Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

AUGUST 2000 

OEI-04-00-00390 

HMO WITHDRAWALS 

Impact on Medicare Beneficiaries 
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, 

inspections, sanctions, and fraud alerts. The Inspector General informs the Secretary of program 

and management problems and recommends legislative, regulatory, and operational approaches to 

correct them. 

Office of Evaluation and Inspections 

The Office of Evaluation and Inspections (OEI) is one of several components of the Office of 

Inspector General. It conducts short-term management and program evaluations (called 

inspections) that focus on issues of concern to the Department, the Congress, and the public. The 

inspection reports provide findings and recommendations on the efficiency, vulnerability, and 

effectiveness of departmental programs. 

OEI's Atlanta Regional Office prepared this report under the direction of Jesse J. Flowers, 

Regional Inspector General, and Christopher H. Koehler, Deputy Regional Inspector General. 

OIG participating staff are shown on the inside of back cover. 

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 

JUNE GIBBS BROWN 

Inspector General 

AUGUST 2000 

OEI-04-00-00390 

HMO WITHDRAWALS 

Impact on Medicare Beneficiaries 
TABLE OF CONTENTS 

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
EXECUTIVE SUMMARY 

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 Medicarecontracted 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 HCFA’s comments. 

HMO Withdrawals 3 OEI-04-00-00390 
INTRODUCTION 

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 Medicarecontracted 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 

Sample 

Interviewed Response 

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 

2. Had HMO Available 

90,211 

208,644 

350 

350 

-6 

-8 

344 

342 

242 

260 

70% 

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 HCFA’s list of HMOs that withdrew from Medicare or 

reduced service areas at the end of 1999. Next, we used HCFA’s 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 HCFA’s 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: HCFA’s 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, HCFA’s 

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 HCFA’s Medicare Plan Withdrawal Information File during the September - December 

1999 time period. We obtained these numbers from HCFA in May 2000. HCFA’s July 

numbers reflect disenrollments during the June - December 1999 time period. 

Second, HCFA’s 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 HMO’s Medicare participation. In May 2000, HCFA’s 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 

study’s universe of 298,855 beneficiaries. To project our results to this universe, we 

weighted survey responses in accordance with each strata’s 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 
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 

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 nonrenewal 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 

Have HMO Available 

( n=236)* 

Beneficiaries Who Did 

Have HMO Available 

(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, spouse’s 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 

No HMO Available 

( n = 225)* 

Beneficiaries Who Had 

HMO Available 

(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 

Other HMOs 

(n = 169)* 

Beneficiaries Who Went to 

Traditional Medicare 

(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 doctor’s 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 

Went to HMOs 

Beneficiaries Who Went 

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 

No HMO Available* 

Beneficiaries Who Had 

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 

No HMO Available* 

Beneficiaries Who Had 

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 
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. 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 HCFA’s comments. 

HMO Withdrawals 17 OEI-04-00-00390 
APPENDIX A APPENDIX A 

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 

Beneficiaries joined another HMO 66% 55% -11%a 

Beneficiaries went to regular Medicare 34% 45% 11%a 

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 

Beneficiaries with no available HMO 

Beneficiaries with an available HMO 

86% 

N/A 

N/A 

82% 

74% 

85% 

-4% 

N/A 

N/A 

Received timely information 

All Beneficiaries 

Beneficiaries with no available HMO 

Beneficiaries with available HMO 

82% 

N/A 

N/A 

87% 

86% 

87% 

5% 

N/A 

N/A 

Received adequate information 

All Beneficiaries 

Beneficiaries with no available HMO 

Beneficiaries with available HMO 

70% 

N/A 

N/A 

73% 

63% 

77% 

3% 

N/A 

N/A 

HMO Withdrawals 18 OEI-04-00-00390 
KEY FINDINGS 1998 1999 Difference 

Received adequate information on 

supplemental insurance 

All Beneficiaries 

Beneficiaries with no available HMO 

Beneficiaries with HMO available 

Did not need information 

69% 

N/A 

N/A 

13% 

77% 

78% 

71% 

5% 

8% 

N/A 

N/A 

-8% 

a 

IV. Characterization of Health Care 

Characterization of care the same or 

better than former HMO 

Beneficiaries went to another HMO 

About the same 

Better 

Beneficiaries went to regular Medicare 

About the same 

Better 

82% 

12% 

69% 

21% 

84% 

8% 

68% 

19% 

2% 

-4% 

-1% 

-2% 

Kept the same primary physician 

Beneficiaries went to regular Medicare 

Beneficiaries went to another HMO 

84% 

77% 

90% 

69% 

6% 

-8% 

Kept the same specialist 

Beneficiaries went to regular Medicare 

Beneficiaries went to another HMO 

87% 

80% 

95% 

75% 

8% 

-5% 

V. Financial Impact 

New monthly premiums after HMO 

withdrew 

Supplemental insurance 

HMO premium 

N/A 

N/A 

$108.82 

$ 20.27 

N/A 

N/A 

No monthly premium in former HMO 

Beneficiaries went to regular Medicare 

Beneficiaries went to another HMO 

52% 

79% 

51% 

65% 

-1% 

-14%a 

No monthly premium after HMO 

withdrew 

Beneficiaries went to another HMO 72% 51% -21% 

Obtained supplemental insurance 

All Beneficiaries 

Beneficiaries had no available HMO 

Beneficiaries had available HMO 

N/A 

N/A 

N/A 

75% 

78% 

69% 

N/A 

N/A 

N/A 

Costs for noncovered services 

Beneficiaries went to regular Medicare 

Beneficiaries went to another HMO 

62% 

13% 

63% 

19% 

1% 

6% 

HMO Withdrawals 19 OEI-04-00-00390 
KEY FINDINGS 1998 1999 Difference 

Don’t know if services are covered after 

transition 

Beneficiaries went to regular Medicare 

Beneficiaries went to another HMO 

19% 

16% 

11% 

10% 

-8% 

-6% 

VI. Future HMO Withdrawals 

Beneficiaries went to regular Medicare 

Would not join another HMO 

Would still consider another HMO 

Undecided 

Beneficiaries went to another HMO 

Very concerned 

Slightly concerned 

Not concerned 

34% 

43% 

23% 

26% 

36% 

38% 

32% 

41% 

27% 

24% 

36% 

40% 

-2% 

-2% 

4% 

-2% 

0% 

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 

(n=223) 

105 47% 118 53% 

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 

Available 

HMO 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 

ESTIMATE 

95% 

CONFIDENCE 

INTERVALS AND 

BOUNDARIES 

Beneficiaries who went to another HMO 

when former HMO withdrew. 

55% +/- 3.7% 

51.3% - 58.7% 

Beneficiaries who went to traditional 

Medicare when former HMO withdrew. 

45% +/- 3.7% 

41.3% - 48.7% 

Beneficiaries who had no HMO available to 

join said their transition to another health care 

delivery system was easy to somewhat easy. 

74% +/- 4.7% 

69.3% - 78.7% 

Beneficiaries who had another HMO available 

to join said their transition to another health 

care delivery system was easy to somewhat 

easy. 

85% +/- 4.5% 

80.5% - 89.5% 

Beneficiaries who went to another HMO said 

they kept same primary doctor they had in 

former HMO. 

69% +/- 6.6% 

62.4% - 75.6% 

Beneficiaries who went to traditional 

Medicare said they kept same primary doctor 

they had in former HMO. 

90% +/- 3.7 

86.3% - 93.7% 

Beneficiaries who had specialists and went to 

another HMO said they kept some or all 

specialists they had in former HMO. 

75% +/- 7.6% 

67.4% - 82.6% 

Beneficiaries who had specialists and went to 

traditional Medicare said they kept some or all 

specialists they had in former HMO. 

95% +/- 3.2% 

91.8% - 98.2% 

Beneficiaries who went to another HMO said 

their health care is better than that received in 

former HMO. 

8% +/- 4.1% 

3.9% - 12.1% 

HMO Withdrawals 23 OEI-04-00-00390 
KEY FINDINGS POINT 

ESTIMATE 

95% 

CONFIDENCE 

INTERVALS AND 

BOUNDARIES 

Beneficiaries who went to traditional 

Medicare said their health care was better 

after their HMO withdrew from Medicare. 

19% +/- 5.0% 

14% - 24% 

Beneficiaries who went to another HMO said 

their health care is about the same as that 

received in former HMO. 

84% +/- 5.5% 

78.5% - 89.5% 

Beneficiaries who went to traditional 

Medicare said their health care is about the 

same as that received in former HMO. 

68% +/- 6.3% 

61.7% - 74.3% 

Beneficiaries who went to another HMO said 

their health care is worse than that received in 

former HMO. 

8% +/- 4.1% 

3.9% - 12.1% 

Beneficiaries who went to traditional 

Medicare said their health care was worse 

after their HMO withdrew from Medicare. 

13% +/- 4.4% 

8.6% - 17.4% 

Beneficiaries who had no HMO available to 

join had sufficient time to make a decision 

about their health care. 

86% +/- 4.5% 

81.5% - 90.5% 

Beneficiaries who had another HMO available 

to join had sufficient time to make a decision 

about their health care. 

87% +/- 4.2% 

82.8% - 91.2% 

Beneficiaries who had no HMO available 

received adequate information about other 

health care coverage. 

63% +/- 6.2% 

56.8% - 69.2% 

Beneficiaries who had another HMO available 

received adequate information about other 

health care coverage. 

77% +/- 5.2% 

71.8% - 82.2% 

Beneficiaries who had no HMO available said 

they did not receive adequate information 

about other health care coverage. 

32% +/- 6.0% 

26% - 38% 

Beneficiaries who had another HMO available 

said they did not receive adequate information 

about other health care coverage. 

17% +/- 4.6% 

12.5% - 21.6% 

Beneficiaries who had no HMO available said 

they did not receive any information about 

other health care coverage. 

5% +/- 4.0% 

1% - 9% 

HMO Withdrawals 24 OEI-04-00-00390 
KEY FINDINGS POINT 

ESTIMATE 

95% 

CONFIDENCE 

INTERVALS AND 

BOUNDARIES 

Beneficiaries who had another HMO available 

said they did not receive any information 

about other health care coverage. 

6% +/- 4.4% 

1.6% - 10.4% 

Beneficiaries who had no HMO available said 

they received adequate information about 

supplemental insurance. 

78% +/- 5.4% 

72.6% - 83.4% 

Beneficiaries who had no HMO available said 

they did not receive adequate information 

about supplemental insurance. 

10% +/- 3.9% 

6.1% - 13.9% 

Beneficiaries who had no HMO available said 

they did not receive any information about 

supplemental insurance. 

7% +/- 3.3% 

3.7% - 10.3% 

Beneficiaries who had no HMO available said 

they did not need any information about 

supplemental insurance. 

5% +/- 2.8% 

2.2% - 7.8% 

Beneficiaries who went to another HMO did 

not have to pay a monthly HMO premium in 

the former HMO. 

65% +/- 6.8% 

58.2% - 71.8% 

Beneficiaries who went to traditional 

Medicare did not have to pay a monthly HMO 

premium in the former HMO. 

51% +/- 6.4% 

44.6% - 57.4% 

Beneficiaries who went to another HMO said 

their new HMO would cover fewer services 

than their former HMO. 

19% +/- 5.6% 

13.4% - 24.6% 

Beneficiaries who went to traditional 

Medicare said they would now have to pay for 

some services not covered by traditional 

Medicare. 

63% +/- 6.2 

56.8% - 69.2% 

Beneficiaries who went to another HMO said 

they did not know yet if they would have to 

pay for previously covered services. 

10% +/- 4.3% 

5.7% - 14.3% 

Beneficiaries who went to traditional 

Medicare said they did not know if they would 

have to pay for services previously provided 

by their former HMO. 

11% +/- 3.9% 

7.1% - 14.9% 

HMO Withdrawals 25 OEI-04-00-00390 
KEY FINDINGS POINT 

ESTIMATE 

95% 

CONFIDENCE 

INTERVALS AND 

BOUNDARIES 

Beneficiaries who went to traditional 

Medicare had supplemental insurance to cover 

expenses that traditional Medicare does not 

cover. 

75% +/- 5.2% 

69.8% - 80.2% 

Beneficiaries who went to another HMO said 

they were very concerned that the new HMO 

would withdraw from Medicare. 

24% +/- 6.1% 

17.9% - 30.1% 

Beneficiaries who went to another HMO said 

they were slightly concerned that the new 

HMO would withdraw from Medicare. 

36% +/- 6.8% 

29.2% - 42.8% 

Beneficiaries who went to another HMO said 

they were not concerned at all that the new 

HMO would withdraw from Medicare. 

40% +/- 7.0% 

33% - 47% 

Beneficiaries who went to traditional 

Medicare said the fact that HMOs can 

withdraw from Medicare would keep them 

from joining another HMO. 

32% +/- 5.6% 

26.4% - 37.6% 

Beneficiaries who went to traditional 

Medicare said the fact that HMOs can 

withdraw from Medicare would not keep 

them from joining another HMO. 

41% +/- 6.2% 

34.8% - 47.2% 

Beneficiaries who went to traditional 

Medicare said they did not know if the fact 

that HMOs can withdraw from Medicare 

would keep them from joining another HMO. 

27% +/- 5.5% 

21.5% - 32.5% 

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

Tricia Davis, Program Specialist

Scott Horning, Technical Support 

Brian Ritchie, Director, TSS

Barbara Tedesco, Statistician

OEI Regional Offices 

Region I 

Joyce Greenleaf 

Norman Han 

Russell Hereford 

Aimee Kasenga 

Nancy London 

Maria Maddaloni 

Laura McBride 

Nicola Pinson 

Ken Price 

Elizabeth Robboy 

Mark Yessian 

Region III 

Lauren McNulty

Stacey Uhl

Region IV

Peggy Daniel, Lead Analyst

Joe Townsel, Team Leader

Allison Grablowsky

Dwayne Grant

Rodney Holliman

Greg Jones

Janet Miller

Graham Rawsthorn

Seth Rosenblatt

Glen Thomas

Region V 

Ianna Kachoris 

Emily Melnick 

Joe Penkrot 

Stacy Thompson 

Region VI 

Jennifer Kahende 

Jeannette Oshitoye 

Scott Whitaker 

Region VII 

Zula Crutchfield 

Timothy Dold 

Tricia Fields 

Linda Paddock 

Elander Phillips 

Dennis Tharp 

Region IX 

Tom Purvis 

Office of Audit Services 

Region IV 

Yesenia Ramirez 

33