Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

FEBRUARY 2000 

OEI-02-99-00030 

Medicare + Choice HMO Extra Benefits 

Beneficiary Perspectives 
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 

Demetra Arapakos, Team Leader

Ellen Vinkey, Project Leader

Lucille Cop

Vincent Greiber

HEADQUARTERS 

Tricia Davis, Program Specialist 

Scott Horning, Technical Support 

Brian Ritchie, Technical Support 

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 
EXECUTIVE SUMMARY 

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 Medicarecovered 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 

Medicare + Choice HMO Extra Benefits 1 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 

Medicare + Choice HMO Extra Benefits 2 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 HCFA’s 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. 

Medicare + Choice HMO Extra Benefits 3 OEI-02-99-00030 
TABLE OF CONTENTS 

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

Medicare + Choice HMO Extra Benefits 4 OEI-02-99-00030 
INTRODUCTION 

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 . 

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 

HCFA’s 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 

1

“Medicare Managed Care: 1998 Marketing Materials” OEI-03-98-00271 and “Medicare 

Managed Care: Goals of National Marketing Guide” OEI-03-98-00270 

2

Medicare + Choice- New Standards Could Improve Accuracy and Usefulness of Plan 

Literature GAO/HEHS-99-92 

Medicare + Choice HMO Extra Benefits 5 OEI-02-99-00030 

1 
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 plan’s 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 

Medicare + Choice HMO Extra Benefits 6 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 highoption 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 

Medicare + Choice HMO Extra Benefits 7 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 HCFA’s 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. 

Medicare + Choice HMO Extra Benefits 8 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 HCFA’s 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 President’s Council on Integrity and Efficiency. 

Medicare + Choice HMO Extra Benefits 9 OEI-02-99-00030 
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 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 HMO’s 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 

Medicare + Choice HMO Extra Benefits 10 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 

plan’s 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. 

3

Eye exams and eye glasses 

Medicare + Choice HMO Extra Benefits 11 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. 

Medicare + Choice HMO Extra Benefits 12 OEI-02-99-00030 
Table 1 

HMO Enrollee Understanding of Extra Benefit Coverage 

Benefit Accurately 

Enrollees Who 

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 

Medicare + Choice HMO Extra Benefits 13 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. 

Medicare + Choice HMO Extra Benefits 14 OEI-02-99-00030 
RECOMMENDATION 

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 HCFA’s 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. 

Medicare + Choice HMO Extra Benefits 15 OEI-02-99-00030 
APPENDIX 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. 

Medicare + Choice HMO Extra Benefits 16 OEI-02-99-00030 
APPENDIX B 

CONFIDENCE INTERVALS FOR KEY FINDINGS

KEY FINDINGS POINT 

ESTIMATE 

CONFIDENCE 

INTERVAL 

HMO enrollees report that lower costs are the most 

important reason they decided to join their HMO. 

71% + 4.5 

Recent enrollees indicate that drug coverage was the 

single most important reason they chose their HMO. 

30% + 5.0 

Enrollees say prescription drugs are one of the three 

extra benefits they value the most. 

87% + 3.4 

Enrollees say regular physicals are one of the three 

extra benefits they value the most. 

70% + 4.5 

Enrollees say vision benefits are one of the three extra 

benefits they value the most. 

68% + 4.6 

Recent enrollees’ answers matched Medicare data 

with regard to coverage for regular physicals. 

89% + 3.2 

Enrollees have a less accurate understanding about 

prescription drug coverage. 

80% + 4.2 

Enrollees have a less accurate understanding about 

eye exam coverage. 

75% + 4.4 

Enrollees have a less accurate understanding about 

eye glass coverage. 

14% + 3.6 

Some sample plan materials did not indicate whether 

or not the plan provides prescription drug coverage. 

8% + 4.0 

Medicare + Choice HMO Extra Benefits 17 OEI-02-99-00030 
APPENDIX 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 beneficiary’s 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 nonrespondents 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 

Medicare + Choice HMO Extra Benefits 18 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 NonRespondents Total Percent 

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 

Medicare + Choice HMO Extra Benefits 19 OEI-02-99-00030 
Table C-2

HMO SIZE (Strata)

Respondents NonRespondents Total Percent 

Small 

(>20,000 enrollees) 

145 (33%) 55 (35%) 200 73% 

Medium 

(20,000-50,0000) 

141 (32%) 59 (37%) 200 71% 

Large 

(<50,000) 

155 (35%) 45 (28%) 200 78% 

Total 441 159 600 74% 

Chi-Square=2.670 

Degrees of Freedom = 2 

Table C-3 

RACE 

Respondents Nonrespondents Total Percent 

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 

Medicare + Choice HMO Extra Benefits 20 OEI-02-99-00030 
APPENDIX D 

AGENCY COMMENTS 

We provided the agency with a working draft copy of this report and we did not receive 

comments. 

Medicare + Choice HMO Extra Benefits 21 OEI-02-99-00030 
Medicare + Choice HMO Extra Benefits 22 OEI-02-99-00030 
Medicare + Choice HMO Extra Benefits A - 1 1OEI-02-99-00030