United States General Accounting Office

GAO Report to the Chairman, Committee on

Finance, U.S. Senate

February 1997 MEDICARE HMOS

Potential Effects of a

Limited Enrollment

Period Policy

GAO/HEHS-97-50

GAO United States

General Accounting Office

Washington, D.C. 20548

Health, Education, and

Human Services Division

B-275832 

February 28, 1997

The Honorable William V. Roth, Jr.

Chairman, Committee on Finance

United States Senate

Dear Mr. Chairman:

Medicare, unlike most employer-sponsored health insurance coverage,

allows beneficiaries the flexibility to change managed care plans or switch

to fee-for-service arrangements monthly. This flexibility can cause

problems for the Medicare program. For example, under this policy

beneficiaries may decide to use managed care or other private plans while

in relatively good health but may disenroll to fee for service when their

health care needs increase. The result can be a disproportionate number

of less healthy beneficiaries in fee for service, excess payments to health

maintenance organizations (HMO), and unnecessary Medicare spending.

Recently, the Congress has considered making Medicare’s policies more

consistent with those of other large health care purchasing organizations

by establishing a limited time each year during which Medicare

beneficiaries could enroll in a particular plan and by restricting

disenrollment outside that period. To help the Congress in its

consideration of the effects of such a policy change, you asked us to

assess how a limited enrollment period would affect the Medicare

program, private health plans, beneficiaries, and employers who provide

Medicare supplemental benefits to retirees. To do this, we examined the

potential effects of policy changes on (1) the growth of Medicare’s

managed care program, (2) employers’ attempts to administer their

respective benefits seasons, (3) taxpayer savings measured against

beneficiary protections, and (4) the resources needed by the federal

agency that runs Medicare’s day-to-day operations. Because a specific

annual enrollment period could be established without also limiting

beneficiaries’ opportunities to change to fee for service, we have discussed

the effects of the two policy changes (limiting the enrollment period and

limiting disenrollment opportunities) separately.

We assumed that a new Medicare enrollment policy might be similar, but

not necessarily identical, to the provisions contained in the proposed

Balanced Budget Act of 1995 (BBA), H.R. 2491, as discussed in the act’s

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accompanying conference report.1 Therefore, we developed and analyzed

a limited enrollment period policy modeled on the BBA. Although the BBA

would have provided for an expanded range of health care delivery and

insurance options, we focused our attention on risk HMOs because they

currently serve most beneficiaries not in Medicare fee for service.2

 To

assess the likely effects of such a policy, we interviewed representatives of

10 Medicare risk HMOs, the Health Care Financing Administration (HCFA),

employers who offer managed care options to retirees, and Medicare

beneficiary advocacy organizations. We surveyed HMOs with Medicare risk

contracts regarding their employer group business. To develop

information on the potential financial effect on Medicare of limiting

disenrollment, we analyzed HMO disenrollment data and fee-for-service

claims in California. For more detailed information on our methodology,

see appendix III. We did our work from March through November 1996 in

accordance with generally accepted government auditing standards.

Results in Brief Changing Medicare’s current policy that allows beneficiaries to switch

among HMOs or between an HMO and fee for service monthly would have

far-reaching consequences for the Medicare program, beneficiaries, HMOs,

employers, and HCFA. The specific effects would depend on the limits

placed on switching plans. Medicare could, for example, emulate private

insurance and establish a limited enrollment period—that is, a set time

each year when beneficiaries would choose their health plan (a specific

HMO or fee for service) for the coming year—but not restrict opportunities

for beneficiaries to change to fee for service during the year. Alternatively,

Medicare could combine a limited enrollment period with restrictions on

changing to fee for service. Although both alternatives have advantages,

any change that restricts beneficiary opportunities to enroll or disenroll

would likely slow the growth of Medicare managed care.

A limited enrollment period for Medicare could have two principal

advantages.

• To improve the quality and distribution of managed care information to

beneficiaries: A focused enrollment period would create a natural

opportunity for HCFA to provide objective, comparative information about

health plans—information that beneficiaries now lack.

1

House Conference Report 104-350, pp. 1093-1102. The act was vetoed by the President; thus, these

provisions did not become law.

2

The scope of our study reflects the fee-for-service alternatives currently available to most

beneficiaries, but many of the issues discussed in our report pertain to analysis of other types of

insurance and delivery options under consideration.

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• To make impractical the current practice of in-home sales of HMOs, a

source of marketing abuses: Although HCFA is alert to instances of HMO

sales personnel misrepresenting HMO benefits and obtaining enrollment

signatures under false pretenses, these abuses are difficult for HCFA to

deter.

A limited enrollment period could also have several of the following

disadvantages, the combined effect of which could slow Medicare

managed care enrollment growth.

• Lessen the effectiveness of marketing of Medicare HMOs: HMOs would likely

focus more of their marketing dollars on mass media campaigns

concentrated around Medicare’s enrollment season, but beneficiaries

unfamiliar with managed care might not receive enough specifics through

mass marketing to appreciate any advantages offered by an HMO over

traditional fee-for-service Medicare. The Florida and New York Medicaid

programs saw their managed care enrollment decline significantly after

banning direct marketing by HMOs. Third-party contractors, if given

exclusive responsibility for informing and enrolling beneficiaries under a

limited enrollment period policy, might not be effective substitutes for

health plans’ sales agents.

• Lessen the attractiveness of HMOs to beneficiaries: Under a policy

precluding the beneficiary’s option to switch plans during a 12-month

period, the only choice available to dissatisfied HMO enrollees might be to

change to fee for service and pay either Medicare’s deductibles and

coinsurance or, if available, premiums for a supplemental Medigap policy.

The new policy could also make Medicare HMOs impractical for

beneficiaries who live in more than one part of the country during the

year.

• Pose considerable administrative obstacles for employers: Regardless of

the particular time of year selected for Medicare enrollment activities,

some employers currently offering their retirees a managed care health

insurance option could find that their health benefits seasons did not

coincide with Medicare’s. Accommodating Medicare’s schedule could be

so administratively difficult that some employers might simply stop

offering a managed care option to their retirees.

Limiting beneficiaries’ option to change to fee-for-service Medicare except

during the officially appointed open season could also produce the

following mixed effects:

Page 3 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

• Medicare might achieve modest savings on money now spent on services

for HMO members who change to fee for service. Medicare HMO members

who disenroll and change to fee for service tend to use more services and

more costly procedures than the average beneficiary under fee for service.

Consequently, Medicare spends more money to serve an HMO member who

changes to fee for service than it would have paid to the HMO to care for

that beneficiary. For example, we found that, for beneficiaries who

switched from managed care to fee for service in California during 1994,

Medicare paid almost $30 million more than it would have paid had these

beneficiaries not been permitted to switch to fee for service mid-year.

However, these savings may appear modest when measured against total

1994 California Medicare HMO outlays of $4.2 billion.

• Beneficiaries would lose an important consumer protection and might be

less willing to enroll in managed care. HMO members who are dissatisfied

with their HMO may now change plans or switch to fee for service at the

end of each month. HMO representatives, HCFA officials, and beneficiary

advocates believe that eliminating this option would deter some

beneficiaries from joining a managed care plan. HCFA and HMO officials

predict that, because dissatisfied HMO members could not disenroll until

the next open season, the number of managed care complaints,

grievances, and appeals would rise dramatically.

Ultimately, changing Medicare’s HMO enrollment and disenrollment

policies could have unintended effects. Although Medicare might achieve

modest savings, these savings could be offset if policy changes also led to

slowing or reducing the enrollment of Medicare beneficiaries in HMOs.

Background Consistent with the national trend toward managed care, the number of

Medicare beneficiaries enrolled in HMOs has grown significantly—from

about 1 million in 1987 to about 4 million in 1996. This growth represents

an increase from about 3 percent of all Medicare beneficiaries to about

10 percent. About 90 percent of Medicare beneficiaries enrolled in

managed care are in risk-contract HMOs.3

 The largest growth in Medicare

managed care enrollment has occurred in the risk program. (See fig. 1.)

3

HCFA, which administers the Medicare program, pays risk HMOs a per capita premium to provide a

full Medicare package of benefits, regardless of the amount the HMO spends for each member’s health

care. Except for emergency and out-of-area urgent care, members must receive all their medical care

through the HMO’s network of providers. The remaining 10 percent of beneficiaries enrolled in

managed care are in plans that Medicare reimburses on a cost basis (cost HMOs) or in plans that only

cover Medicare part B services and may have restrictive enrollment policies (health care prepayment

plans).

Page 4 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
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Figure 1: Medicare Risk HMO

Enrollment, 1987-96 Beneficiaries (in Millions)

0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

Year

Note: Enrollment is as of December of each year except for 1996, for which November data are

used.

Source: Monthly reports, Office of Managed Care, HCFA.

The number of HMOs in the risk program fluctuated somewhat in the

program’s first 5 years, but since 1992 the number of risk HMOs has grown

steadily. (See fig. 2.) As of November 1996, HCFA had entered into 238 risk

contracts. Most beneficiaries have at least one risk HMO available in their

area, and, in some markets, beneficiaries can choose from as many as 14

different HMOs.

Page 5 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Figure 2: Number of Risk HMO

Contracts, 1987-96 Risk Contracts

0

20

40

60

80

100

120

140

160

180

200

220

240

1987 1988 1989 1990 1991 1992 1993 1994 1995 1996

145

133 133

95

85 83 90

109

154

238

Note: Enrollment is as of December of each year except for 1996, for which November data are

used.

Source: Medicare Managed Care Program Update, HCFA, 1995.

Risk HMOs are required to offer at least one 30-day enrollment period each

year, but, in practice, most accept enrollment continuously. Although HCFA

provides beneficiaries some general information about HMOs when

beneficiaries first become eligible for Medicare, they typically learn about

their options from the HMOs. Unlike leading private and public health care

purchasing organizations, Medicare does not provide its beneficiaries with

comparative information about available HMOs. HMOs provide beneficiaries

with enrollment forms, collect the forms, and notify HCFA of enrollments.

Beneficiaries may disenroll from a plan as often as once each month.

As discussed in the BBA conference report, the BBA included provisions that

would have amended Medicare’s enrollment policy in the following ways:

• Each October, Medicare would have an annual, coordinated election

period, or “open season,” during which beneficiaries could change their

Medicare election. Elections of coverage would become effective the

following January 1. However, newly eligible Medicare beneficiaries could

elect coverage and have their choice become effective when they first

became eligible for benefits.

Page 6 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

• The Secretary of the Department of Health and Human Services (HHS)

would conduct a nationally coordinated educational and publicity

campaign during October. At least 15 days before the election period, the

Secretary would mail all Medicare beneficiaries and prospective

beneficiaries general election information and information comparing

benefits, premiums, and measures of quality at available health plans.

• Disenrollment could occur only within 90 days of the time elected

coverage began. Beneficiaries who disenrolled could elect a different HMO

for the remainder of the year. This disenrollment option would only apply

the first time a beneficiary enrolled in a particular managed care plan and

would not apply more than twice for any beneficiary in a calendar year.

Exceptions would include disenrollment for beneficiaries who moved out

of a service area.

A Limited Enrollment

Period Policy Could

Slow Managed Care

Growth Despite

Better Consumer

Information

Establishing a limited enrollment period could slow managed care growth

for two reasons. First, marketing practices possible under a limited

enrollment policy might be less effective in attracting beneficiaries to

managed care. These changes could have a positive by-product, however,

as the incidence of in-home sales and associated abusive sales practices

would likely diminish. Second, restrictions on health plan switches outside

the established enrollment period—even if no restrictions existed on

changing to traditional fee-for-service Medicare—could deter some

beneficiaries from enrolling in HMOs. In particular, a limited enrollment

period policy would have three main disadvantages for beneficiaries:

(1) dissatisfied beneficiaries and those encountering problems gaining

access to desired treatments could be exposed to higher health care

expenses, (2) beneficiaries who spend part of each year in a different

location (“snowbirds”) could find they had no choice other than fee for

service, and (3) all beneficiaries enrolled in HMOs could face delays in

obtaining physician appointments at the start of each benefit year because

of a large volume of new beneficiaries seeking services.

HMO Marketing Abuses

Associated With In-Home

Sales Would Probably Be

Reduced

One-on-one sales presentations, often conducted in the privacy of

beneficiaries’ homes, leave beneficiaries vulnerable to abusive sales

tactics and serious marketing problems. Reported abuses include HMO

representatives’ lying to prospective enrollees about the benefits of HMO

enrollment, pressuring beneficiaries to join HMOs, enrolling beneficiaries

who could not make informed enrollment decisions, and obtaining

enrollment signatures under false pretenses. Although HCFA cannot

Page 7 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

determine the frequency of these problems, agency officials are concerned

about the potential for in-home sales marketing abuses.

According to our HMO survey results, about half of the beneficiaries who

enrolled in a Medicare HMO as individuals (not as members of an employer

group) in 1995 participated in a one-on-one sales presentation. However,

the likelihood of a beneficiary’s participating in a one-on-one sales

presentation varied greatly by HMO.

4

A limited enrollment period lasting just 1 or 2 months each year could

make it impractical for HMOs to conduct as many in-home sales

presentations. Each one-on-one meeting can last from 1/2 hour to 2 hours

and is conducted by an HMO sales agent who sells only to Medicare

beneficiaries. HMO representatives told us that sales agents who sell

Medicare plans sell them exclusively. Agents are trained not only in the

details of their HMO’s offering, but also in traditional Medicare and the

rules governing Medicare managed care. Some HMO representatives

implied that maintaining a large, dedicated Medicare sales force

year-round would be impractical if most sales would take place during a 1-

or 2-month limited enrollment period.5

 Furthermore, HMO representatives

said it would be unrealistic to expect non-Medicare agents to be able to

sell Medicare products. Because beneficiaries are particularly susceptible

to abusive sales practices in their homes, reducing or eliminating in-home

sales presentations would better protect beneficiaries from the possibility

of sales abuses. This protection, however, would be a by-product of the

enrollment policy change and could be achieved by more direct methods.

Comparative Information

Distributed During a

Limited Enrollment Period

Would Aid Beneficiary

Decision-Making

Under the BBA, before the start of a limited enrollment period, the

Secretary of HHS would have been responsible for producing and

distributing (1) a list of plans available in a given area and (2) comparative

information about those plans, including benefits, premiums, and

measures of quality. The Secretary would also have been responsible for

maintaining a toll-free number that beneficiaries could call to receive

specific information.

4

For example, about one-fourth of the HMOs responding to our survey reported that 90 percent or

more of the beneficiaries who joined their plan had participated in a one-on-one sales presentation. In

contrast, one-fifth of HMOs reported that less than 10 percent of their enrollees had participated in

such presentations.

5

Some sales would occur outside the limited enrollment period. Depending upon how such a policy

would be implemented, such sales would probably include sales to newly entitled Medicare

beneficiaries and beneficiaries who had moved outside of their previous HMO’s service area.

Page 8 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Beneficiaries’ ability to make informed health care choices would be

enhanced by the availability of objective, comparative information and

access to a hot line. We recently reported that beneficiaries who wish to

compare plans face difficult, if not daunting, steps.6

 First, they must call a

toll-free telephone number to obtain a list of HMOs available in their area.

Next, they must contact those HMOs and request marketing brochures.

Finally, they must compare plans’ benefit packages and cost information

described in the brochures. The last step can be difficult because HMOs are

not required to use standard formats or terminology in describing their

products.

A limited enrollment period would facilitate an annual HMO marketing

campaign and create a natural opportunity for HCFA to distribute

comparative plan information to beneficiaries. Some experts believe that

HMOs’ concentrated advertising during the open season would help inform

beneficiaries of alternative Medicare options. Another potential advantage

is that any comparative information produced by HCFA would be up to date

at the time most beneficiaries were making health care choices.7

Mass Marketing Campaign

Might Not Adequately

Inform Beneficiaries

Unfamiliar With Managed

Care

HMO representatives told us that if Medicare established a limited

enrollment period, plans would turn to a marketing approach more

conducive to a limited enrollment time frame. HMOs would focus more of

their marketing dollars on mass media campaigns—including print, radio,

and television advertising—concentrated around Medicare’s enrollment

season.

Some experts believe that a concentrated mass marketing campaign could

increase beneficiary awareness of Medicare options, including managed

care. These experts suggest that the Medicare advertising blitz could be

similar to the advertising campaigns that occur in the Washington, D.C.,

area during the Federal Employees’ Health Benefits Program (FEHBP) open

season each fall. Whether Medicare HMOs’ advertising campaigns would be

as intense as FEHBP plans’ is uncertain. FEHBP subscribers represent about

9 percent of the Washington, D.C., metropolitan area’s total population.8

6

Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO Performance

(GAO/HEHS-97-23, Oct. 22, 1996).

7

HCFA cites the changing health care marketplace as one reason the agency has no plans to distribute

printed comparison charts directly to beneficiaries. However, HCFA is planning to make some basic

HMO comparative information available on the Internet. The agency will periodically update the

information.

8

This percentage does not include dependents of active workers or retirees.

Page 9 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Nationwide, Medicare beneficiaries represent about 14 percent of the total

population. However, only about 1 in 10 Medicare beneficiaries currently

enrolls in managed care. If advertising intensity is driven by the proportion

of potential customers, the intensity of a campaign for Medicare

beneficiaries would depend upon whether HMOs believe the potential

market is all Medicare beneficiaries or only 1 in 10.

Representatives of HMOs, however, believe that an advertising campaign

without the benefit of one-on-one sales would be less effective at

convincing Medicare beneficiaries to try managed care. Representatives of

most HMOs we contacted stated that limiting Medicare’s enrollment period

would slow the growth of managed care because plans would not (1) have

time to educate beneficiaries about Medicare’s managed care option and

(2) be able to hire enough trained sales staff on a seasonal basis to answer

beneficiary questions during the limited enrollment period. Although

abuses have been reported in conjunction with one-on-one sales, HMOs

believe this sales approach is both necessary and effective, in part because

many beneficiaries have had no experience with managed care.

The effectiveness of an FEHBP-like mass marketing campaign for Medicare

may depend on whether HCFA develops ancillary mechanisms to inform

beneficiaries. Participants in FEHBP do not rely exclusively on mass

marketing to obtain information. All active and retired FEHBP enrollees are

given comparative information on available plans and can obtain detailed,

plan-specific information brochures that follow a standard format. Active

federal workers can also discuss their health care options with colleagues

or their agency’s benefits administrator. Furthermore, most workers can

easily attend health fairs sponsored by their agency, where health plan

representatives distribute literature and answer questions. The 20 percent

of FEHBP members who are retired also have some advantages over

individuals in Medicare. As former federal workers, FEHBP participants are

familiar with the program’s enrollment and disenrollment rules. In

addition, federal retirees receive guidance from the National Association

of Retired Federal Employees. This organization, with over 1,700 chapters

nationwide, works closely with FEHBP in answering questions and resolving

problems. Finally, some members of the Congress sponsor annual FEHBP

health fairs attended by retirees.

Page 10 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Third-Party Enrollment

Brokers Are Objective but

May Be Less Effective

Promoting HMOs

Requiring third-party contractors, or brokers, to conduct all enrollment

activities would better protect beneficiaries from abusive sales practices,

minimize the opportunity for HMOs to favorably select only the healthiest

beneficiaries, and provide beneficiaries a convenient source of objective

information. Beneficiaries might welcome such a change in enrollment

practices partly because they would have the convenience of “one-stop

shopping” and also appreciate a source of objective, comparative

information. A recent focus group conducted for HCFA found that most

beneficiaries did not view insurance plan representatives as trustworthy

sources of impartial information. Nonetheless, HMO representatives

maintain that personal contact with an HMO sales agent can be reassuring

to beneficiaries and that industry sales abuses are few.

HCFA plans to test the effect of third-party enrollment contractors in a

future Medicare demonstration project. Scheduled to begin sometime in

1997,9

 this project will use a third-party contractor to conduct marketing,

education, counseling, and enrollment activities. HCFA’s design—as of

August 1996—will permit HMOs to provide information to beneficiaries

directly and even help beneficiaries fill out enrollment forms. The

third-party contractor will provide comparative information about the

plans, counsel beneficiaries who want to consult with a neutral party, and

perform all enrollment transactions. The potential effect of this approach

on enrollment is not clear, and the demonstration’s effects may not be

fully evaluated for years.

If the Medicare program relies solely on enrollment brokers and prohibits

HMOs from marketing to individual beneficiaries, however, growth of

Medicare managed care might slow. HMO representatives with whom we

discussed this issue were concerned that brokers would be less

knowledgeable about the advantages of specific plans and thus not as

effective as sales agents in selling managed care to Medicare beneficiaries.

Recent experience in the Medicaid program suggests that prohibiting

direct marketing by HMOs could slow enrollment growth.10 Because of

abuses, Florida and New York prohibited HMOs from marketing to

beneficiaries directly. Both states experienced significant declines in

9

HCFA’s Medicare Competitive Pricing Demonstration Project is designed to test both the feasibility

and effects of (1) setting Medicare payments for HMOs using competitive market forces, (2) providing

beneficiaries with comparative information, and (3) using third-party contractors to enroll

beneficiaries in HMOs. The demonstration also includes plans for a coordinated enrollment period.

Currently, the demonstration is behind schedule, and HCFA has encountered difficulties selecting a

site.

10Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed Care (GAO/HEHS-96-184,

Sept. 17, 1996).

Page 11 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
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Medicaid HMO enrollment. Florida reported that, in a recent 3-month period

since banning direct marketing, enrollment levels fell by an average of

10,000 enrollees per month. New York temporarily suspended its ban on

direct marketing to help increase HMO enrollment but implemented other

steps to prevent HMO marketing abuses. In fact, in many Medicaid

programs in which beneficiary participation in managed care is voluntary,

states rely on HMOs to inform beneficiaries about managed care and

encourage them to enroll.

Potential Costs If

Dissatisfied Could

Dissuade Some

Beneficiaries From

Enrolling in Medicare

HMOs

Although a limited enrollment period could add some consumer

protections for beneficiaries, it could expose dissatisfied beneficiaries to

additional out-of-pocket costs. Under the limited enrollment period policy

discussed here, beneficiaries dissatisfied with their HMOs would have three

choices: (1) remain in the HMO, (2) switch to traditional Medicare fee for

service and pay the deductible and coinsurance for submitted claims, or

(3) switch to traditional Medicare fee for service and purchase a Medigap

policy if one was available to them. Beneficiaries dissatisfied with access

to desired treatments could remain in their HMO and purchase those

services privately. However, going outside the HMO for treatment or

changing to fee for service would cost most beneficiaries more money

than they would have spent had they been able to enroll in another HMO.

11

Changing to traditional fee for service could be an expensive option for

many dissatisfied Medicare HMO members. HMOs are cheaper than fee for

service for many Medicare beneficiaries because 65 percent of HMOs do not

charge a monthly premium (so-called “zero premium HMOs”).12 In addition,

HMOs frequently offer benefits, such as outpatient prescription drugs, that

are not provided by traditional Medicare. Beneficiaries in HMOs are

responsible for copayments for certain services but often fewer services

than in a fee-for-service arrangement. Beneficiaries in fee for service who

11Although switching HMOs during a 12-month period is not typical beneficiary behavior, neither is it

uncommon. Of the 161,792 beneficiaries who enrolled in HMOs at the start of 1995, 9,727 switched to

another HMO or left and returned to their original HMO in less than 1 year—a choice that would not be

permitted under the limited enrollment scenario discussed here.

12Monthly premiums for the remaining HMOs are often lower than premiums for Medigap policies. As

of September 1996, less than 6 percent of risk HMOs had monthly premiums that exceeded $60. In

addition to any premium charged by the HMO, beneficiaries must continue to pay their Medicare part

B premium ($42.50 per month in 1996).

Page 12 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
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need services covered under Medicare part B must fulfill a deductible and

pay a portion of additional expenses.13

Dissatisfied HMO members who change to fee for service may want to

purchase supplemental health insurance, known as Medigap, to help cover

out-of-pocket costs.14 However, Medigap policies can cost over $1,000 per

year—more than most beneficiaries would pay to an HMO. Furthermore,

beneficiaries have no guarantee that a Medigap policy will be available

upon disenrolling from an HMO. During the 6 months after a person turns

age 65 and enrolls in Medicare part B, federal law guarantees beneficiaries

the opportunity to purchase a Medigap policy. After that, Medigap insurers

are permitted to refuse to sell policies because of an applicant’s health

history or status. We recently reported that, although some insurers do

exercise their option to refuse coverage, all beneficiaries currently have at

least one Medigap policy available to them after the 6-month guarantee

period, regardless of their health history or status.15 Nevertheless, no

federal requirement exists to ensure that beneficiaries will always have

such alternatives.

Fee for Service Could Be

Only Option for Medicare

“Snowbirds”

Beneficiaries who temporarily relocate for the winter, commonly known

as “snowbirds,” might find joining a Medicare HMO impractical and would

probably choose the fee-for-service option instead. HMOs are required to

provide emergency, but not routine, care to members outside the HMO

service area. Furthermore, HMOs are required to disenroll any member who

leaves his or her HMO’s service area for more than 90 days. Currently,

snowbirds can disenroll from an HMO and switch to fee for service or

another HMO each time they relocate. If a limited enrollment period policy

prohibited such plan switching, snowbirds would be left with only one

realistic option—enrolling in Medicare’s fee-for-service program. Although

data are not available on the number of Medicare snowbirds, their

existence is widely recognized.

13Beneficiaries’ payments under Medicare part A (hospital insurance) vary depending on factors such

as their length of hospital stay or whether they receive care in a skilled nursing facility. For Medicare

part B (medical insurance), beneficiaries must pay a $100 annual deductible, after which they are

responsible for 20 percent of the Medicare-approved amount for most services. For outpatient hospital

services, beneficiaries are responsible for 20 percent of the charges, regardless of the Medicareapproved amount. Beneficiaries are responsible for 50 percent of the Medicare-approved amount of

outpatient mental health services.

14The 10 standard Medigap policies cover Medicare coinsurance. Some policies also cover Medicare

deductibles and benefits not covered by Medicare such as prescription drugs.

15Medigap Insurance: Alternatives for Medicare Beneficiaries to Avoid Medical Underwriting

(GAO/HEHS-96-180, Sept. 10, 1996).

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HMOs might respond to a limited enrollment period policy by offering

flexible service arrangements not commonly available today, such as

reciprocal agreements and point-of-service options, partly to attract

snowbirds. Reciprocal agreements among health plans—which permit HMO

members traveling outside their plan service area to receive routine care

and nonemergency services from another HMO—would make temporary

relocations less problematic for beneficiaries who wished to enroll in

managed care. Several HMOs now offer reciprocity but only within their

own companies or affiliates. For example, a member of the Kaiser

Foundation Health Plan in Los Angeles may receive services from Kaiser

HMOs in other parts of the country. A representative of the American

Association of Retired Persons said her organization is interested in

encouraging the development of reciprocal agreements among plans,

although no such agreements currently exist. Similarly, if many HMOs offer

the point-of-service option—a hybrid of HMOs and fee-for-service plans—a

Medicare policy limiting plan switching would be less of a deterrent to

snowbirds who wished to enroll in HMOs.16

HMO Enrollees Could Face

Delays Obtaining Physician

Appointments at Start of

Health Benefits Year

Most of the HMOs we contacted believe that a limited enrollment period

would cause beneficiaries to face delays in receiving health care services

at the beginning of each health benefit year. HMO representatives said a

heavy demand for services would be caused by new Medicare members’

“trying out” their new physicians soon after enrolling. One HMO told us that

a large percentage of that HMO’s new members see their primary care

physician within 60 days of enrolling to receive health care or renew a

prescription. In fact, some plans strongly suggest that new members

undergo initial health assessments within 30 days of joining. Although

demand for provider services also increases after the start of a commercial

contract, the effect of an influx of new Medicare members is greater

because Medicare beneficiaries tend to use physician services more

frequently than younger HMO members.

Beneficiaries who would likely face delays in scheduling physician office

visits might be those who join HMOs that employ providers directly (“staff

model” HMOs) or have exclusive contracts with providers (“captive group

model” HMOs) or those who join HMOs with relatively small provider

networks. Beneficiaries who join HMOs with exclusive provider

arrangements will, by definition, change providers when changing plans.

New members in HMOs with small provider networks are more likely to

16With a point-of-service plan, beneficiaries have the option of receiving services within their HMO’s

provider network or, for an additional cost, receiving some services from nonparticipating providers.

Page 14 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

need to select a new provider than beneficiaries joining plans with large

networks. However, for some beneficiaries, joining an HMO or switching

among plans will not require switching physicians and an introductory

visit because physicians often contract with multiple HMOs.

Obtaining appointments at the start of each health benefit year might be

difficult for beneficiaries in some HMOs because a limited enrollment

period policy would probably result in dramatic, once-a-year membership

spikes. From December 1994 to December 1995, 24 plans enrolled more

than 10,000 new members, including 1 that enrolled close to 55,000

members. (Table 1 shows the distribution of new members among plans.)

These membership increases, however, were absorbed by the plans over

12 months, not during a single month, as might occur under a limited

enrollment period policy.

Table 1: Medicare Risk HMO

Membership Growth, December 1994

to December 1995 HMO membership growth

Number of

HMOs

10,000 new members or more 24

5,000-9,999 new members 22

1,000-4,999 new members 54

Less than 1,000 new members 22

Membership decline 14

Note: Based on 136 risk HMOs that had members in 1994 and 1995.

Source:HCFA Medicare Market Penetration Report File.

The annual enrollment change resulting from a limited enrollment period

could be difficult for HMOs to predict accurately; any unanticipated HMO

enrollment growth could contribute to provider access problems.

Representatives of one large HMO described what happened when they

grossly underestimated the response to their Medicare product in a new

market area. Although the plan had contracted with a large number of

physicians, it underestimated the need for primary care physicians and

certain specialists. Demands on plan physicians’ time and the level of

beneficiary complaints were so high that some physicians quit. The plan

contracted with new physicians (a process that took about 6 months) and

cut back its marketing efforts to hold down additional enrollment, but

1-1/2 years passed before the plan’s provider network could comfortably

meet members’ demand for services.

Page 15 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

A January start date for the Medicare benefits year, as specified in the BBA,

could cause longer delays in receiving health services than if another time

of year was selected. January is already a particularly busy month for

providers because so many members of employer-based health plans begin

their benefits years on January 1. Furthermore, according to HMO

representatives, demand for physician office visits is already high in

January because of winter respiratory illnesses. However, choosing a

month other than January could increase the number of employers that

are inconvenienced, as discussed in the next section.

A Limited Enrollment

Period Policy Could

Discourage Some

Employers From

Offering Managed

Care to Retirees

Limiting Medicare’s enrollment period would create varying degrees of

administrative problems for employers and could, as a result, discourage

some employers from offering managed care to their retirees. Our survey

results indicated that in January 1996 about 21 percent of all beneficiaries

in Medicare risk HMOs enrolled through employer groups. Moreover,

between January 1995 and January 1996, the number of Medicare

beneficiaries in HMOs sponsored by employer groups grew by 17.5 percent.

The number of Medicare beneficiaries individually enrolled in HMOs grew

even more—by 36.2 percent. (See fig. 3.)

Page 16 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Figure 3: Number of Medicare

Beneficiaries Enrolled in Risk HMOs

Responding to Our Survey, by Type of

Enrollment

Beneficiaries (in Millions)

0

0.5

1.0

1.5

2.0

2.5

1/1/95 1/1/96

Date

Group Enrollment

Individual Enrollment

Source: GAO survey.

Start Dates of Many

Employers’ Health Benefits

Years Would Not Coincide

With Medicare’s Dates

Almost all employer groups offering coverage through the risk HMOs we

surveyed limit the period during which members can enroll, but not all

these groups choose the same times of year to enroll members and to

begin benefits. Under a limited enrollment policy, unless exempted from

complying with Medicare’s specific enrollment period and effective date,

some proportion of employers would need to shift their health benefits

calendar. The BBA proposed an October enrollment period with Medicare

beneficiaries’ choices effective January 1. This timing would have

coincided with the dates used by 62 percent of the employers offering

managed care to retirees in 1995. (See fig. 4.)

Page 17 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Figure 4: Distribution of Employee Groups’ Enrollment Dates and Membership in These Groups

Percent

0

5

10

15

20

25

30

35

40

45

50

55

60

65

January

February

March

April

May

June

July

August

September

October

November

December

Month of Effective Date

Groups

Members

Source: GAO survey.

If legislation mandates a specific health benefits open season for all

Medicare beneficiaries, it is unlikely that employers with different benefit

seasons would all respond in the same manner. Rather, these employers

could take one of three courses: (1) shift all employees’ and retirees’

benefits seasons and run a single season that would coincide with

Medicare’s season, (2) shift seasons for Medicare retirees only and run one

season for retirees and another for active employees, or (3) choose not to

offer the Medicare risk program to retirees.

January Start Date Would

Inconvenience Some

Employers

Some employers could face problems shifting their benefits season to

coincide with Medicare’s. Employers and benefit consulting firms we

contacted discussed two major reasons why nearly 4 of 10 employers have

Page 18 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

their group coverage begin in a month other than January. First, employers

often select a benefits year that coincides with the start of their fiscal year,

which may not be January. Second, employers with seasonal businesses

often choose slow business months to conduct an enrollment process. For

example, representatives of a major benefits consulting firm and several

national retailers told us that because the winter holiday season is the

busiest and most demanding time of year for retailers, these employers try

to avoid other activity at that time. One of the health benefits consultants

we contacted said that his firm had tried unsuccessfully to get some of its

clients to begin their coverage in a month other than January to ease the

firm’s administrative burden.

Running Separate Benefits

Season for Retirees May

Present Problems for Some

Employers

To comply with a mandated health benefits season for Medicare, some

employers might choose to run two seasons—one for retirees and one for

active workers. One business group told us that some employers already

run two separate seasons because retirees tend to take more time and ask

more questions of health benefits personnel than do active employees.

However, executives of one national health benefits consulting firm also

said that running two separate seasons costs employers more money than

running a single season.

Executives of one large national retailer anticipated that running two

health seasons would create serious administrative problems. The retailer

would have to (1) untangle its contracts with HMOs so that coverage for

Medicare-eligible retirees could be separated from coverage for active

employees, retirees, and retirees’ dependents under age 65; (2) renegotiate

contracts with plans; and (3) revise internal policies and communications.

Executives said untangling contracts could take 2 to 3 years to complete.

They further noted that if they ran two seasons, members of the same

family could find themselves with different health benefit years. Because

of all these problems, the executives said they probably would not offer

Medicare risk plans if they had to change benefit years. They further

predicted that other employers whose benefits seasons would not coincide

with Medicare’s would do the same.

Employers Would Need

Time to Transition to New

Health Benefits Cycle

Employers who were willing to switch their health benefits season would

probably need 9 months to 1 year of planning time to make the transition,

according to representatives of employers and benefit consulting firms.

For example, one retailer we contacted had been operating a single season

for employees and retirees with a benefits year beginning at the start of its

Page 19 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

fiscal year on February 1. This company recently shifted the start of its

benefits year for its active employees because the February health benefits

year required a November or December enrollment period, which

interfered with holiday business. The retailer started actively planning 1

year before the change. It encountered some administrative difficulties but

found that making the change was relatively inexpensive.

The California Public Employees’ Retirement System (CalPERS) also

recently shifted its health benefits season for both employees and retirees.

Before this change, benefits became effective on August 1; now benefits

are effective January 1.17 CalPERS changed its season to coordinate with

preferred provider organizations and other state benefit programs that

operate on a calendar year. CalPERS found the process of shifting its health

benefits cycle manageable and not very costly but did need about 15

months to prepare for the change.

Limiting

Disenrollment Might

Save Medicare Money

but Cause Problems

for Beneficiaries and

HMOs

If a new enrollment policy also limited HMO members’ opportunities to

disenroll and change to fee for service, the Medicare program might save

some money; however, the policy could also result in reduced beneficiary

protections, increased beneficiary dissatisfaction, and slower HMO growth.

Limiting Disenrollment

Might Generate Some

Medicare Savings

Limiting opportunities for beneficiaries to disenroll from HMOs mid-year

might generate some cost savings for Medicare. These savings would

occur because payments to HMOs are based on our assumption that HMO

enrollees’ health and medical requirements are the same as those of the

average beneficiary in fee for service. However, beneficiaries who leave

managed care plans and switch to a fee-for-service arrangement are not

average—they tend to use more services and incur higher costs than the

average fee-for-service beneficiary.

Nonetheless, our analysis indicates that Medicare’s maximum potential

savings from limiting disenrollment might be small, relative to overall

program expenditures, because few managed care enrollees change to fee

for service. To quantify potential savings, we studied the behavior of all

738,000 California Medicare beneficiaries who were enrolled in a risk HMO

17To accomplish this shift, CalPERS established an interim benefit “year” 17 months long.

Page 20 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

at the start of 1994. Of the beneficiaries who did not change residences,

only 15,772 switched from managed care to fee for service during 1994.18

Medicare paid fee-for-service claims for 11,382 of these beneficiaries,

amounting to almost $73 million. If these beneficiaries had not been

allowed to disenroll from their plans, the Medicare program would have

paid $42 million in capitated payments to HMOs to cover these same

beneficiaries. Thus, the potential savings of limiting disenrollment would

have been, at most, $31 million in California during 1994—compared with

total Medicare risk HMO expenditures in California of $4.2 billion.

Table 2: Medicare’s Potential Savings Had Disenrollment Opportunities Been Limited for Beneficiaries in California, 1994

Actual Medicare

expenditures, HMO and

fee for service (in millions)

Medicare expenditures

had beneficiaries stayed

in HMO entire year

(in millions)

Potential savings

from limiting HMO

disenrollment

(in millions)

15,772 beneficiaries in HMOs in January 1994

who switched to fee for service for at least 1

month that yeara $72.6 41.6 31.0

11,684 beneficiaries in HMOs in January 1994

who switched to fee for service April 1 or later

for at least 1 montha 48.4 26.1 22.3

aExcludes beneficiaries who changed county of residence.

Source: GAO analysis of Medicare Claims Database and HCFA Group Health Plan Master File.

Potential savings, as a percentage of payments to HMOs, may be slightly

higher in states other than California. Beneficiaries in California have

many HMOs from which to choose and can readily join a competing HMO if

dissatisfied with their own. In other states, however, beneficiaries have

fewer choices, and the rate of changing to fee for service among

dissatisfied beneficiaries may be higher than in California. Since limiting

the opportunity to change to fee for service during the year produces cost

savings, the potential savings, as a percentage of payments to HMOs, may

be higher in states with few HMOs. However, national Medicare savings

would still likely be small because California represents about 44 percent

of all Medicare risk-contract HMO expenditures.

The less restrictive the disenrollment policy is—in other words, the more

opportunities beneficiaries have to change to fee for service—the smaller

18We did not include in our analysis the 25,918 beneficiaries who moved out of their county, or service

area, during 1994. These beneficiaries could have left their HMOs’ service areas and would presumably

have been able to change coverage mid-year, even under a limited enrollment and disenrollment

policy.

Page 21 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

the potential savings. For example, if beneficiaries were permitted to

disenroll and switch to fee for service during the first 90 days of

membership, Medicare would realize some savings but fewer than under a

more restrictive disenrollment policy. Our analysis of 1994 California data

indicates that Medicare would have saved, at most, $22 million if

beneficiaries had been permitted to disenroll to fee for service only within

the first 90 days.

These estimated savings probably represent the upper limit of what

Medicare could have saved in California in 1994. Our estimates assume

that beneficiary behavior and enrollment patterns would not change as the

result of a limited disenrollment policy. However, as the following section

discusses, beneficiary behavior will likely be affected by such a policy.

(See app. III for further information regarding our analyses of potential

Medicare savings.)

Limiting Disenrollment

Would Reduce Beneficiary

Protections and Could

Increase Beneficiary

Dissatisfaction

According to HCFA officials and beneficiary advocates, limiting

beneficiaries’ ability to disenroll from plans would remove a valuable

beneficiary protection. Medicare’s current policy allows any beneficiary

who is dissatisfied to disenroll and join a new plan or change to fee for

service at the end of each month. Changing the disenrollment policy could

also weaken plans’ incentive to maintain the quality of the services and

care they provide. Finally, without the ability to disenroll, HCFA and HMOs

believe that beneficiaries are likely to file more grievances and appeals.

Although most beneficiaries do not change plans frequently,19 some HMOs

have high member disenrollment rates, which can signal member

dissatisfaction. We recently reported that one HMO in Miami and one in Los

Angeles had 1995 disenrollment rates of 37 percent and 42 percent,

respectively.20 One Miami HMO with high disenrollment rates had a 7-year

history of Medicare deficiencies, including those involving beneficiary

appeal rights and quality assurance. Thus, although most members appear

to be satisfied with their HMO, problems do exist, and the freedom to

disenroll provides a course of action for dissatisfied plan members.

Some beneficiary advocates believe that to ensure continuity of care,

beneficiaries should be able to disenroll from an HMO if their physician

19Of the beneficiaries who enrolled in a risk HMO in January 1995, about 82 percent were still in their

same plan in May 1996. Of the 18 percent of beneficiaries no longer in their original plan, some had

moved out of their HMO’s service area or had died.

20GAO/HEHS-97-23, Oct. 22, 1996.

Page 22 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

leaves the plan. In fact, this may be a common reason for switching HMOs

or changing to fee for service. A 1992 study reported that 26 percent of

beneficiaries who disenrolled from an HMO cited their doctor’s leaving the

HMO as a reason for disenrolling.21 One large HMO told us that after

terminating a contract with one of its physician groups, nearly all 1,668

members assigned to those physicians disenrolled from the HMO.

Representatives of the plan believe that these members followed their

physicians to a competing HMO that also contracted with the physician

group. The Physician Payment Review Commission recently

recommended that if a limited disenrollment policy is established,

beneficiaries have the right to disenroll before year-end or to purchase

services on a special point-of-service basis for the rest of the year if a plan

makes a major change in its network of providers during the year.22

However, the Commission acknowledged that defining the precise

circumstances for permitting disenrollment could be difficult.

HMO representatives believe that beneficiaries’ current ability to disenroll

at the end of any month is good for competition and, thus, good for

consumers. The need to retain members who can disenroll motivates plans

to maintain quality, work for member satisfaction, and improve benefits

continuously throughout the year. For example, officials at one large HMO

told us that it increased benefits three times in 1995 to remain competitive.

The HMO increased its pharmaceutical benefit, reduced beneficiary

copayments for office visits, and improved its dental coverage.

Representatives of several HMOs told us that an enrollment policy that

includes a 90-day disenrollment option would be better for beneficiaries

than no disenrollment option at all but that the current practice of

permitting monthly disenrollment is far better for industry competition

and for beneficiaries. Many beneficiaries who disenroll from their risk HMO

do so within the first 90 days. For example, of about 326,000 beneficiaries

who joined a risk HMO during the first 3 months of 1995, 14.4 percent

disenrolled within 1 year or less, but a disproportionate amount—

5.6 percent—disenrolled in less than 90 days.

On the other hand, representatives of one HMO speculated that if

beneficiaries were permitted just 90 days to disenroll, short-term

disenrollment rates would soar. Beneficiaries who are less than

21Frank W. Porell and others, Factors Associated With Disenrollment From Medicare HMOs: Findings

From a Survey of Disenrollees (Boston: Health Policy Research Consortium of Brandeis University,

1992).

22Physician Payment Review Commission, 1996 Annual Report to Congress (Washington, D.C.:

Physician Payment Review Commission, 1996).

Page 23 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

completely satisfied with their HMO might quickly disenroll, rather than

give their plan a chance to address their complaints.

HCFA officials predict that without the option of disenrolling,

dissatisfaction among HMO members would manifest itself in other ways,

such as an increase in grievances to HMOs and appeals to HCFA—a

prediction that was echoed throughout our visits to HMOs. This prediction

is supported by data we obtained from one HMO. In 1995, over 90 percent of

this plan’s Medicare group membership was “locked into” the HMO for the

year. Because of conditions set by the beneficiaries’ former employers,

these members could change plans only during annual enrollment

periods.23 Group members filed grievances at a rate 100 times greater than

that of individual members who could disenroll monthly. Group members

filed 60 times more appeals than individual members. HMO representatives

speculated that individual members who were dissatisfied simply

disenrolled, rather than file grievances or appeals.

Limited Disenrollment

Could Further Slow

Managed Care Growth

HCFA officials and nearly all the HMOs we contacted shared a strong belief

that limiting disenrollment opportunities would deter some beneficiaries

from joining managed care, although none of the representatives could

quantify the extent to which this would occur. Managed care is a relatively

new concept to some Medicare beneficiaries, and a 1-year lock-in

requirement could discourage beneficiaries from trying managed care.

Some beneficiaries might not join HMOs because, even if dissatisfied with

the care they received or denied a procedure they believed was critical,

they would have little recourse available. Medicare has an appeals process

in place, but, of course, beneficiaries have no guarantee that the appeal

will be resolved in their favor. Some beneficiaries might not enroll in a

plan if they knew they would not be able to follow their physicians, should

the physicians leave the plan mid-year.

HCFA Would Face

Peak Load Problems

and Additional

Responsibilities

Implementation of a limited enrollment period could strain HCFA’s

resources by creating a peak load and by increasing HCFA’s responsibilities.

HCFA’s enrollment and disenrollment activities would be concentrated in a

short period of time, rather than spread out during the year. Also, HCFA

would need to provide beneficiaries access to a consumer hot line and

comparative plan information, both of which would likely be required

under a limited enrollment period policy.

23These beneficiaries could have disenrolled at any time and joined another HMO as individuals but

would have lost the additional health coverage benefits offered by their previous employer.

Page 24 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

HCFA Would Need to

Adapt to Peak Workload

HCFA could face problems in completing tasks such as processing

enrollments. Currently, HCFA processes about 100,000 transactions a

month, or 1.2 million transactions a year, which include enrollments,

disenrollments, and status changes. Plans electronically submit these data,

which are processed by computers at HCFA—generally within a few days.

However, problems could arise, such as incomplete data or discrepancies

in data, which could require follow-up work by HCFA. Some HCFA officials

told us that the agency could manage the peak workload associated with a

limited enrollment period. However, representatives of HMOs, other

organizations, and even some HCFA officials said the agency sometimes had

difficulty managing its current workload and meeting deadlines; they were

skeptical of HCFA’s ability to handle a peak workload with current

resources.

CalPERS24 and FEHBP25 both operate a single annual enrollment period and

face a peak load each year. CalPERS hires temporary workers and allows the

permanent staff to work overtime hours. FEHBP contracts with a private

firm to handle enrollment changes for federal retirees. (Each federal

agency handles enrollment changes for its current employees.) HMOs that

experience a peak load from their commercial business often hire

temporary workers or shift employees from other departments within the

HMO.

HCFA might need to change other activities to accommodate the timing of a

limited enrollment period. For example, every year HCFA announces risk

HMO capitation payment rates in September.26 This allows HMOs time to

decide whether they will renew their contract and to adjust premiums and

benefits before the new contract cycle begins in January. Depending on

the timing of the enrollment period, the announcement of the payment

rates might need to occur earlier in the year so that HMOs could set

premiums and benefits before Medicare’s open season. Sufficient time

would also be needed for HCFA to produce and publish comparison charts

as well as to review HMOs’ marketing materials. (See fig. 5.)

24CalPERS manages health benefits for about 1 million public employees and retirees. It operates one

open season, during which employees and retirees make about 120,000 enrollment changes annually.

See app. II for additional information on CalPERS.

25FEHBP manages health benefits for about 9 million employees, retirees, and dependents. See app. I

for additional information on FEHBP.

26The capitation payment is based on the adjusted average per capita cost (AAPCC), an actuarial

projection of what Medicare expenses will be for a given category of Medicare beneficiaries in

traditional fee-for-service Medicare. The rates change each calendar year.

Page 25 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Figure 5: Timing of HCFA and HMO Activities

Source: GAO analysis.

HCFA Would Have

Additional Responsibilities

Under Limited Enrollment

Period Policy

Under a limited enrollment period policy, HCFA would likely be responsible

for additional tasks. Some tasks would be new for HCFA; for example, the

BBA envisioned that the agency would prepare and distribute comparative

information. Other tasks would represent expansions of HCFA’s current

role—for example, operating an information hot line for beneficiaries and

resolving an increased volume of beneficiary complaints. The amount and

extent of these tasks would, of course, depend on the specifics of the

limited enrollment period policy enacted.

HCFA has efforts under way to produce comparative health plan

information but would need to take additional steps to distribute that

information to beneficiaries. Two of HCFA’s regional offices have developed

charts that compare local HMOs’ premiums and benefits, but these charts—

although available upon request—are not widely distributed.27 The agency

is working to make some HMO comparative information available on the

Internet but has no plans to distribute printed information directly to

27HCFA’s regional offices in San Francisco and Philadelphia have developed charts comparing the

benefits and premiums of local HMOs. The charts are distributed to news organizations and insurance

counselors primarily. (See GAO/HEHS-97-23, Oct. 22, 1996, for additional information.)

Page 26 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

beneficiaries. Currently, HCFA intends to leave information distribution to

beneficiary advocates and federally supported insurance counselors.28

Although HCFA has an information hot line for Medicare beneficiaries with

questions about Medicare, the system would likely be inadequate to handle

the volume of calls generated under a limited enrollment period policy.29

Representatives of HMOs, beneficiary advocacy groups, and benefit

consulting firms cautioned us that older people need time to understand

their options. Older people also seek considerable information before

deciding to join an HMO. Some large national brokers operate hot lines for

their client companies. These hot lines, staffed by trained counselors who

are familiar with Medicare and the company’s specific plan, answer

questions posed by the company’s retirees. Officials told us that these hot

lines need to be able to handle a large volume of calls. For example, the

hot line for one company (with 57,000 retirees) received about 1,000 calls

a day from the retirees during the 1995 enrollment season—even though

retirees not changing plans did not have to re-enroll.30 Some retirees called

repeatedly with questions about each step of the application and

enrollment process.

HCFA plans to test the distribution of special handbooks and detailed

comparison charts as part of its Medicare Competitive Pricing

Demonstration Project.31 These documents would contain information on

managed care plans and fee for service with Medigap that would help

beneficiaries make enrollment choices. HCFA also intends to make a

telephone counseling center and educational seminars available to

beneficiaries with questions. However, the demonstration project has

already been postponed once. According to HCFA officials, it is now

scheduled to begin during 1997.

In addition to preparing comparative information and operating a hot line,

HCFA would need both guidelines and procedures under which it would

allow beneficiaries to change plans outside the open season. With a

limited enrollment period, beneficiaries would be expected to change

28These counselors, many of whom are volunteers, are available through the federally supported, but

state-managed, Information, Counseling, and Assistance program. Counselors can provide

beneficiaries with general information about Medicare, Medicaid, managed care plans, and various

types of health insurance to supplement Medicare.

29Currently, the hot line receives about 50,000 calls a month from beneficiaries with questions on

various issues—including managed care.

30Officials explained that this type of enrollment system, so-called “passive enrollment,” tends to

reduce the number of beneficiary hot line calls.

31See footnote 9 for information on the Competitive Pricing Demonstration Project.

Page 27 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

plans only during the designated open season. However, as in other

programs with limited enrollment periods, exceptions would likely be

allowed.32 The BBA specified several conditions under which beneficiaries

could change plans outside the enrollment period. Some conditions—for

example, a beneficiary’s moving out of a plan’s service area—would be

easy for HCFA to evaluate and determine whether a plan switch would be

allowed. However, other conditions specified in the BBA would require

HCFA to investigate the specific case before making a determination. For

example, the BBA would have allowed beneficiaries to disenroll if they

could demonstrate that the health plan had materially misrepresented the

plan’s provisions in its marketing.

Conclusions Encouraging enrollment in a managed care plan can help the government’s

efforts to reduce high service utilization in the Medicare program without

unduly diminishing beneficiary access to services. To the extent that

enrollment and disenrollment policy revisions force health plans to retain

and serve Medicare’s more costly beneficiaries, the government can battle

the effects of the high utilization tendency inherent in unmanaged

fee-for-service reimbursement. However, these same policy revisions

could produce disincentives and obstacles to greater managed care

enrollment—for beneficiaries, health plans, employers, and HCFA—thereby

undermining the government’s very effort to lower utilization.

In fact, an annual limited enrollment period, along with restricted

disenrollment options, could have little impact on overall Medicare

spending. Although such a policy would reinforce the concept of managed

care and reduce the opportunities for less healthy HMO enrollees to change

to Medicare fee for service, our analysis suggests that the savings might be

relatively small. For example, if enrollment and disenrollment had been

limited for California beneficiaries in 1994, Medicare savings would have

been—at most—$20 million to $30 million. In contrast, Medicare spent

$4.2 billion on payments to California HMOs during that year.

Moreover, an enrollment policy change would likely have several

unintended consequences, including the loss of important beneficiary

protections and complications for many employers who offer managed

care to their retirees. The result could well be substantially slower growth

32For example, the 1995 criteria FEHBP used to allow enrollment changes outside open season

included 27 events, such as changes in marital or family status, changes in employment status,

relocation to another part of the country or to another country, the member becoming eligible for

Medicare, the member’s or a family member’s losing Medicaid coverage, and changes in the member’s

health plan.

Page 28 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

in Medicare managed care and increased beneficiary dissatisfaction. The

magnitude of these impacts would depend, however, on the details of the

adopted policy, beneficiary and employer reaction to those details, and the

effects of any other policy changes made at the same time.

Agency Comments We provided copies of this report to officials of HCFA’s Office of Managed

Care. HCFA agreed that the monthly disenrollment option is an important

consumer protection. Our report indicates that changing Medicare’s

current policy of allowing beneficiaries to switch among HMOs or between

an HMO and fee for service could have far-reaching consequences. We

reported that this view is shared by beneficiary advocates and HMO

officials, who also believe that eliminating this option would deter some

beneficiaries from joining a managed care plan.

HCFA also stated that any analysis of beneficiary choice issues should

examine Medigap policy. Our report notes that under current law,

beneficiaries have no guarantee that a Medigap policy will always be

available to them when they disenroll from an HMO. As a result, they may

be reluctant to join an HMO. HCFA commented that it supports changes to

the Medigap statute so that beneficiaries dissatisfied with their managed

care plan would be able to return to fee for service and to the Medigap

policy of their choice. In a 1996 report, we made a similar

recommendation.33 HCFA’s comments appear in appendix IV.

As arranged with your office, unless you announce its contents earlier, we

plan no further distribution of this report until 5 days after the date of this

letter. At that time, we will send copies to the Secretary of Health and

Human Services. We will make copies available to others on request.

33Medigap Insurance: Alternatives for Medicare Beneficiaries to Avoid Medical Underwriting

(GAO/HEHS-96-180, Sept. 10, 1996).

Page 29 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
B-275832 

Please contact me at (202) 512-7114 if you or your staff have any questions.

Major contributors to this report are listed in appendix V.

Sincerely yours,

William J. Scanlon

Director, Health Financing and

 Systems Issues

Page 30 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Page 31 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Contents

Letter 1

Appendix I 

The Federal

Employees’ Health

Benefits Program

34

Overview 34

Appendix II 

The California Public

Employees’

Retirement System

38

Overview 38

Enrollment 38

Appendix III 

Methodology

41

Estimate of Potential Savings From Limiting Disenrollment 42

Survey of Medicare Risk HMOs 43

Appendix IV 

Comments From the

Health Care Financing

Administration

44

Appendix V 

Major Contributors to

This Report

45

Related GAO Products 48

Tables Table 1: Medicare Risk HMO Membership Growth,

December 1994 to December 1995

15

Table 2: Medicare’s Potential Savings Had Disenrollment

Opportunities Been Limited for Beneficiaries in California, 1994

21

Figures Figure 1: Medicare Risk HMO Enrollment, 1987-96 5

Figure 2: Number of Risk HMO Contracts, 1987-96 6

Page 32 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Contents

Figure 3: Number of Medicare Beneficiaries Enrolled in Risk

HMOs Responding to Our Survey, by Type of Enrollment

17

Figure 4: Distribution of Employee Groups’ Enrollment Dates and

Membership in These Groups

18

Figure 5: Timing of HCFA and HMO Activities 26

Abbreviations

AAPCC adjusted average per capita cost

BBA Balanced Budget Act of 1995

CalPERS California Public Employees’ Retirement System

FEHBP Federal Employees’ Health Benefits Program

HCFA Health Care Financing Administration

HHS Department of Health and Human Services

HMO health maintenance organization

NCS National Computer System

OPM Office of Personnel Management

Page 33 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix I 

The Federal Employees’ Health Benefits

Program

Overview To help us analyze the impact of a limited enrollment period, with limited

disenrollment, we looked at the Federal Employees’ Health Benefits

Program (FEHBP). We selected FEHBP because it is a large employersponsored health insurance program that conducts an annual enrollment

period (called an “open season”) and, like Medicare, offers members a

choice of health plans.

FEHBP is the largest employer-sponsored health insurance program in the

world. The Office of Personnel Management (OPM) administers the

program, which went into effect on July 1, 1960. FEHBP currently provides

voluntary health insurance coverage for about 9 million people, including

2.3 million active employees, 1.8 million retirees, and 5 million dependents.

In fiscal year 1995, FEHBP spent about $17.7 billion to cover its members.

FEHBP outperforms Medicare—and probably private plans—in controlling

health care costs.

The federal government and FEHBP members share program costs. The

government contribution is readjusted annually. For 1997, the federal

government’s maximum annual contribution is $1,630 for individuals and

$3,510 for families.34 The beneficiary’s contribution for individual coverage

ranges from about $400 to $2,000 or more, and family coverage ranges

from $800 to almost $5,000.

In 1994, 59 percent of FEHBP retirees aged 65 or older also enrolled in

Medicare, although enrollment is not mandatory.35 When a retiree enrolls

in Medicare, FEHBP serves as a supplemental insurance policy. FEHBP plans

must waive deductibles, copayments, and coinsurance for services

covered by both programs. Retirees pay the same premiums as current

employees.

FEHBP offers a selection of several types of health plans, including many

managed care plans. As in Medicare, the number of plans offered to

members varies by location. Most of the fee-for-service plans (12 of

15) offer a preferred provider organization option. Under FEHBP, individual

health plans establish their own relationships with providers, process

individual claims, develop benefits, and devise marketing strategies.

34The federal government cannot pay more than 75 percent of a plan’s total premium.

35A 1983 amendment to the FEHBP legislation extended Medicare coverage to FEHBP members aged

65 or older. Before 1983, such members were prohibited from participating in the Medicare program.

Page 34 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix I 

The Federal Employees’ Health Benefits

Program

Since 1980, the number of HMOs has increased significantly. By 1995, about

29 percent of FEHBP members were enrolled in HMOs.36 Like the Medicare

population, however, a much lower proportion of older retirees were

enrolled in HMOs; by 1996, only about 12 percent of FEHBP members aged 65

and older and 10 percent of Medicare beneficiaries were enrolled in HMOs.

Studies have shown that FEHBP members who choose an HMO are generally

younger and healthier than members who select fee-for-service plans.

Role of OPM and

Employing Agencies

OPM administers FEHBP, although each federal agency collects information

and premiums from employees. OPM also interprets the health insurance

laws, writes regulations, and resolves disputed claims. OPM approves

qualified plans for participation in the program and negotiates with plans

nationwide to determine benefits and premiums for the following year.

OPM also publishes enrollment and health plan information, including

charts that compare benefits and premiums. OPM requires that the same

premium be offered to employees and retirees, regardless of their age,

gender, or health status. It also requires that national plans offer the same

premium nationwide. Local plans may offer local rates.

Enrollment FEHBP holds one annual open season, during which employees and retirees

may voluntarily enroll in a plan, change plans or options within a plan, or

change from individual to family coverage. Most changes by retirees occur

during the first 2 weeks of the enrollment season. In 1996, open season

occurred between November 11 and December 9; changes made during

open season became effective on January 5, 1997—the first day of the next

insurance year. Each year, about 5 to 10 percent of beneficiaries change

plans.

Enrollment for Retirees Most federal employees remain members of FEHBP when they retire; they

are familiar with how the open season works and with how to obtain their

health plan information. However, retirees who choose to disenroll from

the program cannot return unless they had joined a Medicare risk HMO.

They are required to sign a form to show they understand that they cannot

subsequently rejoin.

Retirees can receive health plan information from health fairs; from FEHBP

directly; and from the National Computer System (NCS), an Iowa City,

36Enrollment by Medicare beneficiaries in HMOs has increased from 1 million in 1987 to about

4 million in 1996.

Page 35 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix I 

The Federal Employees’ Health Benefits

Program

Iowa, contractor that conducts retiree enrollment activities. Each year,

some members of the Congress sponsor local health fairs for federal

employees and retirees. Most of the people who attend such fairs are

retirees, in part because current employees attend employer-sponsored

health fairs. Retirees can also call FEHBP directly to request information or

to discuss their options. The Retirement Information Office receives about

6,000 calls a month, with about 25 percent of the calls focusing on health

plans. During open season, the Health Benefits Branch receives about 500

calls a day requesting information. NCS, however, does not deal directly

with retirees. Occasionally, it receives calls from retirees but refers them

to OPM.

For the past 10 years, OPM has had a contract with NCS to handle printing,

distribution, processing, and brochure requests. OPM sought a contractor

because it wanted to use technology, such as scanning and other

automated equipment, that OPM did not have. Also, NCS can hire temporary

workers during busy times of the year; OPM does not have the staff to

handle retiree enrollment. OPM believes that the third-party contract with

NCS is more efficient and less expensive than if OPM was to do the work in

house.

About June of each year, OPM designs a health benefits application form

and sends it and a computer tape of the retiree rolls to NCS. NCS waits until

approximately the first week in September, when the OPM Policy and

Information Office produces the final list of plans and premiums. Then,

NCS prints a final list of available plans. In addition, it prints the

comparative information with a rate sheet and envelopes with addresses.

At the end of October, NCS mails to retirees an E-Z application form, an

instruction form with the rates, and a return envelope. Retirees who want

to change plans return their forms to NCS, which enters the change on its

computer and sends the information to OPM weekly during open season.37

OPM notifies plans of any changes.

When retirees receive the information from NCS, they can request an

enrollment change or request additional information on specific plans.

Unless they request information from NCS, they will only receive it from

their current plans. Those who do not return their forms automatically

remain in the plan to which they belonged the previous year.

37Currently, OPM also allows retirees to make enrollment changes by telephone.

Page 36 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix I 

The Federal Employees’ Health Benefits

Program

Role of HMOs HMOs supply plan information to FEHBP, which distributes it to retirees

through NCS. HMOs can also market to retirees through advertisements in

newspapers, radio, and on television. However, they generally do not

contact retirees directly unless a retiree is already a member of the HMO. In

contrast, Medicare risk HMOs are responsible for marketing to prospective

members; HCFA does little to provide plan information directly to

beneficiaries. In addition to doing the same kind of mass media advertising

as FEHBP HMOs, Medicare risk HMOs are permitted to conduct one-on-one

and group meetings. Medicare HMOs rely heavily on these techniques to

attract new members.

Page 37 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix II 

The California Public Employees’

Retirement System

Overview To help us understand the impact of a limited enrollment period, we

examined the California Public Employees’ Retirement System (CalPERS).

As with FEHBP, CalPERS is a large organization that conducts an open season

each year and offers members a choice of health plans. For about 35 years,

CalPERS has offered health insurance to employees of public agencies. In

1995, CalPERS had about 1 million members and paid $1.5 billion in health

care premiums.

The organization has two divisions. The Health Plan Administration

Division negotiates contracts and rates with the HMOs. The Health Benefit

Services Division handles enrollments or changes in plans and conducts

educational activities for members.38 Each year, the Health Benefit

Services Division processes about 120,000 enrollment documents.

CalPERS offers members a choice of 22 plans. During the open season, plans

must accept enrollees regardless of health status, age, or previous medical

condition. CalPERS encourages its members to join an HMO by allowing

members to choose from among 16 HMOs, including 9 Medicare risk HMOs.

Currently, about 76 percent of CalPERS members are enrolled in HMOs. For

people who are eligible for Medicare, the advantage of enrolling in an HMO

through CalPERS is that CalPERS will reimburse them for the Medicare part B

premium. If retirees were not enrolled in a CalPERS health plan at the time

they retired, they are not eligible to enroll during their retirement. Also,

CalPERS offers HMO benefits, such as prescription drugs, that are better than

the benefits people could obtain individually.

To make comparisons easier for members, CalPERS requires HMOs to offer

similar coverage. In addition, plans cannot charge more than the standard

premium, which is the same for anyone enrolling in the specific plan. The

amount an employer contributes to a premium varies among the public

agencies participating in CalPERS.

Enrollment CalPERS has one annual open season. During 1996, the dates were changed

from an open season beginning May 1 with an effective date of August 1 to

an open season beginning September 1 with an effective date of January 1,

1997. CalPERS changed its season to coordinate its deductibles with its

preferred provider organizations and with other state benefits such as the

vision and dental care programs. The preferred provider organizations

with which CalPERS contracts and the other state programs operate on a

calendar year. CalPERS officials told us that they found the process of

38In 1995, about 4 percent of CalPERS members changed plans.

Page 38 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix II 

The California Public Employees’

Retirement System

shifting the health benefits cycle manageable and not very costly but that

the organization needed about 15 months to prepare for the change.

Retirees who want to change plans visit the CalPERS office in person or

submit a written request. Medicare beneficiaries must notify CalPERS in

writing of a change in enrollment. CalPERS instructs Medicare beneficiaries

to mail their enrollment information directly to the HMO of their choice

during open season. The plan sends the new enrollment information to

HCFA.

CalPERS officials characterized the peak load associated with open season

as a time when the staff members are “basically busier.” To handle the

peak load, the organization hires temporary workers and allows its

permanent staff to work overtime hours.39

Educating members is an important task for CalPERS, especially educating

older people who fear signing over their Medicare cards to an HMO. CalPERS

sponsors retirement seminars for active employees who are within 5 years

of retirement. It also offers 4-hour individual sessions for people who will

retire soon. During the open season, CalPERS provides generic educational

information to its members. For example, CalPERS publishes a booklet

annually that describes the features of each plan. It also publishes a

companion booklet that contains comparisons of the quality and

performance of plans. In 1995, CalPERS sent the books directly to all

members. In past years, CalPERS held quarterly informational seminars for

retirees; however, the seminars were discontinued because of poor

attendance.

CalPERS mails an exit survey to members who leave a plan to determine

why they left. Last year, it mailed 15,227 surveys to members with basic

coverage and 1,535 to members with supplemental and managed care

plans. In 1995, CalPERS also sent members a survey that measured member

satisfaction. This survey was sent to a random sample of members of

various plans. Findings from the exit survey allow CalPERS staff to evaluate

the medical care and services the members receive as well as discuss

areas of dissatisfaction with HMO representatives during contract

negotiations. CalPERS officials believe that the two surveys provide

members with a balanced perspective of member experience with their

health plan.

39Officials could not provide us with data on the amount of overtime worked.

Page 39 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix II 

The California Public Employees’

Retirement System

CalPERS, like FEHBP, restricts HMOs’ ability to market directly to members,

although general marketing takes place statewide. Plans are not allowed to

use gifts as incentives and are prohibited from directly soliciting people

who are not members of their plan.

CalPERS officials have no data on the number of members who travel

seasonally (“snowbirds”). However, they estimate that between 8 and

10 percent of their Medicare enrollees might be snowbirds. To assist such

members in receiving health services, CalPERS has encouraged HMOs to

develop reciprocal agreements with other plans.

Page 40 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix III 

Methodology

We assumed that a new Medicare enrollment policy might be similar, but

not necessarily identical, to the provisions contained in the conference

report that accompanied the Balanced Budget Act of 1995 (BBA), H.R.

2491.40 Therefore, we developed and analyzed a limited enrollment period

policy modeled on the BBA. Although other alternatives are available to

Medicare beneficiaries, we focused our attention on enrollment in risk

HMOs because they currently serve most beneficiaries not in Medicare fee

for service. The hypothetical policy we used to guide our analysis had

three basic characteristics:

• One enrollment period and one date when benefits became effective

would be specified. However, beneficiaries could elect coverage when

they first became eligible for Medicare benefits regardless of the time of

year this occurred.

• The Secretary of HHS would be responsible for producing and distributing

comparative plan information to beneficiaries as well as making a hot line

available to them.

• Beneficiaries could disenroll from an HMO during the year, but they would

automatically be enrolled in fee for service. Beneficiaries could switch to

another HMO during the year only under limited circumstances, including

moving out of their HMO’s service area.

We also analyzed the effect of limiting beneficiaries’ disenrollment options

under two alternative scenarios:

• no disenrollment would be allowed, except under specified circumstances,

such as moving out of the health plan’s service area; and

• disenrollment would be allowed for any reason during the first 90 days

after coverage was effective, but no disenrollment would be allowed after

90 days except under specified circumstances.

To gather information on the likely effects of a limited enrollment period

and limited disenrollment opportunities, we interviewed representatives of

10 Medicare risk HMOs, the American Association of Health Plans, HCFA,

national benefits consulting firms, selected large employers who offer

managed care options to retirees, Medicare beneficiary advocacy

organizations, FEHBP, and CalPERS. In addition, we surveyed HMOs with

Medicare risk contracts regarding their employer group business.

40House Conference Report 104-350, pp. 1093-1102. Because the act was vetoed by the President, these

provisions did not become law.

Page 41 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix III 

Methodology

We analyzed HMO disenrollment data and fee-for-service claims in

California to estimate potential Medicare savings from limiting

disenrollment.

Estimate of Potential

Savings From Limiting

Disenrollment

To estimate the potential Medicare savings that a policy limiting

disenrollment opportunities might generate, we compared 1994 Medicare

expenditures for California beneficiaries who changed from an HMO to fee

for service with the expenditures that Medicare would have incurred had

these beneficiaries been required to remain in their HMO throughout the

year. We limited our analysis to California beneficiaries to reduce the

computational burden. Nonetheless, because Medicare HMO enrollment is

concentrated in a relatively small number of states—including

California—our analysis covers about 36 percent of all Medicare

beneficiaries enrolled in a risk HMO in 1994.

We selected our sample population using 1994 data from HCFA’s

Enrollment Database. We identified 738,000 Medicare beneficiaries who

met the following criteria: in January 1994 they belonged to a risk HMO,

they were eligible for Medicare parts A and B, and they reported living in

the same county 1 year later (in January 1995).41 We then identified a

subset of 15,772 beneficiaries who changed to fee for service for 1 or more

months during 1994.

We computed the amount that Medicare would have paid for each of the

15,772 beneficiaries if they had remained in their HMO for the entire year.

This amount varies by beneficiaries’ county of residence and demographic

and other factors.42 We then calculated the amount Medicare actually

spent on these beneficiaries in 1994—that is, the capitation payments for

the period they were enrolled in an HMO plus their claims payments43 for

the period they were in fee for service.

Finally, we estimated potential savings by subtracting the amount

Medicare would have paid if the 15,772 beneficiaries had remained in HMOs

from the amount Medicare actually paid during the year. To estimate

41Because the BBA would have allowed beneficiaries who moved out of their HMOs’ service areas to

return to fee for service, we excluded 25,918 beneficiaries who reported living in a county in 1995 that

was different from the county they reported in January 1994.

42The demographic characteristics that affected HMO capitation payments in 1994 were age, sex,

institutional status, and Medicaid status. Capitation rates also depend on whether a beneficiary is

disabled or has end-stage renal disease.

43The claims payments covered inpatient services, outpatient services, physician/supplier services,

care in a skilled nursing facility, care in a hospice, home health care, and durable medical equipment.

Page 42 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix III 

Methodology

potential savings of a policy that would allow beneficiaries to return to fee

for service during the first 90 days, we followed the same steps, but

included only those 11,684 beneficiaries who changed to fee for service on

April 1, 1994, or later. (These estimates are reported in table 2.)

Our estimates are probably upper bounds on potential savings in

California. If a limited disenrollment policy discouraged some

beneficiaries from initially enrolling in an HMO, potential savings could be

lower. Whether potential national savings can be extrapolated using our

estimates for California depends on whether beneficiaries switch to fee for

service at the same rate in other states as they do in California.

Nonetheless, the behavior of Californians would heavily influence

estimates of national savings because that state accounted for 44 percent

of all payments to Medicare risk HMOs in 1994.

Survey of Medicare

Risk HMOs

To collect information on contracts between Medicare HMOs and employer

groups, we mailed a survey to all 118 HMOs that had risk contracts in effect

on January 1, 1995. Eighty-three percent of the HMOs responded to our

survey and provided us with summary data on retiree group contracts,

including whether the contracts had a limited enrollment period and a

lock-in requirement.

Page 43 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix IV 

Comments From the Health Care Financing

Administration

Page 44 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix V 

Major Contributors to This Report

James C. Cosgrove, Assistant Director, (202) 512-7029

Maryanne Keenan, Senior Social Science Analyst

Andrea Rozner, Senior Evaluator

Lori Weiss, Senior Evaluator

Page 45 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix V 

Major Contributors to This Report

Page 46 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix V 

Major Contributors to This Report

Page 47 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Related GAO Products

Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO

Performance (GAO/HEHS-97-23, Oct. 22, 1996).

Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed

Care (GAO/HEHS-96-184, Sept. 17, 1996).

Medigap Insurance: Alternatives for Medicare Beneficiaries to Avoid

Medical Underwriting (GAO/HEHS-96-180, Sept. 10, 1996).

Medicare HMOs: Rapid Enrollment Growth Concentrated in Selected States

(GAO/HEHS-96-75, Jan. 18, 1996).

Medicare: Increased HMO Oversight Could Improve Quality and Access to

Care (GAO/HEHS-95-155, Aug. 3, 1995).

(101392) Page 48 GAO/HEHS-97-50 Limited Enrollment Period for Medicare
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