Department of Health and Human Services 

OFFICE OF 

INSPECTOR GENERAL 

JUNE GIBBS BROWN 

Inspector General 

SEPTEMBER 1998 

OEI-04-97-00032 

Medicare Beneficiary Interest 

in HMOs in 1997 
OFFICE OF INSPECTOR GENERAL 

The mission of the Office of Inspector General (OIG), as mandated by Public Law 95-452, is to 

protect the integrity of the Department of Health and Human Services programs as well as the 

health and welfare of beneficiaries served by them. This statutory mission is carried out through a 

nationwide program of audits, investigations, inspections, sanctions, and fraud alerts. The 

Inspector General informs the Secretary of program and management problems and recommends 

legislative, regulatory, and operational approaches to correct them. 

Office of Evaluation and Inspections 

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

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

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

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

effectiveness of departmental programs. 

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

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

Principal OEI staff included: 

REGION IV 

Betty Apt, Project Leader

Jason Stanfield, Contractor

Joe Townsel, Program Analyst

Paula Bowker, Program Analyst

Janet Miller, Program Analyst

HEADQUARTERS 

Wynethea Walker, Program Specialist 

LindaMoscoe, Technical Support 

Barbara Tedesco, Statistician 

To obtain copies of this report, please call the Atlanta Regional Office at 404-562-7743. 

Reports are also available on the World Wide Web at our home page address: 

http://www.dhhs.gov/progorg/oei 
EXECUTIVE SUMMARY

PURPOSE 

To determine Medicare beneficiary awareness of and interest in joining health maintenance 

organizations in 1997. 

BACKGROUND 

In all geographic areas, Medicare beneficiaries can obtain medical care through a fee-for-service 

arrangement. Many beneficiaries also have an option of obtaining medical care through managed 

care plans known as health maintenance organizations (HMOs). As of April 1998, approximately 

5.6 million beneficiaries were members in one of 336 Medicare-contracted risk HMOs. Risk 

HMOs receive a fixed monthly Medicare payment per beneficiary. Such HMOs must provide a 

full range of Medicare services, and are at risk for any health care cost that exceeds the fixed 

payment. 

During our 1997 survey of Medicare beneficiary satisfaction, we asked beneficiaries about their 

awareness of Medicare-contracted HMOs, and their interest in joining one. Several Health Care 

Financing Administration (HCFA) staff expressed an interest in this subject, and suggested 

questions for our survey. 

We included in our sample only beneficiaries who were enrolled in Medicare’s fee-for-service 

program. Where possible, we compared beneficiary responses to those of similar surveys we 

conducted in 1994 and 1995. 

FINDINGS 

General Awareness of HMOs by Beneficiaries Increased Each Year 

! In 1997, 79 percent of beneficiaries said they had heard of HMOs. This is a statistically 

significant increase from 1995 and 1994 when 70 percent and 62 percent, respectively, 

said they knew about HMOs. 

! In 1997, 40 percent of the beneficiaries said they would like to learn more about 

Medicare-contracted HMOs. This is a statistically significant decrease from 1995 and 

1994 when 54 percent and 64 percent, respectively, said they wanted more information. 

This decrease may be because more beneficiaries are aware of HMOs, and do not think 

they need more information. 

! About 75 percent of the beneficiaries were not aware they could appeal HMO decisions 

about their health care. 

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Beneficiary Awareness of Medicare HMOs in Their Area Remained the Same 

! In both 1997 and 1995, 44 percent of beneficiaries said they knew whether or not they 

lived in locations where they could join an HMO. This lack of increase in awareness of 

local Medicare HMOs is puzzling since the number of HMOs available to beneficiaries has 

increased. Also, as shown above, the number of beneficiaries who had heard of HMOs 

has increased. 

Beneficiary Interest in Joining an HMO Decreased 

! In 1997, only 23 percent of beneficiaries expressed an interest in joining an HMO, 

compared to 35 percent in 1995. This is a statistically significant decrease. 

! Of the beneficiaries who cited a reason for not joining an HMO, about 46 percent said 

inability to select their own physicians was the main reason. 

! Only 7 percent of beneficiaries expressed concern about quality of care in an HMO. This 

is similar to beneficiary responses to our 1995 and 1994 surveys. 

CONCLUSION 

The Balanced Budget Act of 1997 expanded the types of managed care plans that will be available 

to beneficiaries. Accordingly, HCFA is currently negotiating contracts with managed care 

providers, and developing educational materials for beneficiaries. Our past studies and this study 

have shown, however, that over half of beneficiaries do not know whether or not a managed care 

plan is available that they can join. In preparing educational materials, HCFA could provide 

beneficiaries with information on managed care plans available in their local areas. Furthermore, 

in view of our survey results, it would also be useful for educational materials to emphasize 

beneficiaries’ rights to appeal managed care decisions about their medical care. 

We plan to continue our work on managed care issues. Accordingly, we will continue to monitor 

beneficiary knowledge and understanding of their choices. To this end, we hope to continue 

working with HCFA to develop information that will help them better meet beneficiary managed 

care needs. 

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TABLE OF CONTENTS

PAGE 

EXECUTIVE SUMMARY 

INTRODUCTION .......................................................... 1

FINDINGS ................................................................ 4

General Awareness of HMOs Increased ..................................... 4

Awareness of Local Medicare HMOs Remained the Same ....................... 5

Beneficiary Interest in Joining an HMO Decreased ............................. 6

CONCLUSION ............................................................. 8

APPENDICES 

Responses to 1997 Survey of Beneficiaries ................................. A-1

Confidence Intervals ................................................. B-1
INTRODUCTION

PURPOSE 

To determine Medicare beneficiary awareness of and interest in joining health maintenance 

organizations in 1997. 

BACKGROUND 

The Medicare Program 

Medicare is a Federal health insurance program for individuals age 65 and older, and for certain 

categories of disabled people. In 1997, Medicare served approximately 38 million beneficiaries, 

and paid benefits totaling over $211 billion.1 The Health Care Financing Administration (HCFA) 

within the Department of Health and Human Services has responsibility for the Medicare 

program. 

In all geographic areas, Medicare beneficiaries can obtain medical care through a fee-for-service 

arrangement. Many beneficiaries also have an option of obtaining medical care through managed 

care plans known as health maintenance organizations (HMOs). 

Several people in HCFA asked us to determine beneficiary interest in joining HMOs when we 

conducted our 1994 beneficiary satisfaction survey. Because Congress and HCFA continue to 

seek ways to expand health care options for Medicare beneficiaries, we included the questions 

about HMOs in our 1995 and 1997 surveys. 

Two Methods of Obtaining Medical Care 

Fee-for-Service - Beneficiaries choose their own physicians, hospitals, and other medical care 

providers. Providers submit claims to Medicare for services to Medicare beneficiaries. For 

physician and most other outpatient services, Medicare pays 80 percent of the amount allowable 

for a covered service. Beneficiaries, or their secondary insurance, pay the remaining 20 percent of 

allowable charges, plus Medicare premiums and deductibles. 

Managed Care: Beneficiaries enroll in Medicare-contracted organizations which manage their 

medical care. The managed care plan may determine the type of care a beneficiary receives, and 

may limit access to specialists and other providers. There are several types of managed care 

plans. Risk HMOs are the most prevalent. 

1

Health Care Financing Administration, United States Department of Health and Human Services, HCFA 

Statistics, October 1997. 

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1 
Each risk HMO has a defined geographic area, and serves beneficiaries who live in that area. 

HMOs are responsible for providing a full range of Medicare services, and may offer other 

benefits not covered by Medicare, such as prescription drugs. 

Medicare pays HMOs a set amount each month to provide beneficiaries all hospital and medical 

services available under fee-for-service. Beneficiaries continue to pay Medicare Part B premiums. 

They may also have to pay managed care providers a monthly premium and a copayment for 

services received. However, they do not pay Medicare deductibles or 20 percent of physician and 

outpatient charges that are required under the fee-for-service program. 

Typically, after joining an HMO, a beneficiary selects a primary care physician who is affiliated 

with the HMO. All medical care is managed by that physician or a case manager. The primary 

care physician either provides needed services or refers a beneficiary to appropriate specialists or 

other health care providers associated with the HMO. In most instances, beneficiaries are 

required to obtain all their medical care through providers affiliated with the HMO they joined. 

However, emergency services may be obtained anywhere, and urgently needed care may be 

obtained elsewhere when a beneficiary is temporarily out of the HMO service area. Further, some 

HMOs have a “point of service” option which allows beneficiaries to obtain some care outside an 

HMO’s contracted provider network by paying higher copayments for those services. 

As of April 1998, approximately 5.6 million beneficiaries were members in one of 336 Medicarecontracted risk HMOs.2 

METHODS 

As part of a broad 1997 national survey to determine beneficiary satisfaction with Medicare,3 we 

asked beneficiaries about their awareness of and interest in joining HMOs. HCFA staff assisted in 

developing the questions we used. 

In July 1997, we mailed a questionnaire to 1269 randomly-selected Medicare beneficiaries for 

whom Part B claims had been filed in Calendar Year 1996. Beneficiaries were located both in 

areas that had Medicare HMOs and in areas that did not have Medicare HMOs. We excluded 

from our sample beneficiaries who were already enrolled in an HMO. We used standard 

equations for estimating sample size with a binary response variable. 

Beneficiary participation in the survey was voluntary. A total of 977 beneficiaries returned 

completed questionnaires, for a response rate of 77 percent. Percentages in the report are based 

on the number of beneficiaries answering each question. Based on the response rate, estimates 

are within 3.2 percent of the true value at the 95 percent confidence level. Some individual 

2

Health Care Financing Administration, Medicare Managed Care Contract Report, April 1998. 

3

Office of Inspector General, United States Department of Health and Human Services. Medicare Beneficiary 

Satisfaction: 1997. OEI-04-97-00030. 

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2 
----- ---- ---- ---- ----

findings may be less precise, depending on the number of beneficiaries who responded to specific 

questions. Appendix A shows beneficiary responses. Appendix B shows the confidence intervals. 

Comparison to Previous Surveys 

In 1994 and 1995, we conducted similar national surveys of Medicare beneficiaries to assess their 

awareness of and interest in joining an HMO.4 Since most of the questions used in the 1997 

survey were also used in our 1994 and 1995 surveys, we compared beneficiary responses in the 

three surveys. 

We determined significant differences in beneficiary responses through use of a t-test. If there 

was a statistical difference between responses to the surveys, we stated the percent increased or 

decreased in the report. If there was not a statistical difference, we stated that the percent stayed 

about the same. 

A consideration in surveys of this type is that the results may be biased if non-respondents are 

significantly different from respondents. To determine whether or not significant bias exist in this 

survey, we performed various analyses, including a comparison of age and gender for the 977 

respondents and the 272 non-respondents. Our analyses revealed no significant difference, which 

suggests that our survey results were not biased based on age and gender. We were unable to 

determine if any non-response bias existed as a result of other factors, such as health, disability, 

and income. 

We conducted this inspection in accordance with the Quality Standards for Inspections issued by 

the President's Council on Integrity and Efficiency. 

4

Office of Inspector General, United States Department of Health and Human Services. Medicare Beneficiary 

Interest in HMOs (OEI-04-93-00142). Medicare Beneficiary Interest in Joining HMOs in 1995 (OEI-04-93-

00151). 

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3 
FINDINGS

GENERAL AWARENESS OF HMOs BY BENEFICIARIES INCREASED EACH YEAR 

Seventy-nine percent of 933 beneficiaries who responded to our question about awareness said 

they had heard of HMOs. Table 1 shows that the percent of beneficiaries aware of HMOs has 

increased over the last two years. This is logical as the number of HMOs available to beneficiaries 

increased from 200 in 1994 to over 335 in 1998. The increase in awareness each year was 

statistically significant. 

TABLE 1

BENEFICIARY AWARENESS OF HMOs

1994 1995 1997 

Beneficiaries Aware 

of HMOs 62% 70% 79% 

Fewer Beneficiaries Wanted More Information About HMOs 

Forty percent of 883 beneficiaries who answered our question said they would like to learn more 

about Medicare-contracted HMOs. Table 2 shows that the percent of beneficiaries who want 

more information has declined each of the last two years. The decrease each year was statistically 

significant. This decrease may be because more beneficiaries are aware of HMOs, and do not 

think they need more information. 

TABLE 2

BENEFICIARY DESIRE FOR MORE INFORMATION

1994 1995 1997 

Yes 64% 54% 40% 

No 36% 46% 60% 

Although Beneficiary Awareness of HMO Appeal Rights Increased, Over Three-fourths Still 

Were Unaware 

In the 1995 and 1997 surveys, we asked beneficiaries if they were aware that Medicare HMO 

members could appeal decisions HMOs made about their medical care. Table 3 shows that the 

percent of beneficiaries aware of these rights increased. However, over three-fourths are still 

unaware. 

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4 
TABLE 3

BENEFICIARY AWARENESS OF APPEAL RIGHTS IN HMOs

1995 1997 

Yes 18% 24% 

No 82% 76% 

Respondents to our survey were not members of an HMO. An OIG survey of HMO members 

conducted in 1995 showed that HMO members were knowledgeable about their general right to 

complain about HMO services--OEI-07-94-00281. 

BENEFICIARY AWARENESS OF MEDICARE HMOs IN THEIR LOCAL AREA 

REMAINED THE SAME 

We asked beneficiaries if they lived in a location where they could join an HMO. Over half said 

they did not know, which is the same as in our 1995 survey. This is somewhat puzzling since the 

number of HMOs available to beneficiaries has increased, and the number of beneficiaries who 

had heard of HMOs increased. Table 4 shows that responses to the 1997 survey are about the 

same as in 1995. 

TABLE 4

BENEFICIARY RESPONSES ON AVAILABILITY OF HMOs TO JOIN

1994 1995 1997 

Beneficiaries who said they did live in an area 

with Medicare HMOs 

26% 34% 36% 

Beneficiaries who said they did not live in an 

area with Medicare HMOs 

10% 10% 8% 

Beneficiaries who said they did not know if 

they lived in an area with Medicare HMOs 

64% 56% 56% 

We asked the 341 beneficiaries who said they lived in a location with an HMO to tell us how they 

heard about the HMO. Seventy-two percent (246 of 341) of them responded. Table 5 shows that 

most of those who had heard of HMOs did so through advertisements. 

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5 
TABLE 5

HOW BENEFICIARIES BECAME AWARE OF HMOs

METHOD BENEFICIARIES RESPONDING 

TO QUESTION 

Number Percent* 

Advertising 

(Media Ads, Direct Mail, Salesmen,) 

169 69 

Family and Friends 61 25 

Health Care Provider 

(Physician, Home Health Agency, 

Hospital) 

20 8 

Former or Current Employment 16 7 

Insurance Companies 6 2 

Presentations 

(Meeting, Seminar, Conference) 

3 1 

Previous Experience in an HMO 1 .4 

Other 

(Senior Citizen Center, Newscasts) 

2 1 

*

Some beneficiaries mentioned two ways of learning about HMOs. Therefore, the percentages 

total more than 100%. 

These methods of awareness are similar to those identified by beneficiaries during our 1994 and 

1995 surveys. 

BENEFICIARY INTEREST IN JOINING AN HMO DECREASED 

In 1997, 23 percent of 843 beneficiaries who answered our question expressed an interest in 

joining an HMO. In 1995, 35 percent said they would be interested. The decrease in percent of 

Medicare beneficiaries who said they would be interested in joining an HMO is statistically 

significant. Comparisons to 1994 should be made with the knowledge that we changed our 

question in 1995. As shown in Table 6, we offered a "Don't Know" response in the 1994 survey 

which we did not include in the 1995 and 1997 surveys. 

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6 
TABLE 6

BENEFICIARY INTEREST IN JOINING AN HMO

1994 1995 1997 

Yes 27% 35% 23% 

No 39% 65% 77% 

Don’t Know 34% Not Asked Not Asked 

Beneficiaries responding to this survey were enrolled in Medicare’s fee-for-service program. It is 

possible that most beneficiaries who wish to join an HMO have done so, and most beneficiaries 

who have not joined an HMO wish to remain in fee-for-service. 

Beneficiaries Want to Select Their Physicians 

Of the 77 percent who said they would not be interested in joining an HMO, half (344) cited one 

or more objection. Table 7 shows that most beneficiaries were concerned about their inability to 

select their doctors if they joined an HMO. 

TABLE 7

WHY BENEFICIARIES OBJECT TO JOINING AN HMO

OBJECTION BENEFICIARIES RESPONDING 

TO QUESTION 

Number Percent* 

Inability to Select Physician(s) 158 46 

Satisfied with Present Situation/Insurance 75 22 

Perceived Poor Reputation of HMOs 45 13 

Perceived Restrictions in an HMO 37 11 

Perceived Poor Quality of Care 23 7 

Lack of Enough Information on HMOs 8 2 

Desire to Keep Present Physician 5 1 

Other (Too Far to Drive, Too Expensive, 

and Perceived Loss of Benefits) 

5 1 

*

Some beneficiaries mentioned two objections to joining HMOs. Therefore, the percentages total 

more than 100%. 

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CONCLUSION

The Balanced Budget Act of 1997 expanded the types of managed care plans that will be available 

to beneficiaries. Accordingly, HCFA is currently negotiating contracts with managed care 

providers, and developing educational materials for beneficiaries. Our past studies and this study 

have shown, however, that over half of beneficiaries do not know whether or not a managed care 

plan is available that they can join. In preparing educational materials, HCFA could provide 

beneficiaries with information on managed care plans available in their local areas. Furthermore, 

in view of our survey results, it would also be useful for educational materials to emphasize 

beneficiaries’ rights to appeal managed care decisions about their medical care. 

We plan to continue our work on managed care issues. Accordingly, we will continue to monitor 

beneficiary knowledge and understanding of their choices. To this end, we hope to continue 

working with HCFA to develop information that will help them better meet beneficiary managed 

care needs. 

)))))))))))

8 
------------------------------------------------------------------------------------------------------------------

APPENDIX A

RESPONSES TO 1997 SURVEY OF BENEFICIARIES 

In some cities, Medicare beneficiaries, like yourself, can join managed care plans such as health 

maintenance organizations (HMOs). In an HMO, the primary care doctor authorizes, arranges 

for, and coordinates all medical services for you. You are usually required to receive all your 

medical care from the HMO's doctors, hospitals, and other providers that belong to the HMO. 

QUESTION RESPONSES 

___________________________________________________________________________ 

1. Before today, had you ever heard of HMOs? 

Yes 733 

No 200 

Not Answering: 44 

2. a. Are there HMOs in your city or town that Medicare beneficiaries can join? 

Yes 341 

No 71 

Don't Know 524 

Not Answering: 41 

b. If yes, how did you hear about those HMOs? (Open-ended question) 

(N = 246, Number Answering Question) 

HMO Advertising 

Family and Friends 

Health Care Providers 

Former or Current 

Employers 

Insurance Company 

Presentations 

Previously in HMO 

Other 

Not Answering: 95 

169 

61 

20 

16 

6 

3 

1 

2 

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A - 1 
------------------------------------------------------------------------------------------------------------------

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QUESTION RESPONSES 

___________________________________________________________________________ 

3. a. If there were HMOs in your city or town that Medicare beneficiaries could join, 

would you be interested in joining? 

Yes 193 

No 650 

Not Answering: 134 

b. If no, what would be your objections? (Open-ended question) 

(N = 344, Number Answering Question) 

Inability to Select 

Physician 

Satisfied with Present 

Situation/Insurance 

Perceived Poor Reputation 

Perceived Restrictions 

Perceived Poor Quality 

of Care 

Lack of Information 

on HMOs 

Desire to Keep Present 

Physician 

Other 

Not Answering: 306 

158 

75 

45 

37 

23 

8 

5 

5 

4. Before today, were you aware that Medicare HMO members can appeal decisions HMOs 

make about their medical care? 

Yes 201 

No 627 

Not Answering: 149 

5. Would you like to learn more about Medicare HMOs? 

Yes 351 

No 532 

Not Answering: 94 

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A - 2 
APPENDIX B

Confidence Intervals 

Description Estimate Boundaries for the 95% 

Confidence Intervals 

Beneficiaries who had heard of HMOs 79% +/- 2.6% 

Beneficiaries who wanted to learn more 

about HMOs 40% +/- 3.2% 

Beneficiaries not aware of HMO 

appeal rights 76% +/- 2.9% 

Beneficiaries who did not know if 

Medicare HMOs were available in 

their area 56% +/- 3.2% 

Beneficiaries interested in joining 

an HMO 23% +/- 2.8% 

Beneficiaries not interested in HMOs due 

to inability to select physician 46% +/- 5.3% 

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B - 1