GAO

United States General Accounting Office

Report to Congressional Requesters

September 2000 MEDICARE+CHOICE

Plan Withdrawals

Indicate Difficulty of

Providing Choice

While Achieving

Savings

GAO/HEHS-00-183

Page 1 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Contents

Letter 3

Appendixes Appendix I: Scope, Methodology, and Data Sources 44

Appendix II: Plans Withdrawing From Medicare+Choice,

January 2000 47

Appendix III: Plans Withdrawing From Medicare+Choice,

January 2001 51

Appendix IV: Comments From the Health Care Financing

Administration 56

Appendix V: Comments From the American Association of

Health Plans 57

Appendix VI: Comments From the BlueCross BlueShield

Association 61

Appendix VII: Comments From the Health Insurance Association

of America 64

Tables Table 1: Medicare Managed Care Enrollment and Geographic

Impact of the 2000 Withdrawals 13

Table 2: Largest Withdrawing Medicare+Choice Plans, January 2000 14

Table 3: Largest Withdrawing Medicare+Choice Plans, January 2001 15

Table 4: Key Characteristics of Plans That Terminated Their

Medicare Contracts in 2000 and 2001 21

Table 5: Average Annual Amount Spent per Enrollee on

Non-Medicare Benefits, 1999 and 2000 34

Table 6: Counties With Medicare+Choice Plans in July 1999

Affected by 2000 Withdrawals, by Year 2000 Payment Rates 36

Table 7: Counties With Medicare+Choice Plans in March 2000

Affected by 2001 Withdrawals, by Year 2001 Payment Rates 36

Table 8: Counties With Medicare Plans in July 1999 Affected by

Withdrawals, by Percentage Increase in 2000 Payment Rates 38

Figures Figure 1: Proportion of Medicare+Choice and Affected Enrollees

in Rural, Fringe/Small Urban, and Large Urban Areas 12

Figure 2: Areas Where Sterling Option I Is Available, 2000 17

Figure 3: Plan Participation in Medicare and FEHBP, 1994-2000 19

Figure 4: Humana's Participation in Texas, 1986-2001 24

Figure 5: Plan Participation in Maryland, 1986-2001 28
Contents

Page 2 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Figure 6: Cumulative Increase in Average Medicare+Choice

County Rates and per Capita FFS Spending, 1997-2001 31

Abbreviations

AAHP American Association of Health Plans

BBA Balanced Budget Act of 1997

BBRA Balanced Budget Refinement Act of 1999

BCBSA BlueCross BlueShield Association

CBO Congressional Budget Office

ESRD end-stage renal disease

FEHBP Federal Employees Health Benefits Program

FFS fee-for-service

GME graduate medical education

HCFA Health Care Financing Administration

HHS Department of Health and Human Services

HIAA Health Insurance Association of America

HMO health maintenance organization

OIG Office of Inspector General
Page 3 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

United States General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-293906 Letr

September 7, 2000

Congressional Requesters

Through most of the 1990s, enrollment in Medicare managed care plans

grew rapidly.1 The number of beneficiaries enrolled in these plans

increased from almost 2 million in 1993 to over 6 million in 1998 (16 percent

of all Medicare beneficiaries), and the number of participating plans more

than tripled. Many beneficiaries were attracted to managed care plans

because they typically offered services not covered under Medicare's

traditional fee-for-service (FFS) program—such as routine physical

examinations and outpatient prescription drugs—and because members

generally paid less out of pocket than they would in FFS. However, many

areas of the country were not served by these plans. About 30 percent of

the nation's 39 million Medicare beneficiaries—particularly those living in

rural areas—had no alternative to the FFS program. A second problem was

that Medicare was not realizing the expected savings from managed care. A

number of studies by GAO, other government agencies, and researchers

had concluded that plan payments were not adequately adjusted to reflect

the fact that plans tended to attract beneficiaries with lower-than-average

health costs.

In the Balanced Budget Act of 1997 (BBA), the Congress sought to address

some of these concerns by creating the Medicare+Choice program. To

expand Medicare beneficiaries' health plan options, the BBA included

payment and other changes to encourage the wider availability of health

maintenance organizations and permitted other types of health plans, such

as preferred provider organizations, to participate. Medicare+Choice was

also expected to improve Medicare's financial posture by better controlling

spending. Accordingly, the BBA contained provisions to temporarily slow

the growth of plan payment rates relative to FFS spending and required

1

Prior to 1998, Medicare managed care plans that were paid a fixed amount per enrollee

were known as risk plans. Other types of Medicare plans included cost contract and health

care prepayment plans, which differed substantially from risk plans both in how they

operated and how Medicare paid them. Nonrisk plans are being phased out. Risk plans,

along with new types of plans authorized by the Balanced Budget Act of 1997, are now

known as Medicare+Choice plans. When we refer to a “plan” in this report, we mean either a

risk plan or a Medicare+Choice plan.
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that future payments better reflect the expected health care utilization of

Medicare beneficiaries enrolled in plans.

Following the implementation of Medicare+Choice, nearly 100 plans either

terminated their contracts and fully withdrew from the program or partially

withdrew by reducing the geographic areas they served for the 1999

contract year. We previously reported that these plans tended to be recent

market entrants, had low enrollment, or faced competition from larger

plans, and that the withdrawals may have largely resulted from competitive

market forces.2 Since then, more plans have either withdrawn for the 2000

contract year or announced that they will withdraw for the 2001 contract

year. Because of your continuing interest in the Medicare+Choice program,

you asked us to (1) determine the geographic distribution and the

distribution among plans of enrollees affected by the recent plan

withdrawals, (2) identify the factors associated with plans that terminated

or reduced their participation in the program, and (3) examine the likely

role of payment rates in affecting plans' decisions. (Requesters are listed at

the end of this letter.) To answer these questions, we analyzed enrollment

and plan participation data from the Health Care Financing Administration

(HCFA) and synthesized findings from our previous reports. Appendix I

presents the details of our methodology. Our work was done from August

1999 to September 2000 in accordance with generally accepted government

auditing standards.

Results in Brief Of 309 plans serving Medicare beneficiaries at the end of 1999, 99 plans

terminated their contracts or reduced the number of counties they served

for the 2000 contract year, and 118 have announced they will terminate

their contracts or reduce service areas for the 2001 contract year. These

withdrawals affected about 328,000 enrollees in 2000 and will affect almost

1 million enrollees in 2001. The number of enrollees affected accounts for

about 5 percent of Medicare+Choice enrollees in 2000 and about 15 percent

in 2001. A disproportionate number of affected enrollees live outside of

major urban areas. A portion of these enrollees, approximately 79,000 in

2000 and 159,000 in 2001, will have no other Medicare managed care option

available in their area and must either switch to a non-managed care

option, if one is available in their area, or return to traditional FFS

Medicare. These withdrawals can mean higher out-of-pocket costs and be

2

Medicare Managed Care Plans: Many Factors Contribute to Recent Withdrawals; Plan

Interest Continues (GAO/HEHS-99-91, Apr. 27, 1999).
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Page 5 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

disruptive for those beneficiaries who lose access to relatively inexpensive

prescription drug benefits or must switch health care providers. While a

new private FFS plan has begun to offer services in many of the affected

areas as an alternative to the traditional public FFS HCFA manages, it does

not offer a prescription drug benefit.

Some factors are common to plan withdrawals occurring in 2000 and 2001,

but there are some differences. In January 2000, Medicare+Choice plans

tended to withdraw from more difficult to serve rural counties or large

urban areas that they had entered more recently or where they failed to

attract sufficient enrollment. In 2001, the trend is essentially the same for

the service area reductions but somewhat different for the contract

terminations, which involve some older, more established plans. The

pattern of Medicare+Choice withdrawals shares common elements with

plan participation in the similarly choice-based health insurance program

for federal employees. That program also experienced a period of rapid

expansion between 1994 and 1997 followed by the withdrawal of newer,

relatively small plans. In both 2000 and 2001, other factors, such as

problems contracting with health care providers, may also have

contributed to the Medicare plan withdrawals.

Industry representatives contend that the BBA's payment rate changes

were too severe and that low Medicare payment rates are largely

responsible for the plan withdrawals. However, since the BBA was enacted,

Medicare+Choice payment rates have risen faster than per capita FFS

spending. In addition, many plans have attracted beneficiaries who have

lower-than-average expected health care costs, while Medicare+Choice

payments are largely based on the expected cost of beneficiaries with

average health care needs. The result is that Medicare can pay more for a

beneficiary who enrolls in a plan than if the beneficiary had remained in

FFS. As we recently reported, these additional payments amounted to $5.2

billion, or 21 percent, more in 1998 than the FFS program would have spent

to provide Medicare-covered benefits to plans' enrollees.3 Similarly, many

of the withdrawing plans reported that Medicare's payment rates

substantially exceeded their own estimated costs (including allowed

profits) of providing Medicare-covered benefits. On average, plans that

terminated their contracts in 2000 or 2001 reported spending 22 percent of

their Medicare payments, or about $1,200 per beneficiary, on benefits that

3

Medicare+Choice: Payments Exceed Cost of Benefits in Fee-for-Service, Adding Billions to

Spending (GAO/HEHS-00-161, Aug. 23, 2000).
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Page 6 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

are not available in the FFS program—such as routine physical

examinations or prescription drugs.

Although industry representatives have called for Medicare+Choice

payment rate increases, it is unclear whether increases would affect plans'

participation decisions. In 2000, 7 percent of the counties with a

Medicare+Choice plan in 1999 received a payment rate increase of 10

percent or more. Nonetheless, nearly 40 percent of these counties

experienced a plan withdrawal. This suggests that the magnitude of rate

increases needed to make participating in Medicare a sufficiently attractive

business option for some plans may not be reasonable in light of

countervailing pressures to make the Medicare program financially

sustainable for the long term.

Background As of July 2000, about 6.2 million people—or approximately 16 percent of

Medicare's 39 million beneficiaries—were enrolled in Medicare+Choice

plans. These plans receive a fixed monthly payment for each beneficiary,

regardless of what an individual enrollee's care actually costs. Higher costs

reduce a plan's profits or result in losses, while lower costs can enable it to

offer additional benefits that help it to retain existing enrollees and attract

new enrollees. Because managed care plans have a financial incentive to

provide care efficiently, policymakers have long looked to them to curb

unnecessary spending and produce savings for Medicare. Among BBA's

major reforms to contain Medicare spending was the creation of

Medicare+Choice, which was also designed to increase the plan options

available to Medicare beneficiaries.
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Medicare Managed Care

Before the BBA

Before the BBA, numerous studies by us, the Physician Payment Review

Commission—which has been incorporated into the Medicare Payment

Advisory Commission—HCFA, and others demonstrated that the Medicare

program spent hundreds of millions more on beneficiaries enrolled in

health plans than it would have spent if the same individuals had remained

in traditional FFS Medicare.4 This occurred because Medicare payments

were based on the estimated cost of FFS beneficiaries with average health

and were not adequately adjusted to reflect the fact that plans tended to

enroll beneficiaries in better-than-average health who had lower health

care costs—a phenomenon known as favorable selection.

Before 1998, base payment rates to plans in each county were set at 95

percent of the estimated FFS cost of the average beneficiary. The wide

variation in local FFS expenditures, caused by local differences in both the

prices of medical services and in beneficiaries' use of services, led to

corresponding variation in these base rates. This variation may have

accounted for some of the unevenness in plan availability across the

country. Other factors, such as the higher concentration of Medicare

beneficiaries, may have prompted plans to serve primarily urban areas.

Beneficiaries in most rural areas lacked access to plans.

BBA Changes to Medicare

Managed Care

Beginning in 1998, the BBA substantially changed the method used to set

plan payment rates. The new method involves paying the highest of three

alternative rates: a minimum amount, or “floor”; a minimum increase over

the previous year's payment rate; or a blend of historical FFS spending in a

county and national average costs adjusted for local price levels. Some of

the new payment provisions were designed to reduce excess payments,

while others were designed for different purposes—such as increasing plan

participation in geographic areas that had low payment rates.

The BBA aims to reduce the excess in Medicare's health plan payments

primarily by holding down per capita payment increases for 5 years and by

mandating a new health-based risk adjustment system. In January 2000,

4

Our studies include Medicare Plans: HCFA Can Promptly Eliminate Hundreds of Millions in

Excess Payments (GAO/HEHS-97-16, Apr. 25, 1997). Other studies include G. Riley, C. Tudor,

Y. Chiang, and M. Ingber, “Health Status of Medicare Enrollees in HMOs and Fee-for-Service

in 1994,” Health Care Financing Review, Vol. 17, No. 4 (Summer 1996), pp. 65-76 and

Physician Payment Review Commission, “Risk Selection and Risk Adjustment in Medicare,”

Annual Report to Congress, ch. 15 (Washington, D.C.: Physician Payment Review

Commission, 1996).
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Page 8 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

HCFA implemented a method for adjusting plan payments based on

beneficiary health status, as required by the BBA. The new method, to be

phased in over time, will pay plans more for serving Medicare beneficiaries

with serious health problems and less for serving relatively healthy ones.

The BBA also contains provisions to gradually remove graduate medical

education (GME) payments from plan payments and provide for teaching

hospitals to receive these payments directly from Medicare.5 Because GME

spending is concentrated in high-payment-rate counties, its removal is

expected to slow payment rate growth more in those areas.

Another BBA objective is to reduce the geographic disparity in payment

rates. A methodological approach known as “blending” will, over time,

move all rates closer to the national average by providing for larger

payment increases in low-rate counties and smaller payment increases in

high-rate counties. In addition, the BBA established a minimum payment

rate, known as a “floor,” to encourage plans to offer services in areas that

historically had low payment rates and few participating plans—primarily

rural counties. The BBA also eliminated the requirement that no more than

50 percent of a plan's enrollment may consist of Medicare and Medicaid

beneficiaries. This means that Medicare plans can now serve areas without

first building a commercial base.

Medicare+Choice Plan

Participation in 1999

In 1999, 45 of the 346 plans that participated in 1998 terminated their

Medicare contracts and 54 others reduced the number of counties they

served. These withdrawal decisions affected about 407,000 enrollees (7

percent of the managed care population) who had to choose a new plan (if

one was available in their county) or switch to FFS. About 61,000 of these

enrollees, or 1 percent of the total Medicare managed care population, lived

in counties in which no other plan was offered. Even if another plan was

available, the approximately 450 beneficiaries affected by the withdrawals

who had end-stage renal disease (ESRD) had to return to FFS.6 Medicare

5

Medicare FFS payments include payments to teaching hospitals for Medicare's share of the

costs of providing GME, such as resident and faculty salaries and overhead costs related to

teaching activities.

6

ESRD is the stage of kidney impairment that is considered irreversible and requires either

regular dialysis treatments or a kidney transplant to maintain life. It is an uncommon but

expensive disease.
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prohibits beneficiaries with ESRD from joining a health plan, although they

may stay in one if they develop the disease while enrolled.

Plan withdrawals can be disruptive and costly for affected beneficiaries.

Although many affected beneficiaries can enroll in another plan, this option

may require them to switch health care providers and accept different

benefit coverage. Those who return to FFS may be able to retain their

providers, but typically face out-of-pocket costs that are higher than they

incurred as managed care enrollees. For example, most plan enrollees

receive some coverage for outpatient prescription drugs, a benefit not

offered in the FFS program. Although the BBA guarantees beneficiaries

affected by plan withdrawals the right to purchase certain supplemental

insurance policies (known as Medigap), none of the guaranteed policies

cover prescription drugs.

Officials from organizations representing plans reported that the BBA

changes to the payment rates and the increased administrative burden of

the new regulations were largely responsible for the plan withdrawals.

According to the officials, Medicare payment rate increases did not keep

pace with plans' costs or medical inflation.

Our analysis indicated that a combination of market factors may have

influenced plans' participation decisions. Plans more frequently withdrew

from counties they had entered more recently, where they had attracted

fewer enrollees, or where they faced larger competitors. Some plans

indicated that they withdrew from areas where they were unsuccessful in

establishing sufficient provider networks. The effect of Medicare's

payment rates on withdrawals was much less obvious. For example, about

90 percent of high-payment-rate counties experienced a plan withdrawal

compared with only 34 percent of low-payment counties. Taken as a whole,

these findings suggested that a portion of the withdrawals may have been

the result of plans that were less able to compete effectively in certain

areas.

Post-BBA Legislative

Changes

In November 1999, the Congress passed the Balanced Budget Refinement

Act of 1999 (BBRA). The BBRA contains provisions designed to encourage

plan participation in Medicare+Choice. Among other changes, the BBRA

provides a new entry bonus to plans that begin serving currently unserved

areas. It also increases plans' flexibility to vary benefits within a geographic

area and reduces some administrative requirements. In addition, the act

slows the phase-in of the new risk adjustment methodology, reducing the
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short-term effect of the new methodology on plan payments. The BBRA

also reduces the length of time that a plan has to wait to reenter the

program after terminating its Medicare contract. The effect of these

provisions on future plan participation is uncertain.

Withdrawals

Widespread but

Disproportionately

Affect Rural and

Smaller Urban Areas

In 2000, 41 of 309 participating plans terminated their Medicare+Choice

contracts and another 58 plans reduced the number of counties they serve.

This pattern will continue in 2001, when 65 of 261 plans currently

participating in Medicare+Choice have announced they will terminate and

another 53 plans will change their service areas. Combined, these plan

withdrawals directly affect about 1.3 million Medicare+Choice enrollees.

The 2001 withdrawals affect a much larger percentage of enrollees,

approximately 15 percent, compared with the 2000 withdrawals that

affected about 5 percent of all enrollees. All affected enrollees have to

choose a new plan (if a plan accepting new enrollees is available in their

county) or switch to FFS. By 2001, almost 75 percent of the counties that

had a Medicare+Choice plan in 1999 will have been affected.7 About

238,000, or approximately 19 percent, of the affected enrollees live in

counties in which no other managed care plan is being offered. Some of

these beneficiaries may have the option of enrolling in a new private FFS

plan, but the remainder will have no alternative to the traditional FFS

program. The 1,940 beneficiaries in withdrawing plans who have ESRD

must return to FFS.

Plan withdrawals in both years disproportionately affect beneficiaries

living in small urban, fringe, and rural counties.8 In 2000, approximately 65

percent of the 328,000 beneficiaries affected by the withdrawals lived in

one of these types of counties even though these areas accounted for less

than 33 percent of Medicare's managed care enrollees. (See fig. 1.) In

contrast, the effects of the 2001 withdrawals will be more widespread and

more representative of the distribution of Medicare+Choice enrollees. In

both years, beneficiaries living in less densely populated areas were also

likelier to be left only with the FFS alternative compared to affected

beneficiaries in major urban areas. (See table 1.)

7

Of the approximately 3,100 counties in the United States, about 28 percent had a plan in

1999. In total, 644 counties are affected by the 2000 and 2001 withdrawals.

8

Small urban counties are defined as those counties located in urban areas with populations

under 1 million. Fringe counties are nonurban counties adjacent to metropolitan areas.
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A small number of plans accounted for a substantial portion of the affected

enrollees in both years—the 10 largest withdrawing plans accounting for 45

percent in 2000 and 37 percent in 2001. (See tables 2 and 3.) Whereas the

largest plans that withdrew in 2000 were concentrated in small urban,

fringe, and rural counties, the largest withdrawing plans in 2001 are more

uniformly distributed among these and major urban areas. Also, the

withdrawing plans in 2001 tend to have significantly larger enrollments

than the withdrawing plans in 2000.
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Figure 1: Proportion of Medicare+Choice and Affected Enrollees in Rural,

Fringe/Small Urban, and Large Urban Areas

Note: Approximately 8,400 of the affected enrollees for 2001 live outside of the withdrawing plans'

service areas. These enrollees are excluded from this analysis.

Source: Medicare Compare Database, 1999 and 2000; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999 and Mar. 2000, www.hcfa.gov/medicare/; Bureau of Health

Professions, Area Resource File, Feb. 1999; and files of contract terminations and service area

reductions from the Center for Health Plans and Providers at HCFA.

2000 Affected Enrollees

Total = 328,000

Medicare+Choice Enrollment

Total = 6,191,000

2001 Affected Enrollees

Total = 925,000

219,000

69,000

1,774,000

4,198,000

42,000

169,000

117,000

493,000 363,000

Rural

Small Urban/Fringe

Major Urban
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Table 1: Medicare Managed Care Enrollment and Geographic Impact of the 2000

Withdrawals

Note: Approximately 8,400 of the affected enrollees for 2001 live outside of the withdrawing plans'

service areas. These enrollees are excluded from this analysis.

Source: Medicare Compare Database, 1999 and 2000; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999 and Mar. 2000, www.hcfa.gov/medicare/; Bureau of Health

Professions, Area Resource File, Feb. 1999; and files of contract terminations and service area

reductions from the Center for Health Plans and Providers at HCFA.

Rural

counties

Small

urban/

fringe

counties

Major

urban

areas Nationwide

1999

Medicare+Choice enrollment 219,000 1,774,000 4,198,000 6,191,000

Percentage of total 3.5 28.7 67.8 100

2000

Enrollees affected by withdrawals 42,000 169,000 117,000 328,000

Percentage of total 12.7 51.7 35.6 100

Affected enrollees with no other

managed care option 30,000 35,000 14,000 79,000

Percentage of total 37.5 44.7 17.8 100

2001

Enrollees affected by withdrawals 69,000 363,000 493,000 925,000

Percentage of total 7.5 39.2 53.3 100

Affected enrollees with no other

managed care option 44,000 93,000 22,000 159,000

Percentage of total 27.5 58.6 13.9 100
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Table 2: Largest Withdrawing Medicare+Choice Plans, January 2000

a

Plan remained in Medicare but reduced the number of counties served.

Sources: Medicare Compare Database, 1999; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999, www.hcfa.gov/medicare/; and files of contract terminations

and service area reductions from the Center for Health Plans and Providers at HCFA.

Plan name

Number of

enrollees affected

Percentage of

affected enrollees

in rural, fringe, or

small urban

counties

Humana HP of Texasa 23,500 39

Ochsner Health Plana (La.) 17,000 100

United Health Care of Louisiana 17,000 64

Florida Health Choice, Inc. 14,700 88

Free State Health Plana (Md.) 14,700 100

Blue Cross/Shield of Arizona 14,500 28

Optima Health Plan (Va.) 13,800 2

Healthsource New Hampshire 13,400 100

Capital Area Community HP (N.Y.) 9,700 100

Humana Health Plan, Inc. (Nev.) 9,500 100

Affected enrollees in 10 plans 147,800 69

Affected enrollees in 89 other withdrawing

plans 180,200 61
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Table 3: Largest Withdrawing Medicare+Choice Plans, January 2001

Note: Approximately 8,400 of the affected enrollees for 2001 live outside of the withdrawing plans'

service areas. These enrollees are excluded from this analysis.

a

Plan will remain in Medicare but reduce the number of counties served.

Sources: Medicare Compare Database, 2000; Medicare Managed Care Market Penetration

State/County/Plan Data Files, Mar. 2000, www.hcfa.gov/medicare/; and files of contract terminations

and service area reductions from the Center for Health Plans and Providers at HCFA.

Plan name

Total number of

enrollees affected

Percent of affected

enrollees in rural,

fringe, or small

urban counties

NYLCare Health Plans (Tex.) 71,600 42

NYLCare Health Plans (Tex.) 56,200 21

Aetna U.S. Healthcare (N.Y.)a 34,900 22

Free State Health Plan (Md.) 31,400 0

HMO of Northeastern PA 30,700 100

Aetna U.S. Healthcare (Ohio) 27,800 30

Humana Medical Plan (Fla.)a 25,600 64

Anthem Health Plans (Conn.) 23,500 50

Humana HP of Texasa 20,500 12

Aetna U.S. Healthcare (Pa.)a 18,100 100

Affected enrollees in 10 plans 340,300 40

Affected enrollees in 108 other

withdrawing plans 585,000 50
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Although some plans continue to submit applications to enter the

Medicare+Choice program or expand their service areas, the volume of

applications has decreased from 30 in 1999 to 10 in 2000. HCFA has already

approved many of the applications submitted since July 1998, including one

for a private FFS plan called Sterling Option I that initially will serve 1,221

counties in 17 states.9 The new plan's service area encompasses 940

counties, including many rural counties, previously not served by a

Medicare+Choice plan. Since the initial offering, Sterling has added 8 more

states to its service area.10 (See fig. 2.) Beneficiaries who enroll in Sterling

will pay a $55 monthly premium (in addition to the Medicare part B

premium) in exchange for reduced out-of-pocket costs for many services

and extended coverage for hospitalizations, among other benefits.

However, Sterling Option I does not offer prescription drug coverage.

9

A private FFS plan is an insurance plan under contract to HCFA that pays providers for

each covered service they deliver and allows enrollees to obtain health care services from

any provider willing to accept the plan's payments (which are based on the Medicare FFS

payment schedule). Medicare pays the plan a fixed amount per enrollee. The plan may

collect a monthly premium from enrollees and require cost-sharing.

10As of Sept. 1, 2000, fewer than half of the enrollees affected by recent plan withdrawals

will have this option available in their areas.
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Figure 2: Areas Where Sterling Option I Is Available, 2000

Source: HCFA press release, May 2000.
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Page 18 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Many Recent Market

Entrants With

Relatively Low

Enrollment Withdrew

in 2000; This Pattern

Less Evident in 2001

Plan participation in Medicare managed care increased rapidly after 1993,

peaked in 1998, and began declining in 1999. This experience is not unique

to Medicare and, in fact, closely tracks plan participation in the Federal

Employees Health Benefits Program (FEHBP), another large program

offering multiple health plan choices. The withdrawals in 2000 followed a

pattern that is similar to the pattern of withdrawals in FEHBP, as well as

the pattern we found in our prior analysis of the 1999 Medicare plan

withdrawals.11 Nearly all of the plans that terminated their Medicare

contracts for 2000 or reduced their service areas were relatively new

entrants in their respective markets, had attracted few beneficiaries, or had

only a small share of the local Medicare managed care market. The plan

withdrawals for 2001 deviate somewhat from this pattern in that some

older, more established plans are terminating. However, the service area

reductions in 2000 and 2001 are consistent with the 1999 pattern of

withdrawals. In both years, other factors—such as plans' inability to

establish sufficient provider networks—are often evident.

Several Years of Rapid

Program Expansion

Preceded Recent Plan

Withdrawals From Medicare

and FEHBP

Between 1993 and 1998, the Medicare managed care program grew rapidly

and the number of plans more than tripled—from about 110 plans to 350

plans.12 Since 1998, however, 151 plans have terminated their Medicare

contracts or announced that they will, and few new plans have joined the

program. Despite the drop in plan participation, enrollment has continued

to increase—although at a slower pace—with the result that the total

number of Medicare managed care enrollees has remained approximately

the same or even increased slightly over the past 2 years. However, the

substantial decline in plan participation next year may cause total

enrollment to fall.

FEHBP experienced a similar rapid rise in the number of participating

plans followed by a decline.13 (See fig. 3.) Between 1994 and 1997, the

11Medicare Managed Care Plans: Many Factors Contribute to Recent Withdrawals; Plan

Interest Continues (GAO/HEHS-99-91, Apr. 27, 1999).

12Plan participation in Medicare has grown substantially, but not consistently, since the risk

contract program began in 1985. There was a rapid increase in the number of participating

plans between 1985 and 1987, from about 100 to 165. By 1991, the number of plans had fallen

to 93.

13Federal Employees Health Program: Reasons Health Maintenance Organizations Withdrew

in 1999 and 2000 (GAO/GGD-00-100, May 2, 2000).
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Page 19 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

number of plans participating in FEHBP increased from 369 to 470. Since

then, the number of FEHBP plans has declined steadily and may fall to

approximately 240 next year. This roughly 50 percent decline in the number

of FEHBP plans is similar to the approximately 57 percent decline

experienced in Medicare over the same period. However, the percentage of

FEHBP enrollees affected is substantially smaller than the percentage of

Medicare+Choice enrollees affected. In 2001, for example, FEHBP plan

withdrawals are expected to affect about 1 percent of enrollees, compared

to Medicare+Choice withdrawals affecting 15 percent of enrollees.

Figure 3: Plan Participation in Medicare and FEHBP, 1994-2000

Source: GAO analysis of HCFA and Office of Personnel Management data.

0

50

100

150

200

250

300

350

400

450

500

1994 1995 1996 1997 1998 1999 2000

FEHBP

Medicare

Number of Participating HMOs
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Page 20 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

At the same time new plans were joining the Medicare program, many

existing plans expanded their geographic service areas. Some plans

entered previously unserved rural counties while others entered urban

counties with one or more existing Medicare plans. As a result, the

percentage of rural beneficiaries with access to Medicare managed care

increased from about 10 percent in 1993 to over 31 percent in 1998.

Because of recent plan withdrawals, however, the percentage of

beneficiaries in rural areas with access to a Medicare managed care plan

has fallen to about 21 percent in 2000.

Urban beneficiaries, nearly all of whom already had access to at least one

plan in 1993, had a wider choice of plan options. In recent years, however,

even large urban areas have seen a decline in plan participation. The

percentage of beneficiaries living in large urban areas with access to at

least one plan has declined from 99 percent in 1999 to 97 percent in 2000

and is expected to fall again in 2001.

In 2000, Most Terminating

Plans Were Recent Entrants

With Relatively Low

Enrollments; Pattern Less

Evident in 2001

The vast majority of Medicare+Choice plans that terminated their Medicare

contracts in 2000, as opposed to reducing the number of counties they

served, were recent entrants into urban areas that already had substantial

plan participation. Many terminating plans had few beneficiaries or a

relatively small share of the local Medicare managed care enrollment.

These factors are the same ones that were associated with the 1999

withdrawals. In 2000, 38 of the 41 terminating plans were either recent

entrants, had attracted fewer than 200 enrollees, or had less than a 15

percent share of the local Medicare plan market in each of the counties

they served.14 (See table 4.) Plans that terminated their participation in

FEHBP had similar characteristics: 42 percent of the terminating plans had

fewer than 300 enrollees and many of those were recent entrants.

14We define a plan's market share as its percentage of total Medicare+Choice enrollment in

an area.
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Page 21 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

The pattern of plan withdrawals is different in 2001 in that some older,

larger, and more established plans are also terminating their Medicare

contracts. For example, almost 43 percent of terminating plans entered the

market before 1996 and 29 percent had total plan enrollments that

exceeded 10,000 enrollees.

Table 4: Key Characteristics of Plans That Terminated Their Medicare Contracts in

2000 and 2001

a

Medicare+Choice plans as of July 1999.

b

Medicare+Choice plans as of Mar. 2000.

Sources: Medicare Compare Database, 1999 and 2000; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999 and Mar. 2000, www.hcfa.gov/medicare/; and files of contract

terminations and service area reductions for 2000 and 2001 from the Center for Health Plans and

Providers at HCFA.

Key characteristics

Number of plans

Participating

in July 1999

Terminated

in 2000

Participating

in March 2000

Terminating in

2001

Year of entry

Before 1996 160 8 (20%) 136 28 (43%)

In 1996/97 84 15 (37%) 57 24 (37%)

Since 1998 55 18 (44%) 39 13 (20%)

Enrollment

Fewer than 1,000

enrollees 27 11 (27%) 13 3 (5%)

Between 1,000 and

10,000 enrollees 136 25 (61%) 102 43 (66%)

More than 10,000

enrollees 136 5 (12%) 117 19 (29%)

Market share

Less than 15% 82 22 (54%) 52 21 (32%)

More than 15% 217 19 (46%) 180 44 (68%)

Total 299a 41 232b 65
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Page 22 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Plans That Reduced Their

Service Areas Dropped

Recently Entered and

Relatively Low-Enrollment

Counties in 2000 and 2001

Although the patterns of contract terminations in 2000 and 2001 appear to

be somewhat different, the patterns of service area reductions in the 2

years are similar. In both years, plans that withdrew from only a portion of

the counties they served tended to pull out of counties that they had more

recently entered or where they had relatively low enrollment. In the

majority of cases—92 percent in 2000 and 79 percent in 2001—plans

withdrew from counties where they had recently entered, where they

enrolled fewer than 200 beneficiaries, or where they enrolled fewer than 15

percent of the Medicare managed care enrollees. This pattern was more

pronounced in 2000 than in 2001, but the 2001 service area reductions still

follow the same general trend. In some cases, plans consolidated into one

or more core areas where they were most strongly established.

Service area reductions have been more concentrated in rural areas.

Despite the floor payment rates, enacted in BBA, which make payments to

plans considerably higher than FFS costs in many rural counties, the

challenge of providing managed care in rural areas may be a significant

contributing factor. The sparseness of both beneficiaries and providers

may present difficulties for plans. Without sufficient beneficiary

populations, plans say they cannot enroll enough individuals to spread risk

and cover fixed operating costs.15 In addition, plans may have difficulty

obtaining discounts and negotiating contracts with physicians and

hospitals when an area has few competing providers.

Humana Health Plan of

Texas Provides One

Example of Plans'

Consolidation Behavior

Humana Health Plan of Texas, the plan with the single largest number of

affected enrollees in 2000, illustrates the consolidation behavior exhibited

by a number of the plans that reduced their service areas. Humana started

serving Medicare beneficiaries in areas around Corpus Christi, Texas, in

1986 and added San Antonio in 1988. It more recently expanded its service

area by adding a total of 23 counties in 1995, 1997, and 1999. (See fig. 4.) In

2000, the plan withdrew from 16 of the counties, both urban and rural, it

entered in 1997 and 1999, as well as a few it entered in 1995. The plan

remained in the central counties encompassing San Antonio and Houston,

both urban areas where the plan had by far its largest concentration of

enrollment, and the Corpus Christi area. Humana remained in San Antonio

despite the fact that the county's monthly payment rate for 2000 was, on

15Because plans are paid a fixed amount per enrollee, they rely on a large enrollment

population to spread the costs of the relatively few very costly enrollees.
B-293906

Page 23 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

average, $26 lower than payments in the four urban counties it dropped.

The 10 counties it retained in 2000 accounted for 70 percent of its Medicare

managed care enrollees in Texas.

In 2001, Humana will consolidate even further, serving only the San

Antonio and Corpus Christi areas. This time, the 2001 monthly payment

rate in San Antonio is, on average, $147 lower than the six counties the plan

is dropping. Humana recently stated that it incurred pre-tax losses

exceeding $26 million during 1999 in the counties it will leave in 2001.

However, only a fraction of these losses may be due to providing Medicare

covered benefits. The plan is currently offering, at no additional charge, an

unlimited generic prescription drug benefit and a brand name benefit up to

$1,400 per year, in addition to some coverage for physical exams and vision

services, to the beneficiaries in these Texas counties.
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Page 24 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Figure 4: Humana's Participation in Texas, 1986-2001
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Page 25 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
B-293906

Page 26 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Sources: Medicare Compare Database, 1999; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999, www.hcfa.gov/medicare/; Historical Service Area File, Feb.

1999; and files of contract terminations and service area reductions from the Center for Health Plans

and Providers at HCFA.

Medicare Managed Care

Experience in Maryland

Provides Another Example

of Plan Consolidations

The Medicare managed care experience in Maryland illustrates both the

service area reductions that occurred in 2000 and the trend toward larger,

more established plans terminating their contracts in 2001. In 2000, plans

withdrew from recently entered rural counties while continuing to serve

more heavily populated urban areas. In 2001, these plans are continuing the

exodus from Medicare by withdrawing from these urban areas and

terminating their contracts.

Between 1986 and 1993, only one plan, Freestate Health Plan—sponsored

by Blue Crossoperated in Maryland. Its service area included only 6 of

Maryland's 24 counties, all located in Maryland's major metropolitan

area—the areas surrounding Baltimore and Washington, D.C. Over time,

new plans began operation in the state, mostly in the same BaltimoreWashington corridor. (See fig. 5.) One plan, Optimum Choice, began

offering service statewide in 1994, followed by 2 more statewide plans in

1996. Between 1997 and 1999, however, these 3 plans reduced their service

areas until, by 1999, only Freestate continued to serve Maryland's rural

counties. In 2000, Freestate reduced its service area to the BaltimoreWashington area—its historical core service area. Rural Maryland

beneficiaries, who had a managed care option between 1994 and 1999, were

left with no alternative to traditional FFS Medicare.16

The difficulty of serving sparsely populated rural areas may have been an

important factor in the Maryland plans' withdrawal decisions for 2000.

Freestate Health Plan, for example, withdrew from rural Caroline County

where it faced no competition and enrolled nearly one in five of the

county's beneficiaries despite charging a $75 per month enrollee premium.

However, the plan's relatively large market share in the county amounted

to only 895 enrollees. In contrast, the plan's 2 percent market share in

urban Montgomery County, an area it continued to serve, resulted in more

than 2,000 enrollees. In addition, Medicare payment rates were increasing

faster in the rural counties the plan left because of the floor and the blend

provisions in the BBA.

16Plan mergers and contract terminations have reduced to four the number of plans serving

Maryland in 2000.
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Page 27 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Freestate has announced it will terminate its contract in Maryland for 2001,

leaving Kaiser Health Plan as the only remaining Medicare plan serving the

state. Freestate has said that it expects to incur losses of $7.5 million by the

end of 2000.
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Page 28 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Figure 5: Plan Participation in Maryland, 1986-2001

Sources: Medicare Compare Database, 1999; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999, www.hcfa.gov/medicare/; Historical Service Area File, Feb.

1999; and files of contract terminations and service area reductions from the Center for Health Plans

and Providers at HCFA.
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Page 29 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Other Factors, Including

Provider Contracting

Problems, May Have

Contributed to Plan

Withdrawals

Although recent entry, low enrollment, or low market share are

characteristics of most withdrawing plans, in some cases plan withdrawals

appear to have little to do with these factors. In one case, a merger caused a

plan to change operations to avoid anti-trust violations and subsequently

resulted in termination of selected contracts. In other cases, plans

terminated all operations—Medicare, Medicaid, and commercial—in an

area. Finally, some plans have reported that providers in some areas are

becoming increasingly resistant to contracting with them, making it more

difficult for plans to assemble viable provider networks in certain areas.

The following examples illustrate other factors that may have contributed

to plan withdrawals.

• Aetna U.S. Healthcare acquired NYLCare Health Plans in July 1998, and

later purchased Prudential Health Care in August 1999. Because Texas

officials were concerned that Aetna would have too large a share of the

state's market after it acquired Prudential, they agreed to the purchase

under the condition that Aetna sell its NYLCare business in the state.

However, under special agreement, Aetna was allowed to continue

managing the Medicare component. Aetna subsequently terminated this

contract.

• Capital Area Community Health Plan of Albany, NY, was affiliated with

Kaiser Permanente, which withdrew from all of its operations in the

entire northeast region in 2000.

• Humana terminated all of its business—commercial and Medicare—in

Nevada.

• United Health Care of Louisiana was one of the first national plans to

buy out local plans in Louisiana. Local providers, who preferred dealing

with the local plans, resisted contracting with United. The plan

eventually withdrew from these areas.

• Oxford Health Plans of NY had trouble assembling a viable provider

network in one of the large counties it served, so it withdrew from that

county.

Medicare+Choice

Payment Rates Exceed

Costs of Covered

Benefits

Industry representatives have stated that low Medicare payments, resulting

from BBA provisions designed to control program spending, are primarily

to blame for the recent plan withdrawals. The American Association of

Health Plans contends that the BBA created a “fairness gap” by decreasing

payments to health plans relative to spending on beneficiaries in the FFS

program. However, since the BBA was enacted the increase in

Medicare+Choice payment rates has exceeded the growth in per capita
B-293906

Page 30 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

FFS spending. Furthermore, our recent study of plan payments found that

Medicare paid plans $5.2 billion (or about 21 percent) more than it would

have spent in 1998 if plan enrollees had received standard Medicare

covered services through the traditional FFS program. According to

reports that plans submit to HCFA, Medicare's payments are also

substantially higher than the average plan's projected costs of providing

Medicare-covered benefits. Moreover, although industry representatives

have called for higher payment rates, the extent to which rate increases

would affect plans' decisions to participate in Medicare is unclear. In 2000

and 2001, withdrawals have not been confined to counties where payment

rate increases, or payment rates, were low.

Plan Payment Rate Growth

Since 1997 Exceeds FFS per

Capita Spending Increase

Between 1997—the year the BBA was enacted—and 1999,

Medicare+Choice payment rates increased on average by about 4.2

percent.17 (See fig. 6.) Furthermore, the payment rate increase was applied

to 1997 rates that HCFA now estimates were inflated by about 3 percent

because of an error in the spending forecast used to set the rates.18 In

contrast, per capita FFS spending fell 1.7 percent during the same period.

17Calculated as the change in county payment rates for aged beneficiaries, weighted by the

number of aged beneficiaries in each county in 1997.

18See GAO/HEHS-00-161 for a discussion of the forecast error and its consequences.
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Page 31 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Figure 6: Cumulative Increase in Average Medicare+Choice County Rates and per

Capita FFS Spending, 1997-2001

Note: Medicare+Choice payment rate increases were calculated as the change in county payment

rates for aged beneficiaries, weighted by the number of aged beneficiaries in each county in 1997.

Medicare+Choice payment rates for 2001 were announced in Mar. 2000. Per capita FFS spending for

2000 and 2001 is based on HCFA projections.

Source: 2001 Medicare+Choice County Payment Rate Calculation Worksheet,

www.hcfa.gov/medicare/.

HCFA estimates that between 1999 and 2001, per capita FFS spending will

grow faster than Medicare+Choice payment rates. If these estimates prove

accurate, the cumulative increase in Medicare+Choice payment rates

between 1997 and 2000 will still exceed the growth in per capita FFS

spending, but the gap will be much narrower. By 2001, HCFA's current

projections indicate that average spending in the traditional program will

have increased 11.9 percent, while plan payment rates will have increased

10.7 percent.

-5%

0%

5%

10%

15%

1997 1998 1999 2000 2001

0.0%

-2.5%

Cumulative Increase

-1.7%

2.1%

4.2%

8.6%

10.8%

5.6%

11.9%

M+C Payment Rates

Per Capita FFS Spending

Projected FFS Spending
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Page 32 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Medicare Payments Exceed

Estimated Costs of

Providing Benefits in

Traditional FFS Program

Recently, we reported that Medicare+Choice plan payments likely exceed

the amount that beneficiaries enrolled in plans would cost in the traditional

FFS program.19 In 1998, aggregate payments exceeded enrollees' estimated

FFS costs by about 21 percent—or approximately $5.2 billion. On a per

enrollee basis, Medicare paid plans about $1,000 more than the FFS

program would have spent to provide Medicare-covered benefits.

A portion of the estimated $5.2 billion in annual excess plan payments may

diminish over time. Approximately $2 billion of these excess payments

resulted from FFS spending forecast errors built into the 1997 county

payment rates due to the BBA provisions that based future county rates on

the 1997 rates and guaranteed 2 percent minimum annual rate increases.

The effect of the 1997 forecast error will largely be mitigated by the BBA

provision that slows Medicare+Choice rate increases relative to the growth

in FFS spending between 1998 and 2002.

The bulk of the excess payments we estimated for 1998 ($3.2 billion) will

persist each year until payments on behalf of individual enrollees better

match their expected health care costs. Medicare+Choice plans attracted a

disproportionate selection of healthier and less-expensive beneficiaries

relative to traditional FFS Medicare (a phenomenon known as favorable

selection), while payment rates largely continued to reflect the expected

FFS costs of beneficiaries in average health. Consequently, we estimate

that the program spent about 13.2 percent more on plan enrollees than if

they had received services through the traditional FFS program. This year,

HCFA implemented a new methodology to adjust payments for beneficiary

health status. However, our results suggest that this new methodology,

which will be phased in over several years, may ultimately remove less than

half of the excess payments caused by favorable selection.20 HCFA expects

to introduce a more refined methodology in 2004 that may better adjust

payments to reflect enrollees' expected health care costs.

19Medicare+Choice: Payments Exceed Cost of Fee-for-Service Benefits, Adding Billions to

Spending (Aug. 23, 2000, GAO/HEHS-00-161).

20Based on the first year of plan-submitted data, HCFA estimates that the new methodology

would reduce average payments by 5.9 percent if fully implemented. In 2000, only 10 percent

of plan payments were adjusted using the new method. Consequently, plan payments were

reduced by less than 1 percent. In 2002, the portion of plan payments adjusted by the new

methodology will rise to 20 percent.
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Page 33 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Payment Rates Exceed

Plans' Costs of Providing

Medicare-Covered Benefits

Medicare+Choice payment rates not only surpass what the FFS program

would spend to provide Medicare-covered benefits to plans' enrollees, but

data submitted by plans show that rates also generally exceed plans'

estimated costs to provide those same benefits. As part of the annual

contracting process, each Medicare+Choice plan is required to project its

per enrollee cost of providing Medicare-covered benefits.21 If estimated

Medicare payments exceed a plan's projected costs, the plan must use the

difference to provide additional benefits during the contract year or

contribute to an escrow account and use the funds to provide benefits in

future years. To fulfill Medicare's requirement, plans choose to provide

additional benefits—such as routine vision care, dental care, and coverage

for outpatient prescription drugs—that are not covered in the traditional

FFS program.

In their 1999 contract submissions, the average plan—including plans that

withdrew in 2000—projected that its costs would be substantially less than

its Medicare payment. On average, plans estimated that they could provide

Medicare-covered services for about 89 percent of Medicare's payment.22

Plans indicated that they would provide additional benefits to make up the

difference. Most plans' benefit packages exceeded the minimum

requirements. Consequently, the average plan in 1999 estimated it would

spend about $1,300 per enrollee, an amount equal to about 22.5 percent of

its Medicare payment, on benefits that are not covered in the FFS program.

Among plans that terminated their contracts or reduced their service areas

in 2000, the average annual amount spent on additional benefits was

slightly lower—about $1,100, or 21.6 percent of Medicare's payment. (See

table 5.)

21These projections are included in each plan's adjusted community rate proposal. Costs are

calculated on the basis of how much a plan would charge a commercial customer to provide

the same benefit package if its members had the same expected use of services as Medicare

beneficiaries, and therefore these “costs” include expected profits from commercial

customers.

22According to the Department of Health and Human Services (HHS) Office of Inspector

General (OIG), the difference may be even greater. In several plan audits, the OIG concluded

that the plans had overstated their Medicare costs. HHS OIG, Administrative Costs

Submitted by Risk-Based Health Maintenance Organizations on the Adjusted Community

Rate Proposals Are Highly Inflated, A-14-97-00202 (July 1998).
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Page 34 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Plans' contract submissions for 2000 exhibited a similar pattern of

additional benefits.23 Plans that will terminate their contracts in 2001

projected that they would spend an average of about $1,200 per enrollee, or

22 percent of their Medicare payment, on additional benefits in 2000. Plans

that will reduce their service areas projected they would spend slightly

less, about $1,000 or 18 percent of their Medicare payment, on additional

benefits. In contrast, spending on additional benefits was estimated at

nearly $1,500 per enrollee, or about 25 percent of 2000 Medicare payments,

for plans that will remain in the program in 2001.

Table 5: Average Annual Amount Spent per Enrollee on Non-Medicare Benefits, 1999

and 2000

Note: The number of enrollees in each plan was used to compute the weighted average.

Source: 1999 and 2000 Adjusted Community Rate Proposals submitted by Medicare+Choice plans.

Relationship Between

Payment Rates and Plan

Withdrawals Difficult to

Interpret

The effect of payment rates on Medicare+Choice plan participation is

ambiguous. While changes in payment rates are an important influence on

plans' participation decisions, we found that plan withdrawals were not

limited to counties with low payment rates.

23Plans' adjusted community rate proposals for 2001 have not yet been approved. Although

an analysis of these proposals would provide updated information on plans' projected costs,

this information will be available only for those plans that will participate in

Medicare+Choice next year.

Amount spent per enrollee

1999 2000

Plans remaining in Medicare+Choice for 2001 1,308 1,259

Plans terminating their contracts for 2001 1,164 1,202

Plans reducing their service areas for 2001 1,080 1,010
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Page 35 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

On the one hand, plan withdrawals appear to be more extensive in the 2

years with lower payment rate increases. In both 1999 and 2001, county

rates increased by an average of 2 percent. In 1999, plan withdrawals

affected 42 percent of counties that previously had a managed care plan,

and in 2001 plan withdrawals will affect 58 percent of such counties. In

contrast, a smaller proportion of counties—approximately 37 percent—

were affected in 2000 when rates increased by about 4 percent. The

extensiveness of plan withdrawals may also be related to the gap between

average county rate increases and the change in expected per capita FFS

spending. For example, the projected increase in per capita FFS spending

is much higher for 2001 than it was for 1999 and withdrawals will be more

extensive.24 Therefore, withdrawals may moderate after 2002 when

payment rate increases will mirror expected increases in per capita FFS

spending except for adjustments to correct prior spending forecast errors.

The relationship across counties between plan participation and payment

rates, and rate increases, is not clear. Both high-payment rate and lowpayment rate counties are affected by the 2000 and 2001 plan withdrawals,

although the relationship between payment rates and withdrawals is

somewhat different in the two years. In 2000, approximately 39 percent of

the non-floor counties that had at least one plan in 1999—those with

payment rates set above the minimum payment of $402—were affected by

a plan withdrawal. A slightly higher proportion of counties in the middle

payment categories were affected compared to the proportion of affected

counties in the highest rate category and the rate category just above the

floor. (See table 6.) In 2001, about 80 to 90 percent of counties in the higher

payment ranges, but less than two-thirds of the counties in the lower

payment ranges will be affected. (See table 7.) The 2001 withdrawal pattern

is similar to the one that occurred in 1999 in that a disproportionate

number of high payment rate counties were affected by withdrawals. In

both 2000 and 2001, floor counties that previously had a Medicare+Choice

plan will be proportionately less affected by the withdrawals compared to

counties that receive payment rates above the floor. However, the

difference between floor and nonfloor counties is less pronounced in the

2001 withdrawals.

24When the 1999 county rates were established in 1998 (and plans made their 1999

participation decisions) per capita FFS spending was expected to increase.
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Page 36 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Table 6: Counties With Medicare+Choice Plans in July 1999 Affected by 2000

Withdrawals, by Year 2000 Payment Rates

Notes: Only Medicare+Choice plans are used for this analysis. Payment rates are rounded to the

nearest dollar. The actual categories are $401.61, $401.62-$504.78, $504.79-$607.96, $607.97-

$711.14, and $711.15-$814.32.

a

Payment rate categories were determined by dividing the range into 4 equal intervals (with a payment

range of approximately $103). The floor rate is the fifth category.

Sources: Medicare Compare Database, 1999; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999, www.hcfa.gov/medicare/; and files of contract terminations

and service area reductions from the Center for Health Plans and Providers at HCFA.

Table 7: Counties With Medicare+Choice Plans in March 2000 Affected by 2001

Withdrawals, by Year 2001 Payment Rates

Notes: Only Medicare+Choice plans are used for this analysis. Payment rates are rounded to the

nearest dollar. The actual categories are $415.01, $415.02-$518.91, $518.92-$622.81, $622.82-

$726.71, and $726.72-$830.61.

a

Payment rate categories were determined by creating four equal rate categories (with a payment

range of approximately $104). The floor rate is the fifth category.

Year 2000 payment ratesa

Total

$402

(floor

rate)

$402−

$505

$505−

$608

$608−

$711

$711−

$814

Counties with plan(s) affected

by 2000 withdrawals 8 187 109 22 3 329

Counties with plan(s) in July

1999 64 522 243 48 10 887

Percentage of all counties with

plan(s) in July 1999 affected by

withdrawals 13% 36% 45% 46% 30% 37%

Year 2001 payment ratesa

Total

$415

(floor

rate)

$415−

$519

$519−

$623

$623−

$727

$727−

$831

Counties with plan(s) affected

by 2001 withdrawals 39 242 139 36 9 465

Counties with plan(s) in March

2000 90 444 217 45 10 806

Percentage of all counties with

plan(s) in March 2000 affected

by withdrawals 43% 55% 64% 80% 90% 58%
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Sources: Medicare Compare Database, 2000; Medicare Managed Care Market Penetration

State/County/Plan Data Files, Mar. 2000, www.hcfa.gov/medicare/; and files of contract terminations

and service area reductions from the Center for Health Plans and Providers at HCFA.

The relationship between payment rate increases and plan participation in

a particular county is unclear. In 2000 and 2001 floor counties may have

been less affected by the withdrawals because the BBA substantially

increased payment rates in those counties, and those rates remain

considerably above the average cost of Medicare benefits in the traditional

FFS program. Between 1997 and 2001, payment rates in floor counties

increased by 27 percent. In contrast, payment rate increases have been

more modest in nonfloor counties, around 11 percent.25 However, the

pattern of plan withdrawals in 2000 suggests that even relatively large

payment rate increases may not be enough to keep some plans in certain

counties. While county payment rates increased by an average of 4 percent

in 2000, the BBA's rate “blending” provision increased rates by 10 percent

or more in certain counties.26 Nonetheless, 40 percent of these counties

with large increases were affected by plan withdrawals in 2000—about the

same as the percentage of affected counties among those that received the

lowest (2 percent) rate increase.27 (See table 8.) Some areas may have too

few beneficiaries or providers to support multiple plans, or even a single

plan. Moreover, plans that fail to attract a sufficient number of enrollees

will not realize their revenue goals even if payments are adequate on a per

capita basis.

25Floor counties are defined as those counties assigned the minimum rate of $415 in 2001.

The average increase is computed for those counties with Medicare plans in 1997, weighted

by total plan enrollment in 1997. County-level data on FFS spending since 1997 are not

available.

26In 2001, rates in about 31 percent of counties will equal the floor payment rate of $415. The

remaining county rates will equal the minimum 2 percent increase over the 2000 rates. The

blended rate will not be paid in any county. The BBA included a budget neutrality

requirement that specifies that total payments based on the minimum increase, the floor

rate, and the blended rates must equal the aggregate payments that would have been made if

payments were based on area specific rates only. Only blended rates may be adjusted to

fulfill the budget neutrality requirement. In 2001, funding the minimum increase and floor

amounts will push aggregate spending above the budget neutrality amount. Therefore, the

blended rates cannot be funded.

27Among counties that had a Medicare+Choice plan in 1999.
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Page 38 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Table 8: Counties With Medicare Plans in July 1999 Affected by Withdrawals, by

Percentage Increase in 2000 Payment Rates

a

The range for each of these categories begins slightly above the lower number and includes the

higher number.

Sources: Medicare Risk Monthly Payment Rates, 2000, www.hcfa.gov/; Medicare Compare Database,

1999, www.hcfa.gov/; Medicare Managed Care Market Penetration State/County/Plan Data Files, July

1999, www.hcfa.gov/medicare/; and files of contract nonrenewals and service area reductions from

the Center for Health Plans and Providers at HCFA.

Conclusions Medicare+Choice is at a crossroads. Because of contract terminations and

service area reductions, by January 2001 more than 1.6 million

beneficiaries will have had to switch to a different plan or the traditional

fee-for-service program since 1999. Industry representatives contend that

payment rate increases are necessary to keep the program viable.

However, the Medicare+Choice program has already been expensive for

taxpayers. As our work on payment rates shows, the vast majority of plans

have gotten paid more for their Medicare enrollees than the government

would have paid had these enrollees remained in the traditional fee-forservice program. Raising payment rates to a level sufficient to retain the

plans leaving Medicare would mean increasing the excess that currently

exists in payments for plan enrollees relative to their expected fee-forservice costs. In areas of the country where there are few beneficiaries and

providers are in short supply, no reasonable payment rate increase is likely

to entice plans to participate in Medicare. Thus, a trade-off exists between

the significant additional costs that would be needed to keep more plans in

the program and the benefits of providing more beneficiaries with options

for accessing Medicare covered services. Such a trade-off raises questions

about the equity of providing a greater array of benefits to a fraction of the

Percentage change in payment rates, 1999-2000

2% 2-5% Total a 5-10%a

More than

10%

Number of counties

affected by 2000

withdrawals 72 96 137 24 329

Number of counties with

plan(s) in 1999 179 213 435 60 887

Percentage of counties

with plan(s) in 1999

affected by the

withdrawals 40% 45% 31% 40% 37%
B-293906

Page 39 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Medicare beneficiary population. In our view, efforts to protect the viability

of Medicare+Choice plans come at the expense of ensuring Medicare's

financial sustainability over the long term.

Agency Comments and

Our Evaluation

In commenting on our report, HCFA stated that our findings confirmed its

own analysis of Medicare+Choice plan withdrawals. HCFA noted that the

pattern of withdrawals, analyzed at the corporation level instead of at the

individual plan level, reinforces our finding that factors besides payment

rates likely influenced plans' participation decisions. For example, HCFA

said that in 2001, 54 percent of Aetna's Medicare+Choice enrollees and 69

percent of Cigna's enrollees will be affected by plan withdrawals, but less

than 2 percent of Pacificare's enrollees and only 0.1 percent of Kaiser's

enrollees will be affected. The agency contends that these differences

provide evidence that the withdrawals reflect corporations' strategic

business decisions that go beyond Medicare payment adequacy. HCFA also

said that it believes the Administration's proposal to provide a prescription

drug benefit to all enrollees would both reduce inequities in benefit

availability and increase payments to Medicare+Choice plans that cover

prescription drugs. (HCFA's comments appear in app. IV.)

We also provided representatives of the American Association of Health

Plans (AAHP), the BlueCross BlueShield Association (BCBSA), and the

Health Insurance Association of America (HIAA) an opportunity to

comment on the report. All three groups disagreed with our conclusions

and stated that our report did not touch on important issues relevant to

plan withdrawals. They also said that withdrawals can be costly for

beneficiaries because Medicare+Choice plans typically provide preventive

care services and other benefits that are not covered in the traditional FFS

program. (AAHP's, BCBSA's, and HIAA's comments appear in apps. V, VI,

and VII.)

AAHP, BCBSA, and HIAA believe that inadequate Medicare+Choice

payment rates are a principal cause of plan withdrawals. BCBSA stated that

many plans could not afford to continue providing sufficient additional

benefits (beyond those covered in FFS) to attract beneficiaries. All three

industry groups stated that it is inappropriate to compare Medicare+Choice

payment rate increases with changes in per capita FFS spending (as we did

in fig. 6) because plans' costs have been growing faster than per capita FFS

spending. HIAA said that FFS spending slowed only as a result of BBA's

unprecedented reductions in Medicare reimbursements and that the

Congress began correcting these reductions with the enactment of BBRA in
B-293906

Page 40 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

1999. BCBSA commented that the comparison is unfair because the

traditional program can control costs in ways that are unavailable to plans.

In our report, we acknowledge that plans typically provide benefits that are

not available in the FFS program. However, we found that

Medicare+Choice payments substantially exceeded plans' projected costs

(including normal profits) of providing Medicare-covered benefits and that

plans contracted with Medicare to use the difference to provide benefits

that are not available in the FFS program. Furthermore, the contention that

plans' costs have grown more rapidly than per capita FFS spending, or that

plans have a limited ability to control their own cost increases, does not

alter our finding that Medicare+Choice payments exceed the estimated

amount that the traditional program would spend on the individuals

enrolled in plans.

AAHP and HIAA stated that our methodology for estimating the FFS costs

of plan enrollees, based on enrollees' prior use of services in the FFS

program, underestimates the health care costs of plan enrollees and

therefore overestimates excess payments to plans. In developing our

methodology, however, we employed assumptions that would tend to

underestimate excess payments.28 Therefore, we believe our findings likely

represent a lower bound on the estimated excess payments plans receive

and the potential savings from improved risk adjustment. HIAA stated that

services are overutilized in the FFS program and that by using FFS

spending as a comparison we overestimated the degree of favorable

selection and the extent of excess payments to plans. In our analysis, we

did not attempt to quantify an appropriate level of care. If services are

overutilized in the FFS program, a comparison of plan payments with a

more efficient delivery system might indicate less favorable selection, but it

would not alter our finding that current Medicare+Choice payment rates—

largely based on FFS spending patterns—exceed the estimated cost of

providing Medicare-covered benefits in the FFS program.

AAHP, BCBSA, and HIAA said that we did not address the issue of

regulatory burden in our report. They believe that recent regulations have

increased plans' administrative costs and discouraged plan participation.

Because many of the recent regulations resulted from provisions in BBA

designed to increase plan accountability, facilitate informed choice and

28Our methodology for estimating these costs is described in Medicare+Choice: Payments

Exceed Cost of FFS Benefits, Adding Billions to Spending (GAO/HEHS-00-161, Aug. 23,

2000).
B-293906

Page 41 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

plan comparisons, protect beneficiary rights, or foster quality improvement

efforts, a comprehensive analysis of this issue would require an assessment

of the regulations' benefits as well as their costs. Such an analysis was

beyond the scope of our report.

Finally, AAHP and BCBSA stressed that plans typically provide benefits not

covered in the traditional FFS program and that plan withdrawals are not

only disruptive for beneficiaries but can also result in beneficiaries having

to pay more in out-of-pocket costs. Although we agree, and did discuss this

issue in the report, it was not the focus of our study.29

We are sending copies of this report to the Honorable Nancy-Ann Min

DeParle, Administrator of the Health Care Financing Administration, and

other interested parties who request them.

If you or your staffs have any questions about this report, please call me on

(202) 512-7114 or Laura A. Dummit, Associate Director, on (202) 512-7119.

Other major contributors included George Duncan, Beverly Ross, and

Susanne Seagrave under the direction of James C. Cosgrove.

William J. Scanlon

Director, Health Financing and

Public Health Issues

29A recent report by the Department of Health and Human Services Office of Inspector

General, HMO Withdrawals: Impact on Medicare Beneficiaries, OEI-04-00-00390 (Aug. 2000),

addresses this issue directly and contains the results of surveys of beneficiaries affected by

the 2000 withdrawals.
B-293906

Page 42 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

List of Requesters

The Honorable Charles E. Grassley

Chairman

The Honorable John B. Breaux

Ranking Minority Member

Special Committee on Aging

United States Senate

The Honorable William V. Roth, Jr.

Chairman

The Honorable Daniel Patrick Moynihan

Ranking Minority Member

Committee on Finance

United States Senate

The Honorable John D. Dingell

Ranking Minority Member

Committee on Commerce

House of Representatives

The Honorable William M. Thomas

Chairman

The Honorable Pete Stark

Ranking Minority Member

Subcommittee on Health

Committee on Ways and Means

House of Representatives
Page 43 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Page 44 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Appendix I

Scope, Methodology, and Data Sources ApApenednxidexiIs

We reviewed pertinent laws, regulations, HCFA policies, and research by

others to obtain information on the Medicare+Choice program, including

revisions to the payment methodologies. To obtain different perspectives

on why plans withdrew or reduced their service areas, we interviewed

officials at HCFA's regional offices and representatives from the American

Association of Health Plans and Blue Cross/Blue Shield of Maryland, one of

the plans that withdrew. To do our analysis, we obtained data files from

HCFA, which the agency uses to compute Medicare+Choice plan payments

and which are widely used by researchers.

To identify counties with a plan in 1999, we used HCFA's 1999 Medicare

Compare Database combined with HCFA's July 1999 Medicare Managed

Care Market Penetration for All Medicare Plan ContractorsQuarterly

State/County/Plan Data Files. We excluded cost, demonstration, and health

care prepayment plans from our analysis and used only those plans

identified as Medicare+Choice. We concluded that a plan was offered in a

particular county only if both databases agreed. The count of enrollees by

plan by county in a plan's service area as of July 1999 was obtained from

the State/County/Plan Penetration Files, except in four cases where plans

reduced their service areas and withdrew from only part of a county. In

these cases, we obtained the actual number of enrollees affected from

HCFA's Center for Health Plans and Providers.

Similarly, we identified counties with a plan in 2000 using HCFA's 2000

Medicare Compare Database combined with HCFA's March 2000 Medicare

Managed Care Market Penetration for All Medicare Plan

ContractorsQuarterly State/County/Plan Data Files. Again, we excluded

cost, demonstration, and health care prepayment plans from our analysis

and used only those plans identified as Medicare+Choice. We concluded

that a plan was offered in a particular county only if both databases agreed.

HCFA's Center for Health Plans and Providers gave us a list of contract

consolidations that occurred in 2000, and we adjusted our information

accordingly. The count of enrollees by plan by county in a plan's service

area as of March 2000 was obtained from the State/County/Plan

Penetration Files.

To analyze the changes in plan participation in the Medicare+Choice

program in 2000 and 2001, we used HCFA data on Medicare+Choice plan

contracts. In July 1999, HCFA provided us with a list of plans that had

announced they were withdrawing from the program or reducing their

service areas as of January 1, 2000, and the counties and number of
Appendix I

Scope, Methodology, and Data Sources

Page 45 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

enrollees affected. In July 2000, HCFA provided us with the same

information for plans that had announced changes for 2001.

We excluded Guam, Puerto Rico, and the Virgin Islands from all countylevel analyses. In some of the analyses, the same counties are defined as

separate entities if plans can contract with them separately. For example,

Los Angeles County, California, is divided into Los Angeles-1 and Los

Angeles-2; they are counted separately because plans may contract with

them separately. The independent cities of Virginia are also counted as

separate counties because their payment rates differ from those of their

counties, and plans contract to serve these areas as if they were

independent counties.

We classified counties as urban, rural, or small urban/fringe using the

rural/urban continuum codes in the February 1999 Area Resource File,

which we obtained from the Bureau of Health Professions, Health

Resources and Services Administration of the Department of Health and

Human Services. We defined urban counties as the central counties of

metropolitan areas of 1 million population or more and rural counties as all

nonmetropolitan counties. Finally, included in the small urban/fringe

counties are counties in metropolitan areas of less than 1 million

population and fringe counties of metropolitan areas of 1 million

population or more. The February 1999 Area Resource File combines the

Virginia independent cities into their original counties and does not report

separate rural/urban continuum codes for these. We kept these cities

separate in keeping with the HCFA data, and we assigned these cities the

same rural/urban continuum codes as their original counties.

To analyze geographic differences in beneficiaries' access to a plan from

1993 to 1998, we used the December 1993-1998 State/County/Plan

Penetration Files and deleted all plan/county combinations where a plan

enrolled fewer than 10 enrollees. Because we were not able to obtain actual

contract information on plan service areas before 1997, this provided an

approximation of plans' service areas. We then used the same urban, rural,

and small urban/fringe county designations as before from the February

1999 Area Resource File to determine the percentage of beneficiaries with

access to a Medicare+Choice plan in these different areas.

We obtained county-level payment rate information for 1997 through 2001

for Medicare risk plans and Medicare+Choice plans, including payment

reductions resulting from the removal of graduate medical education

(GME) spending, from HCFA's Web site. In addition, we used a February
Appendix I

Scope, Methodology, and Data Sources

Page 46 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

1999 file from HCFA's Office of Information Systems containing historical

county-level information on the year that plans first entered individual

counties.
Page 47 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Appendix II

Plans Withdrawing From Medicare+Choice,

January 2000 ApendxiI

Plan name Total number of enrollees affected

Arkansas

Healthsource, Arkansas, Inc. 2,100

United Healthcare of Arkansas, Inc.a 200

Arizona

Blue Cross/Shield of Arizona 14,500

United Healthcare of Arizonaa 5,200

Premier Healthcare, Inc.a 4,500

Humana Health Plan, Inc.a 3,900

Health Plan of Nevada, Inc.a 3,200

California

Blue Cross of Californiaa 3,600

Cigna Healthcare of Californiaa 3,400

Pacificare of California, Inc.a 3,100

United Healthcare of California 1,600

National Med, Inc.a 1,400

Aetna U.S. Healthcare of Californiaa 900

Health Neta 200

Health Neta 0

Colorado

Cigna Healthcare of Colorado, Inc. 6,000

Qual-Med, Inc., Denver 5,000

HMO Colorado, Inc.a 2,700

Qual-Med, Inc., Pueblo 500

Qual-Med, Inc., Colorado Springs 200

Connecticut

Kaiser Foundation Health Plan of Connecticut 3,400

Physicians Health Service of Connecticut, Inc.a 3,100

Connecticare, Inc.a 2,100

Florida

Florida Health Choice, Inc. 14,700

Community Health Care Systems, Inc. 3,200

Humana Medical Plan, Inc.a 3,000

HIP Health Plan of Florida, Inc. 2,600

Cigna Healthcare of Florida, Inc.a 2,100

Av-Med Health Plan, Inc.a 1,900

Av-Med Health Plan, Inc.a 1,600
Appendix II

Plans Withdrawing From Medicare+Choice,

January 2000

Page 48 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Health Options, Inc.a 20

Georgia

United Healthcare of Georgia, Inc.a 600

Kaiser Foundation Health Plan of Georgia, Inc.a 600

Iowa

Exclusive Healthcare, Inc. 1,500

Illinois

Humana Health Plan, Inc.a 1,300

Accord Health Plan 700

Kansas

Humana Kansas City, Inc.a 700

United Healthcare of the Midwest, Inc. 500

Cigna Healthcare of Kansas/Missouri 300

Louisiana

Ochsner Health Plana 17,000

United Health Care of Louisiana 17,000

Massachusetts

Harvard Pilgrim Health Carea 3,400

United Health Plans of New Englanda 2,100

Maryland

Free State Health Plana 14,700

United Healthcare of the Mid-Atlantica 600

Minnesota

Medicaa 2,800

Missouri

Cigna Healthcare of Kansas/Missouri 1,200

United Healthcare of the Midwest, Inc. 800

Nebraska

Exclusive Healthcare, Inc. 5,500

New Hampshire

Healthsource New Hampshire, Inc. 13,400

New Jersey

United Healthcare of New Jersey, Inc. 2,300

Physicians Health Services of New Jersey, Inc. 2,200

Cigna Healthcare of New Jersey, Inc.a 1,400

Cigna Healthcare of New Jersey, Inc. 40

(Continued From Previous Page)

Plan name Total number of enrollees affected
Appendix II

Plans Withdrawing From Medicare+Choice,

January 2000

Page 49 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

New Mexico

Presbyterian Health Plana 20

Nevada

Humana Health Plan, Inc. 9,500

New York

Capital Area Community Health Plan 9,700

Oxford Health Plans (New York) Inc.a 9,100

Capital Area Community Health Plan 7,800

Physicians Health Service of New York, Inc.a 4,200

United Healthcare of New York, Inc.a 3,400

Capital Area Community Health Plan 2,500

Vytra Healthcare 900

Cigna Healthcare of New Yorka 800

Hum/Healthcare Systems, Inc.a 300

Ohio

Pacificare of Ohio, Inc.a 4,200

Cigna Healthcare of Ohio, Inc. 3,700

Summacare, Inc.a 1,700

Community Health Plan of Ohio a 1,400

Qualchoice Health Plan a 1,300

Aetna U.S. Healthcare, Inc. a 600

Health Alliance Plan of Michigan a 0

Family Health Plan, Inc. a 0

Oklahoma

Bluelincs HMO, Inc. a 1,200

Oregon

Pacificare of Oregon II 1,400

Pacificare of Oregon, Inc. a 1,000

Providence Health Plan a 700

Pennsylvania

Healthamerica of Central Pennsylvaniaa 800

Cigna Healthcare of Pennsylvania, Inc. 0

Rhode Island

United Health Plans of New England, Inc. a 2,100

South Carolina

Companion Healthcare Corporation 1,100

(Continued From Previous Page)

Plan name Total number of enrollees affected
Appendix II

Plans Withdrawing From Medicare+Choice,

January 2000

Page 50 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

a

Plan remained in Medicare but reduced the number of counties served.

Sources: Medicare Compare Database, 1999; Medicare Managed Care Market Penetration

State/County/Plan Data Files, July 1999, www.hcfa.gov/medicare/; Bureau of Health Professions,

Area Resource File, Feb. 1999; and files of contract nonrenewals and service area reductions from the

Center for Health Plans and Providers at HCFA.

Tennessee

United Healthcare of Tennessee, Inc. 500

United Healthcare of Tennessee, Inc. 100

Tennessee Health Care Network, Inc. a 40

United Healthcare of Tennessee, Inc. 20

Texas

Humana Health Plan of Texas a 23,500

Healthcare Partners Plans, Inc. 4,400

Cigna Healthcare of Texas, Inc. 2,700

HMO Blue, Northeast Texas 1,300

Humana Health Plan of Texas a 300

United Healthcare of Texas, Inc. 80

Virginia

Optima Health Plan 13,800

Healthkeepers, Inc. 2,900

Washington

Pacificare of Washington, Inc. a 6,000

Group Health Cooperative of Puget Sound 3,300

Healthplus a 1,400

Group Health Cooperative of Puget Sound a 900

Options Health Care, Inc. a 90

First Choice Health Plan a 10

Wisconsin

Humana Wisconsin Health Organization

Insurance Corporation 4,200

Primecare Health Plan, Inc.a 2,600

West Virginia

Carelink 0

(Continued From Previous Page)

Plan name Total number of enrollees affected
Page 51 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Appendix III

Plans Withdrawing From Medicare+Choice,

January 2001 ApendxiI

Plan name

Total number of enrollees

affected

Alabama

Health Partners of Alabama, Inc.a 2,500

Arkansas

HMO Partnersa 300

Arizona

United Healthcare of Arizona 12,300

Intergroup Prepaid Health Service of Arizonaa 7,500

Cigna Healthcare of Arizona, Inc.a 4,300

Pacificare of Arizona, Inc.a 200

California

Cigna Healthcare of California 16,400

Aetna U.S. Healthcare of California 14,500

Blue Cross of Californiaa 5,500

National Med, Inc.a 5,200

California Physicians Servicesa 4,300

Health Neta 3,100

Maxicare, A California Corporationa 3,000

Blue Cross of California 400

Colorado

Pacificare of Colorado, Inc.a 4,000

Mutual of Omaha of Colorado, Inc. 500

Connecticut

Anthem Health Plans, Inc. (CT) 23,500

Aetna U.S. Healthcare, Inc. 14,500

Cigna Healthcare of Connecticut, Inc. 10,500

Physicians Health Service of Connecticuta 2,700

District of Columbia

Free State Health Plan 700

Cigna Healthcare Mid-Atlantic, Inc. 200

Delaware

Cigna Healthcare of Delaware, Inc. 3,600

Florida

Humana Medical Plan, Inc.a 25,600

Prudential Health Care Plan, Inc. 10,200

Cigna Healthcare of Florida, Inc. 8,600
Appendix III

Plans Withdrawing From Medicare+Choice,

January 2001

Page 52 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Prudential Health Care Plan, Inc. 8,300

Cigna Healthcare of Florida, Inc. 7,300

Prudential Health Care Plan, Inc. 7,200

United Healthcare of Florida, Inc.a 7,000

Aetna U.S. Healthcare, Inc. 6,900

Prudential Health Care Plan, Inc. 5,200

Av-Med Health Plan, Inc.a 900

Physicians Healthcare Plans, Inc.a 300

Preferred Medical Plan, Inc. 200

Georgia

Cigna Healthcare of Georgia, Inc. 10,000

Aetna U.S. Healthcare of Georgia, Inc. 6,700

United Healthcare of Georgia, Inc. 2,800

HMO Georgia, Inc.a 300

Illinois

Humana Health Plan, Inc.a 7,200

Aetna Health Plan of Illinois, Inc. 6,400

United Healthcare of the Midwest, Inc.a 4,200

Mercy Health Plans of Missouria 400

Indiana

MaxiCare Indiana, Inc. 6,100

Anthem Insurance Companies, Inc. 2,500

Aetna Health Plan of Illinois, Inc. 500

Kentucky

Aetna U.S. Healthcare, Inc. 3,800

Pacificare of Ohio, Inc. 2,700

Humana Health Plan of Ohio, Inc. 2,700

Louisiana

HMO Louisiana, Inc. 9,400

Ochsner Health Plana 5,900

Aetna U.S. Healthcare, Inc. 5,200

Gulf South Health Plans, Inc.a 4,600

Maxicare Louisiana, Inc.a 0

Massachusetts

Harvard Pilgrim Health Carea 10,800

United Health Plans of New England, Inc.a 10,100

(Continued From Previous Page)

Plan name

Total number of enrollees

affected
Appendix III

Plans Withdrawing From Medicare+Choice,

January 2001

Page 53 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Fallon Community Health Plan, Inc.a 900

Maryland

Free State Health Plan 30,700

United Healthcare of the Mid-Atlantic 15,100

Cigna Healthcare Mid-Atlantic, Inc. 7,300

Maine

NYLCare Health Plans of Maine, Inc. 1,600

Michigan

Care Choices HMOa 100

Minnesota

Medica Health Plans 14,300

Missouri

HMO Missouri, Inc. 4,800

Group Health Plan, Inc.a 3,500

Humana Kansas City, Inc.a 1,800

North Carolina

Wellpath Select, Inc. 3,800

Qualchoice of North Carolina, Inc.a 80

New Hampshire

Harvard Pilgrim Health Care of New Hampshirea 500

New Jersey

Oxford Health Plans (New Jersey), Inc.a 7,000

Cigna Healthcare of New Jersey, Inc. 4,400

Amerihealth HMO, Inc.a 800

Qualmed Plans for Health, Inc.a 200

New Mexico

Lovelace Health Plan, Inc.a 5,800

St. Joseph Healthcare PSO, Inc. 5,600

Presbyterian Health Plana 2,400

Qualmed, New Mexico 2,100

New York

Aetna U.S. Healthcare, Inc.a 34,900

HIP of Greater New Yorka 11,300

Cigna Healthcare of New York 7,200

MDNY Healthcare, Inc. 6,500

Health Services Medical Corps Central New York 2,300

(Continued From Previous Page)

Plan name

Total number of enrollees

affected
Appendix III

Plans Withdrawing From Medicare+Choice,

January 2001

Page 54 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Physicians Health Service of New York, Inc.a 2,100

Ohio

Aetna U.S. Healthcare, Inc. 27,800

Prudential Health Care Plan of Northern Ohio 14,400

Humana Health Plan of Ohio, Inc. 8,500

Aetna U.S. Healthcare, Inc. 5,600

Pacificare of Ohio, Inc. 2,900

Paramount Care, Inc.a 2,900

Community Health of Ohioa 2,400

Kaiser Foundation HP of Ohioa 700

Summacare, Inc.a 600

Oklahoma

Bluelincs HMO, Inc. 3,600

Community Care HMO, Inc.a 3,600

Oregon

Providence Health Plana 5,800

Pennsylvania

HMO of Northeastern Pennsylvania, Inc. 30,700

Aetna U.S. Healthcarea 18,100

Penn State Geisinger Health Plana 16,600

Keystone Health Plan Central, Inc.a 6,100

Healthcentral, Inc. 5,900

Healthguard of Lancaster, Inc. 5,200

Healthamerica of Central Pennsylvaniaa 3,400

Qualmed Plans for Health, Western Pennsylvania 3,000

Qualmed Plans for Health, Inc.a 500

Rhode Island

United Health Plans of New England, Inc.a 1,700

Tennessee

Health 1*2*3 13,700

Tennessee Health Care Network, Inc. 3,300

Healthsource Tennessee, Inc. 2,900

Texas

NYLCare Health Plans, Inc. 71,600

NYLCare Health Plans, Inc. 56,200

Humana HP of Texasa 20,500

(Continued From Previous Page)

Plan name

Total number of enrollees

affected
Appendix III

Plans Withdrawing From Medicare+Choice,

January 2001

Page 55 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Note: Approximately 8,400 of the affected enrollees for 2001 live outside of the withdrawing plans'

service areas. These enrollees are excluded from this analysis.

a

Plan remained in Medicare but reduced the number of counties served.

Sources: Medicare Compare Database, 2000; Medicare Managed Care Market Penetration

State/County/Plan Data Files, Mar. 2000, www.hcfa.gov/medicare/; and files of contract terminations

and service area reductions from the Center for Health Plans and Providers at HCFA.

Prudential Health Care Plan, Inc. 6,500

Seton Health Plan 6,100

Presbyterian Health Plan, Inc. 5,400

Methodistcare, Inc. 5,100

Pacificare of Texas, Inc.a 5,000

Cigna Healthcare of Texas, Inc. 2,500

Texas Health Choice, L.C.a 1,500

Prudential Health Care Plan, Inc., San Antonio 333

Virginia

Cigna Healthcare of Virginia, Inc. 13,700

Cigna Healthcare Mid-Atlantic, Inc. 1,000

Washington

Aetna U.S. Healthcare, Inc. 10,600

Regencecare 7,900

Healthplus 7,100

First Choice Health Plan 3,600

Providence Health Plana 1,600

Pacificare of Washington, Inc.a 1,400

Wisconsin

Network Health Plan of Wisconsin, Inc. 1,400

(Continued From Previous Page)

Plan name

Total number of enrollees

affected
Page 56 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Appendix IV

Comments From the Health Care Financing

Administration ApendxiIV
Page 57 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Appendix V

Comments From the American Association of

Health Plans ApendxiV
Appendix V

Comments From the American Association of

Health Plans

Page 58 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Appendix V

Comments From the American Association of

Health Plans

Page 59 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Appendix V

Comments From the American Association of

Health Plans

Page 60 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Page 61 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Appendix VI

Comments From the BlueCross BlueShield

Association ApendxiVI
Appendix VI

Comments From the BlueCross BlueShield

Association

Page 62 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Appendix VI

Comments From the BlueCross BlueShield

Association

Page 63 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Page 64 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

Appendix VII

Comments From the Health Insurance

Association of America ApendxiVI
Appendix VII

Comments From the Health Insurance

Association of America

Page 65 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Appendix VII

Comments From the Health Insurance

Association of America

Page 66 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals
Appendix VII

Comments From the Health Insurance

Association of America

Page 67 GAO/HEHS-00-183 Medicare+Choice Plan Withdrawals

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