
very lengthy, while others are only a few pages long.  Lengthier materials may make it 
more difficult for prospective HMO enrollees to locate and understand information on 
extra benefit coverage and cost sharing requirements.  The format of extra benefit 
information included in sample marketing materials also varies.  For example, only 35 
percent of marketing materials provide a reference for extra benefit information in their 
table of contents. 
A recent OIG report looked at the HCFA review process for HMO marketing materials. 
That report found that only 13 percent of materials were in full compliance with guidelines 
used by HCFA to ensure accurate materials that are useful to prospective enrollees.  In 
addition, 40 percent were found to be confusing, and 28 percent contained jargon. 
14 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  R E C O M M E N D A T I O N  
The findings of this report indicate that lower costs and extra benefits, particularly drug 
coverage, are important to prospective HMO enrollees.  As noted earlier, we are also 
releasing two concurrent reports on HCFAs new marketing guidelines.  A common 
thread among all of these reports is that beneficiaries seek out but do not always find 
adequate information they can use to make informed comparisons among Medicare + 
Choice HMOs.  As noted in this study, many recent enrollees do not understand which 
extra benefits their plan offers and HMO marketing materials contain inconsistent 
marketing information. 
Therefore, we recommend that HCFA develop mechanisms to assure comparability 
of  Medicare + Choice HMO plan costs and benefits.  HCFA has been taking steps to 
develop a standard format for plan benefit summaries.  We support these steps and 
encourage the completion of this task.  We believe that greater standardization can 
improve prospective enrollees ability to make informed comparisons.  Furthermore, 
enrollees expectations are more likely to be fulfilled if standardized benefit information is 
available to them when choosing a Medicare + Choice health plan. 
15 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  A P P E N D I X  A  
SELECTED LIST OF RECENT OFFICE OF INSPECTOR GENERAL HMO 
INSPECTIONS 
Office of Inspector General, US Department of Health and Human Services, Medicare Managed 
Care- 1998 Marketing Materials, OEI-03-98-00271, February 2000. 
Office of Inspector General, US Department of Health and Human Services, Medicare Managed 
Care- Goals of National Marketing Guide, OEI-03-98-00270, February 2000. 
Office of Inspector General, US Department of Health and Human Services, Medicare 
Beneficiary Interest in HMOs in 1997, OEI-04-97-00032, September 1998. 
Office of Inspector General, US Department of Health and Human Services, Capitation Rates for 
Medicare Managed Care Plans Are Inflated Due to Improper Payments Included in Rate 
Calculations, A-14-97-00206, September 1998. 
Office of Inspector General, US Department of Health and Human Services, Medicare HMO 
Appeals and Grievance Processes: Beneficiary Understanding, OEI-07-94-00281, December 
1996. 
16 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  A P P E N D I X  B  
CONFIDENCE INTERVALS FOR KEY FINDINGS

KEY FINDINGS  POINT  CONFIDENCE 
ESTIMATE  INTERVAL 
HMO enrollees report that lower costs are the most  71%  + 4.5 
important reason they decided to join their HMO. 
Recent enrollees indicate that drug coverage was the  30%  + 5.0 
single most important reason they chose their HMO. 
Enrollees say prescription drugs are one of the three  87%  + 3.4 
extra benefits they value the most. 
Enrollees say regular physicals are one of the three  70%  + 4.5 
extra benefits they value the most. 
Enrollees say vision benefits are one of the three extra  68%  + 4.6 
benefits they value the most. 
Recent enrollees answers matched Medicare data  89%  + 3.2 
with regard to coverage for regular physicals. 
Enrollees have a less accurate understanding about  80%  + 4.2 
prescription drug coverage. 
Enrollees have a less accurate understanding about  75%  + 4.4 
eye exam coverage. 
Enrollees have a less accurate understanding about  14%  + 3.6 
eye glass coverage. 
Some sample plan materials did not indicate whether  8%  + 4.0 
or not the plan provides prescription drug coverage. 
17 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  A P P E N D I X  C  
BENEFICIARY NON-RESPONDENT ANALYSIS 
When surveys are used to collect data, the results may be biased if non-respondents differ from 
respondents.  For this inspection, a beneficiary for whom a HMO Extra Benefit Questionnaire was 
not received is a non-respondent.  Additionally, a sample HMO that did not answer our request 
for marketing materials is a non-respondent.  We tested for non-response bias among sample 
beneficiaries.  However, since only a small percentage (8 percent) of sample HMOs did not 
submit marketing materials, it was not necessary to perform a HMO non-respondent analysis.  To 
test for the presence of any bias in our analysis of beneficiary questionnaires, we first obtained 
information from HCFA's Enrollment Database for all 600 beneficiaries who were sent a mail 
questionnaire.  The results are shown in the tables that follow. 
A total of 441 beneficiary surveys were returned, for a response rate of 74%.  To test for the 
presence of any non-response bias, we analyzed the variables which might influence whether an 
individual would respond to the survey or that might affect his or her responses.  For the 600 
beneficiaries in our survey we looked at: gender, race and whether the beneficiary was enrolled in 
a small, medium or large Medicare HMO (strata).  For purposes of this analysis, race was divided 
into white and non-white in order to assure that the numbers in each cell would not be too small 
to make meaningful comparisons.  These categorical variables were tested using Chi-square with 
the appropriate degrees of freedom. 
The results of this analysis are presented in tables C(1-3).  The Chi-square values given in the 
tables provide a test of the difference between the distribution of the respondents and that of the 
non-respondents for the variable of interest.  Also provided in the tables are the response rates by 
the different values of the variables.  The differences in these tables between the response rates for 
gender and HMO size are not statistically significant.  Table C-3, however,  shows a statistically 
significant difference between respondents and non-respondents with respect to race.  In order to 
test whether this difference introduced any bias, we analyzed answers to a couple of key survey 
questions given by white and non-white respondents.  The two questions we looked at were: 
whether cost influenced the decision to join the HMO and whether prescription drugs was the 
single most important benefit that influenced the beneficiarys decision to join their HMO.  With 
respect to the first question, the proportion of white and non-white respondents who answered 
yes differed by 10 percentage points, so further analysis was required.  Assuming that non-
respondents from each of racial groupings would have answered the same as respondents with the 
same designation, we calculated hypothetical global response rates for all 600 beneficiaries in the 
sample.  This calculation gave only a slightly lower percentage (69% vs. 71%) of beneficiaries 
18 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  who report that cost influenced their decision to join the HMO.  This difference is not statistically 
significant. 
Given the results of this analysis, we believe that the inspection findings fairly represent the 
experience and opinions of Medicare HMO beneficiaries to whom the questionnaires were sent. 
We therefore believe that our survey results can be generalized to the universe of HMO Medicare 
beneficiaries who joined Medicare+Choice HMOs between August 1,1998 and January 31, 1999. 
CHI-SQUARE Values for Testing Significance of Differences 
Between Respondents and Non-Respondents For 
(1) Gender (2) Size of HMO (Strata) and (3) Race 
Table C-1 
GENDER 
Respondents  Non- Total  Percent 
Respondents 
Male  190 (43%)  66 (42%)  256  74% 
Female  251 (57%)  93 (58%)  344  73% 
Total  441  159  600  74% 
Chi-Square=0.118 
Degrees of Freedom = 1 
19 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  Table C-2

HMO SIZE (Strata)

Respondents  Non- Total  Percent 
Respondents 
Small  145 (33%)  55 (35%)  200  73% 
(>20,000 enrollees) 
Medium  141 (32%)  59 (37%)  200  71% 
(20,000-50,0000) 
Large  155 (35%)  45 (28%)  200  78% 
(<50,000) 
Total  441  159  600  74% 
Chi-Square=2.670 
Degrees of Freedom = 2 
Table C-3 
RACE 
Respondents  Non- Total  Percent 
respondents 
White  377 (86%)  116 (74%)  493  76% 
Non-White  62 (14%)  41 (26%)  103  60% 
Total  439  157  596  74% 
Chi-Square=11.633 
Degrees of Freedom = 1 
20 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  A P P E N D I X  D  
AGENCY COMMENTS 
We provided the agency with a working draft copy of this report and we did not receive 
comments. 
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Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  22 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030  A 1-  1 
Medicare + Choice HMO Extra Benefits  OEI-02-99-00030