United States General Accounting Office

GAO Testimony

Before the Special Committee on Aging, U.S. Senate

For Release on Delivery

Expected at 9:30 a.m.

Thursday April 10, 1997

MEDICARE MANAGED

CARE

HCFA Missing

Opportunities to Provide

Consumer Information

Statement of William J. Scanlon, Director

Health Financing and Systems Issues

Health, Education, and Human Services Division

GAO/T-HEHS-97-109

Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

Information

Mr. Chairman and Members of the Committee:

We are pleased to be here today to discuss Medicare beneficiaries’ need

for comparative information on health maintenance organizations (HMO)

and steps the Health Care Financing Administration (HCFA) could take to

meet that need promptly. Such information would be useful not only to the

more than 4 million Medicare beneficiaries enrolled in HMOs, but also to

the millions of beneficiaries expected to enroll in a managed care plan

during the next several years. Although Medicare HMOs must cover all the

benefits available under traditional fee-for-service Medicare, they differ

from one another in additional benefits provided, required premiums,

networks of providers, and ability to satisfy members. Because of these

differences, beneficiaries need information to pick the plan that is right for

them.

Last October, at the request of the Chairman, the Ranking Minority

Member, and other members of the Senate Special Committee on Aging,

we reported1

 on the marketing, education, and enrollment practices of

Medicare risk HMOs.2

 We also reviewed HCFA’s performance in providing

beneficiaries information about Medicare HMOs and the usefulness of

readily available HCFA data to caution beneficiaries about poorly

performing HMOs. To develop this information, we interviewed

representatives from HCFA, large health care purchasing organizations,

HMOs, and beneficiary advocacy groups; reviewed beneficiary case files;

studied HMO marketing materials; and analyzed HMO data available to HCFA.

In our report, we recommended several steps that the Secretary of Health

and Human Services should take promptly to help Medicare beneficiaries

make informed health care decisions. Today, I will discuss both our

report’s findings and HCFA’s plans to provide beneficiaries with more

information about HMOs.

In summary, we found that HCFA does not distribute to beneficiaries

comparative consumer guides such as those the federal government and

many employer-based health insurance programs routinely distribute to

their employees and retirees. Without these guides, beneficiaries cannot

easily compare HMOs. Marketing materials distributed by HMOs are of little

help because HMOs describe their benefits and costs using different terms

and formats.

1

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

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

2

Risk HMOs assume the financial risk of providing care for the monthly capitated amount Medicare

pays.

Page 1 GAO/T-HEHS-97-109
Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

Information

Although beneficiaries lack information on HMOs, HCFA does not. HCFA

amasses volumes of information that could be summarized, packaged, and

distributed to help beneficiaries choose among competing Medicare HMOs.

For example, HCFA compiles information that can be used to construct HMO

benefit comparison charts. HCFA also routinely collects other information—

such as disenrollment rates, beneficiary complaints about HMOs, and the

results of HCFA’s HMO monitoring visits—that could be provided to

beneficiaries. Because some plans do a better job of retaining Medicare

beneficiaries than others, disenrollment rates—an indicator of beneficiary

satisfaction—may be especially useful in helping beneficiaries distinguish

among competing HMOs. For example, our analysis of HCFA’s data showed

that 1995 annual disenrollment rates ranged from 4 to 42 percent among

Los Angeles HMOs and from 12 to 37 percent among Miami HMOs.

HCFA has initiatives, planned or under way, that will make some

comparative HMO information available to beneficiaries. Although these

initiatives are steps in the right direction, they are very small steps. With

little additional time or effort, HCFA could do much more to help Medicare

beneficiaries make informed selections among available HMOs. Specifically,

HCFA should adopt the recommendations in our report by

• requiring standard formats and terminology in HMOs’ informational

materials;

• producing benefit and cost comparison charts with all Medicare HMO

options available for each market area and ensuring that interested

beneficiaries are notified of the charts’ availability; and

• analyzing and widely distributing data it already collects—such as HMO

disenrollment rates, complaint rates, and the results of HMO monitoring

visits—that can help beneficiaries distinguish among competing HMOs.

Background Most beneficiaries live in areas where they can choose to receive Medicare

benefits either through an HMO or through a traditional fee-for-service

arrangement. HMOs are required to cover all Medicare benefits, but many

also provide additional services, such as outpatient prescription drugs,

routine physical exams, and hearing aids, that are not covered under

traditional Medicare. Enrollees’ cost varies as well; some HMOs charge a

monthly premium but others do not.3

 In return for the advantages offered

by HMOs, beneficiaries give up their freedom to choose any provider. If a

beneficiary enrolled in an HMO seeks nonemergency care from providers

3

Beneficiaries must continue to pay a monthly premium to Medicare for part B (currently, $43.80 per

month).

Page 2 GAO/T-HEHS-97-109
Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

Information

other than those designated by the HMO, or seeks care without following

the HMO’s referral policy, the beneficiary is liable for the full cost of that

care.

Because of the additional benefits offered by HMOs and the relatively low

out-of-pocket costs, growing numbers of Medicare beneficiaries are

leaving Medicare fee-for-service and joining managed care plans. In fact,

Medicare HMO enrollment is growing by about 85,000 beneficiaries per

month. More than 11 percent, or 4.4 million, of the 38 million Medicare

beneficiaries are now enrolled in “risk contract” HMOs. The Congressional

Budget Office estimates that nearly 15 million beneficiaries will be

enrolled in a risk HMO by the year 2007.

Medicare Does Not

Distribute Health Plan

Information to

Beneficiaries

Medicare currently lags behind other large purchasers in helping

beneficiaries choose among plans. The Federal Employees Health Benefits

Program, the California Public Employees’ Retirement System, Xerox

Corporation, and Southern California Edison are all large health care

purchasers that provide enrollees with comparative information such as

premium rates, benefits, out-of-pocket costs, and member satisfaction

survey results for available plans. By contrast, HCFA does not routinely

provide beneficiaries comparative information about the Medicare HMOs

available in their area.

For the last few years, however, HCFA’s regional office in San Francisco has

produced HMO comparison charts for selected market areas.4

 More

recently, HCFA’s regional office in Philadelphia has also produced

comparison charts. The regional offices distribute these charts, however,

mainly to HMOs, some news organizations, and federally supported

insurance counselors in the Information, Counseling, and Assistance (ICA)

program.5

 Beneficiaries may request the charts from the regional offices,

but few beneficiaries know the charts exist. Even the ICA insurance

counselors, most of whom are volunteers, may be unaware of the charts.

When GAO staff called a Los Angeles ICA insurance counselor and asked

specifically about Medicare HMO information, the counselor did not

mention that comparison charts were available.

4

However, the regional office has not yet issued 1997 comparison charts—even though the capitation

rates Medicare pays to HMOs, and thus their premiums and benefits, changed on January 1, 1997.

5

The ICA program is federally supported but state managed. ICA counselors can provide beneficiaries

with general information about Medicare, Medicaid, managed care plans, and various types of health

insurance available to supplement Medicare.

Page 3 GAO/T-HEHS-97-109
Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

Information

Beneficiaries Face a Nearly

Impossible Task to

Compare HMOs’ Costs and

Benefits

For beneficiaries considering Medicare managed care for the first time or

switching to a new plan, getting information on area HMOs can be time

consuming. Beneficiaries must first find the correct telephone number to

request a list of area plans and then call each plan and request

information. When our staff called all 14 Medicare HMOs in Los Angeles to

request their marketing materials, information from only 10 plans was

received after several weeks and many follow-up phone calls. Some plans

were reluctant to mail the information but offered to send it with a sales

agent. Declining visits from sales agents, we finally received the missing

brochures by calling the HMOs’ marketing directors and insisting the

materials be mailed.

Using HMOs’ marketing materials to compare HMOs’ benefits and costs is

extremely difficult because each plan uses different formats and

terminology. One Los Angeles HMO’s “summary of benefits” spanned 14

pages; another had only a 1-page summary. All together, just the benefit

summaries from the 14 Los Angeles HMOs operating in 1995 cover a

10-foot-wide wall. Moreover, terminology differs from plan to plan. A

beneficiary reading the marketing materials from several HMOs may not be

able to tell, for example, which HMO provides better prescription drug

coverage. Most HMOs that offer a drug benefit place an annual limit or cap

on the dollar amount covered. Two HMOs with seemingly identical $1,000

annual drug limits may not offer equivalent benefits, however. One HMO

may count its actual drug costs, including any discounts it receives, in

computing its limit, while the other HMO may use generally higher

manufacturers’ list prices in computing its limit. Furthermore, HMO

brochures make comparisons difficult by using a variety of terms—such as

“preferred drugs,” “covered drugs,” “formulary drugs,” “legend drugs,” and

“authorized drugs”—in describing their prescription drug benefit limits.

HCFA Could Package

and Distribute

Available Information

on HMOs

HCFA has a wealth of data collected for program administration and

contract oversight purposes that can indicate beneficiaries’ relative

satisfaction with individual HMOs. These indicators include statistics on

beneficiary disenrollment and complaint rates. In addition, HCFA collects

other HMO-specific information, including plans’ financial data and reports

from monitoring visits to HMOs. However, HCFA does not routinely

distribute this potentially useful information.

Page 4 GAO/T-HEHS-97-109
Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

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Publishing Disenrollment

Rates Could Help

Beneficiaries Compare

Competing HMOs

Because Medicare beneficiaries enrolled in HMOs can vote with their feet

each month—switching plans or returning to fee-for-service—a

comparison of HMOs’ disenrollment rates can suggest beneficiaries’ relative

satisfaction with plans’ service, benefits, out-of-pocket costs, and quality.

If beneficiaries are about equally satisfied with HMOs in a market, these

HMOs’ disenrollment rates should be about the same. Despite the potential

value of such information, however, HCFA neither routinely nor

systematically compares HMO disenrollment rates. Thus, HCFA misses an

opportunity to inform beneficiaries of plans with good records of retaining

Medicare enrollees.

To illustrate the value of disenrollment rates as an indicator, we analyzed

1995 HCFA disenrollment data for two large managed care markets: Los

Angeles and Miami. We found that Medicare HMOs’ ability to retain

beneficiaries varied widely among HMOs in the same market.6

 For some

HMOs, disenrollment rates were high enough to raise questions about

whether the HMO’s emphasis was on providing health care to enrollees or

recruiting new enrollees to replace the many who disenrolled.

Annual disenrollment rates7

 varied substantially among HMOs operating in

the same market. Among the 13 Los Angeles HMOs8

 we analyzed,

Foundation Health’s 42 percent disenrollment rate was the highest in 1995.

(See fig. 1.) Four other plans, however, had disenrollment rates exceeding

20 percent. In contrast, several HMOs had disenrollment rates of 10 percent

or less. Kaiser Foundation Health Plan had the lowest rate—4 percent. The

seven Miami HMOs active for all of 1995 showed a similar, although slightly

less extreme pattern.

6

We excluded from our analysis disenrollments due to beneficiary death or loss of Medicare part B

eligibility.

7

Annual disenrollment rates represent the percentage of an HMO’s average Medicare enrollment lost to

disenrollment after excluding disenrollments due to death or loss of Medicare part B eligibility.

8

One Los Angeles HMO was excluded from our analysis because it had fewer than 100 members.

Page 5 GAO/T-HEHS-97-109
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Opportunities to Provide Consumer

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Figure 1: Los Angeles Medicare HMOs’ Annual Disenrollment Rates, 1995

Foundation

Prudential

Watts

Maxicare

Scan

CareAmerica

FHP

Aetna

Inter Valley

Health Net

Pacificare

Cigna

Kaiser

0 10 20 30 40 50

Percentage of Members in Plan

Note: Annual disenrollment rates are the number of beneficiaries who disenrolled—excluding

members who died or lost Medicare part B eligibility—in 1995 compared with the average

number of enrollees in 1995.

Source: GAO analysis of HCFA disenrollment data.

Beneficiaries who leave an HMO within a short time are more likely to have

been poorly informed about managed care in general or about the specific

HMO they joined than those who leave after a longer time. Consequently,

rates of early disenrollment may indicate beneficiary confusion and

marketing problems. In our early disenrollment calculations, we included

both cancellations—beneficiaries who signed an application but canceled

before the effective date—and “rapid disenrollment”—beneficiaries who

left within 3 months of enrollment.

Page 6 GAO/T-HEHS-97-109
Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

Information

Our analysis showed a wide variation in plans’ early disenrollment rates.

In 1995, Medicare HMOs in Los Angeles had early disenrollment rates

ranging from 5 to 29 percent. (See fig. 2.) For Miami HMOs, early

disenrollment rates ranged from 9 to 30 percent. That is, nearly one out of

three beneficiaries who signed an application with Watts Health

Foundation, Inc. (Los Angeles) or CareFlorida (Miami) canceled the

application or left the plan shortly after the effective date.

Figure 2: Los Angeles Medicare HMOs’ Rates of Early Disenrollment, 1995

Percentage of Beneficiaries Who Applied

Watts

Foundation

Scan

Maxicare

CareAmerica

FHP

Prudential

Cigna

Inter Valley

Aetna

Pacificare

Health Net

Kaiser

0 5 10 15 20 25 30 35

Source: GAO analysis of HCFA data.

Disenrollment rates do not indicate the reason for beneficiary

dissatisfaction. Out-of-pocket costs, access, or quality issues can all affect

beneficiaries’ decisions to disenroll. However, we found such large

variations within market areas that, even as gross indicators,

Page 7 GAO/T-HEHS-97-109
Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

Information

disenrollment rates can provide valuable information to beneficiaries

trying to distinguish among seemingly identical HMOs. Furthermore, if

disenrollment rates are published, then health plans may begin to compete

on the basis of service and member retention as well as price and drug

benefits. In fact, at least one Medicare HMO with low disenrollment

advertises its member retention rate. Because beneficiaries do not know

about competing plans’ member retention (or disenrollment) rates,

however, they cannot use this information to compare plans.

HCFA’s Consumer

Information Initiatives

Fall Short of

Reachable Goals

HCFA has several initiatives to compile information on Medicare HMOs,

make that information available, and increase consistency among HMOs’

marketing materials. These initiatives include

• making a database of HMO information available on the Internet;

• issuing National Marketing Guidelines for HMOs to follow when preparing

materials distributed to beneficiaries;

• conducting a satisfaction survey of HMO enrollees; and

• compiling selected HMO performance measures from the Health Plan

Employer Data and Information Set 3.0 (HEDIS 3.0),9

 including data from a

longitudinal study of HMO enrollees’ health status.

Although these initiatives are a step in the right direction, many of them

fall short in one way or another. For example, HCFA’s planned Internet HMO

database may have limited value to beneficiaries. Although the

information will be available, it may not reach beneficiaries who want it.

Many beneficiaries may lack Internet access or the computer

sophistication necessary to use the database. HCFA realizes that relatively

few Medicare beneficiaries “surf the Web.” HCFA expects that HCFA regional

offices, the Aging Network, insurance counselors, and beneficiary

advocates will be the primary users of the database and will distribute the

information to beneficiaries. Such a system can break down, however, as

we discovered when we called the Los Angeles ICA office seeking

information on HMOs.

HCFA’s National Marketing Guidelines initiative may not ensure that

beneficiaries can readily compare HMOs using plans’ marketing materials.

As currently drafted, the guidelines will not require HMOs to use standard

9

HCFA’s selected HEDIS 3.0 measures include effectiveness of care, access to/availability of care,

health plan stability, use of services, cost of care, informed health care choices, and health plan

descriptive information. HCFA helped develop and fund the National Committee for Quality

Assurance’s efforts to develop Medicare-specific clinical effectiveness measures included in HEDIS

3.0.

Page 8 GAO/T-HEHS-97-109
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Opportunities to Provide Consumer

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formats and terminology in their marketing materials. Because adherence

to the model formats in the guidelines will be voluntary, plans may

continue to produce and distribute very dissimilar marketing

materials—such as those we obtained from the Los Angeles HMOs.

The initial HMO enrollee satisfaction survey results may be of limited value

because the initial survey excludes beneficiaries who were so dissatisfied

with their health plan that they disenrolled.10 HCFA plans to conduct the

survey—known as the Consumer Assessments of Health Plans Study—this

summer and release the results in the fall. However, HCFA will survey only

beneficiaries who have been continuously enrolled in the same plan for 12

months or more. In the two markets we studied, we found that PCA,

CareFlorida, Foundation, Prudential (Los Angeles), and Watts lost more

than 25 percent of their members (excluding deaths and loss of eligibility)

in 1995. HCFA’s survey will miss these Medicare beneficiaries.

We have similar concerns about HCFA’s planned longitudinal study of HMO

enrollee health status. HCFA plans to gather self-reported health status data

from a sample of HMO enrollees and then resurvey those same enrollees 2

years later to determine if their health status has improved, stayed the

same, or deteriorated. HCFA intends to compare health outcomes in

specific HMOs using the survey results. This survey, however, will miss

beneficiaries who become ill and leave because they are dissatisfied with

the care they received in their health plan. Moreover, because the study is

longitudinal, HCFA does not expect these data to be available until 1999.

Conclusions Medicare beneficiaries need more and better information so that they can

make informed decisions when choosing a health plan. Though Medicare

is the nation’s largest purchaser of managed care services, it lags behind

other large purchasers in providing comparative information to

beneficiaries. The need for this information grows more urgent each

month as tens of thousands of beneficiaries join the already 4 million

beneficiaries who have opted for the advantages of Medicare managed

care. HCFA is moving in the right direction to make information available,

but we believe the agency could do much more with relatively little

expenditure of time or effort. Requiring that HMOs use standard

terminology and formats to describe benefits, producing comparison

10According to HCFA’s recently published regulations on physician incentive plans in managed care

settings, HMOs with providers that have been determined to be at substantial financial risk will be

required to conduct a survey of current and recently disenrolled members. Plans that are not required

to do a survey under the physician incentive regulations are not required to conduct a disenrollment

survey.

Page 9 GAO/T-HEHS-97-109
Medicare Managed Care: HCFA Missing

Opportunities to Provide Consumer

Information

charts and ensuring that interested beneficiaries know how to get such

charts, and analyzing and publishing comparative data already available

(such as disenrollment rates) would greatly enhance the ability of

Medicare beneficiaries to be wise consumers of managed care.

Mr. Chairman, this concludes my prepared statement. I am pleased to

answer any questions you or other members of the Committee may have.

Contributors For more information on this testimony, please call James C. Cosgrove,

Assistant Director, Health Financing and Systems Issues, on

(202) 512-7029. Other major contributors to this statement include Charles

A. Walter, Marie E. Cushing, George M. Duncan, and Wayne J. Turowski.

Page 10 GAO/T-HEHS-97-109
Page 11 GAO/T-HEHS-97-109
Related GAO Products

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

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

Medicare HMOs: Rapid Enrollment Growth Concentrated in Selected States

(GAO/HEHS-96-63, Jan. 18, 1996).

Health Care: Employers and Individual Consumers Want Additional

Information on Quality (GAO/HEHS-95-201, Sept. 29, 1995).

Medicare: Increased HMO Oversight Could Improve Quality and Access to

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

(101537) Page 12 GAO/T-HEHS-97-109
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