Medicare Advantage: Characteristics, Financial Risks, and Disenrollment Rates of Beneficiaries in Private Fee-for-Service Plans
Published: 2008-12-15T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Medicare Advantage (MA) plans are an alternative to the original Medicare fee-for-service (FFS) program. Private fee-for-service (PFFS) plans--one type of MA plan--give beneficiaries an option that is more like Medicare FFS than other MA plans, with a wider choice of providers and less plan management of services and providers. PFFS enrollment increased from about 35,000 beneficiaries in June 2004 to about 2.3 million in June 2008. This report compares PFFS plans to other MA plans and Medicare FFS in three areas: (1) characteristics of beneficiaries, (2) financial risks for beneficiaries who do not contact their plans before receiving services, and (3) disenrollment rates. To do this work, GAO reviewed materials from a selected sample of nine PFFS plan sponsors, analyzed Medicare data, and interviewed officials from CMS, which administers the Medicare program, and other organizations.
section_title: What GAO Found
paragraphs: In April 2007, beneficiaries in PFFS plans tended to be healthier and generally younger than beneficiaries in other MA plans and Medicare FFS. Specifically, projected health care expenditures for PFFS beneficiaries were 7 percent less than the projected average for beneficiaries in other MA plans and 10 percent less than the projected average for beneficiaries in Medicare FFS. Beneficiaries in PFFS plans also generally were more likely than beneficiaries in other MA plans and Medicare FFS to reside in rural areas where fewer other MA plans were available. In addition, about 81 percent of beneficiaries who were new enrollees in PFFS plans were in Medicare FFS before enrolling in their plan, compared to 65 percent in other MA plans. PFFS beneficiaries may have faced certain financial risks if they did not contact their plan before receiving services. These risks were generally not assumed by beneficiaries in other MA plans and Medicare FFS. Specifically, if beneficiaries or their providers did not contact their PFFS plans before obtaining a service to make sure it would be covered, beneficiaries unexpectedly may have had to pay for the entire cost of the service if coverage was later denied by their plan. CMS officials told GAO they did not have data on the extent to which PFFS beneficiaries were faced with such costs. Furthermore, some beneficiaries likely experienced higher out-of-pocket costs for covered services if they did not contact their plan before obtaining the services. For example, one sponsor of PFFS plans increased the share of the cost for which beneficiaries were responsible from 30 percent to 70 percent if the beneficiaries did not contact the plan before obtaining certain durable equipment. GAO found that some PFFS plans were inappropriately using the term prior authorization, which can involve denying service coverage if prior plan approval is not obtained, in their informational materials. CMS officials stated that PFFS plans should not have used this term because these plans were not permitted to deny service coverage due to lack of prior plan approval. However, CMS guidance on this issue has been inconsistent and sometimes incorrect. From January through April 2007, beneficiaries in PFFS plans disenrolled at an average rate of 21 percent compared to 9 percent for other MA plans, and GAO concludes that CMS has not complied with statutory requirements to mail disenrollment rates to Medicare beneficiaries. Disenrollment rates can reflect factors such as beneficiary satisfaction and CMS is required by law to mail this information to Medicare beneficiaries to help them compare available MA plans in their area. Although CMS has not mailed disenrollment rates to beneficiaries since 2000, the agency did provide disenrollment rates through Medicare's Web site. However, this information was based on disenrollment in 2004 and 2005 and, given the enrollment growth since then, may not accurately reflect plans available to beneficiaries in 2008.

section_title: Letter
paragraphs: Medicare Advantage (MA) plans are an alternative to original Medicare  fee-for-service (FFS) in which private plans provide Medicare benefits to  enrolled beneficiaries. Enrollment in MA plans has grown substantially in  recent years from about 4.7 million beneficiaries in June 2004 to   9.6 million—about 1 out of every 5 Medicare beneficiaries—as of June  2008. This increase in enrollment followed the enactment of the Medicare  Prescription Drug, Improvement, and Modernization Act of 2003, which  among other things, resulted in increased payments to MA plans. MA plans  are able to use the increased payments to offer more benefits and reduce  beneficiary cost sharing relative to Medicare FFS. In addition, the  increased payments allowed MA plans to expand into geographic areas  where previously plan options had been very limited, resulting in more  plan choices for beneficiaries.
Nearly half of the recent growth in MA enrollment, about 45 percent,  occurred in one type of plan—private fee-for-service (PFFS) plans.  Enrollment in these plans increased from about 35,000 beneficiaries in  June 2004 to about 2.3 million beneficiaries in June 2008. About one- quarter of beneficiaries enrolled in MA plans in June 2008 were enrolled in  a PFFS plan, and 99 percent of Medicare beneficiaries in 2008 had access  to a PFFS plan—up from 41 percent in 2005. The Congressional Budget  Office (CBO) projects continued growth in PFFS and other MA plans  through 2013, though at a slower pace.
The growth in enrollment and availability of MA plans has financial  implications for the Medicare program because the program pays more for  beneficiaries in these plans than it would if they were in Medicare FFS.  The federal government is projected to spend about $91 billion on the MA  program in 2008. According to the Medicare Payment Advisory  Commission (MedPAC), in 2008, Medicare is projected to pay about   13 percent more for beneficiaries in MA plans overall and 17 percent more  for beneficiaries in PFFS plans than what the program would have paid for  these beneficiaries under Medicare FFS.
PFFS plans are designed to offer beneficiaries an MA option that is more  like Medicare FFS. Compared to other MA plans, PFFS plans generally  offer a wider choice of providers and impose less plan management of  health care services and providers. Unlike other types of MA plans, such as  Health Maintenance Organizations (HMO) and Preferred Provider  Organizations (PPO), PFFS plans are not required to have networks of  contracted providers if they pay providers Medicare FFS rates or higher.
Further, providers can agree to accept a PFFS beneficiary on a service-by- service basis. Almost all PFFS plans operate without networks. Paying  providers at Medicare FFS rates or higher suggests that beneficiaries in  PFFS plans will have access to those providers who accept beneficiaries  from Medicare’s FFS program. However, there have been reports that, in  some areas, it may be more difficult for beneficiaries to obtain care while  in PFFS plans than it would be if they were in Medicare FFS.
Under federal law, PFFS plans may not place providers at financial risk or  restrict beneficiary access to providers. The Centers for Medicare &  Medicaid Services (CMS), the agency that administers the Medicare  program, prohibits PFFS plans—but not other types of MA plans—from  requiring that providers or beneficiaries obtain plan approval before a  service is furnished as a condition of coverage, a process known as prior  authorization. However, sponsors of PFFS plans, like sponsors of other  MA plans, must provide an advance coverage determination, should  beneficiaries or their providers request one. An advance coverage  determination informs beneficiaries before they receive services whether  the services will be covered and the amount that the beneficiary must pay  with respect to such services. In finalizing regulations in 1998 for the MA  program (then called the Medicare+Choice program), CMS considered  requiring PFFS plan sponsors to mandate that providers who serve PFFS  plan beneficiaries assume the responsibility for acquiring advance  coverage determinations or risk being unable to charge beneficiaries if the  plan later denied payments for the services. CMS, however, determined  that this beneficiary protection would be inconsistent with federal  statutory provisions that prohibit PFFS plans from placing their providers  at financial risk.
The rapid growth in PFFS plan enrollment highlights the need for more  information about who is enrolling in, and disenrolling from, these plans.  Specifically, if healthier beneficiaries are enrolling and staying in PFFS  plans, this could leave other MA plans or the Medicare FFS program with  sicker and potentially more costly beneficiaries. Also, if PFFS plans have  high disenrollment rates compared to other MA plans, this could be an  indicator of beneficiary dissatisfaction with access or quality of care or  could indicate that other plans with more attractive benefit packages are  available. In order to help Medicare beneficiaries compare and select MA  plans, CMS is required by law to mail certain information to beneficiaries  annually, including MA plan disenrollment rates for the previous 2 years to  the extent that these disenrollment rates are available.
Certain features of PFFS plans will change as a result of the Medicare  Improvements for Patients and Providers Act of 2008 (MIPPA). Beginning  in 2011, PFFS plans will be required to form contracted networks of  providers in areas that have at least two available network-based plans  (such as HMOs or PPOs). In areas with fewer than two network-based  plans, most PFFS plans will continue to have the option of operating  without networks if they pay providers at Medicare FFS rates or higher.  In addition, beginning in 2010, PFFS plan sponsors will be required to have  quality improvement programs for each plan and report related quality  information to CMS.
Given the uniqueness of PFFS plans and their rapid enrollment growth,  you asked us to examine the characteristics of beneficiaries in these plans,  PFFS plan features, and beneficiary disenrollment patterns. Our report  addresses the following objectives: (1) compare the characteristics of  beneficiaries in PFFS plans to the characteristics of beneficiaries in other  MA plans and Medicare FFS; (2) describe the financial risks that  beneficiaries in PFFS plans face, compared to beneficiaries in other MA  plans and Medicare FFS, if they do not contact their plan prior to receiving  services; and (3) compare the rates at which beneficiaries in PFFS plans  disenroll to the rates for other MA plans and evaluate whether CMS met  statutory requirements to mail disenrollment rates to beneficiaries.
To compare the characteristics of beneficiaries in PFFS plans, specifically  age, gender, and residential location, to the characteristics of beneficiaries  in other MA plans and Medicare FFS, we analyzed Medicare enrollment  data for April 2007. We restricted our analysis to five types of MA plans  that accounted for more than 99 percent of the approximately 7.8 million  beneficiaries in MA plans at that time—PFFS plans, HMOs, local PPOs,  regional PPOs, and Provider-Sponsored Organizations (PSO). After  excluding plans that restrict enrollment and certain beneficiaries from our  analysis, we analyzed data as of April 2007 for about 5.8 million  beneficiaries in 1,998 MA plans and about 31.7 million beneficiaries in  Medicare FFS. To compare the health status of PFFS and other Medicare  beneficiaries, we obtained plan-level risk scores from CMS, which are  based on projected health care expenditures of plan beneficiaries and  provide an indicator of the health status of the plans’ beneficiaries. We  also examined the type of Medicare coverage that MA beneficiaries held  previously. For this analysis, we identified beneficiaries who were new to  an MA plan type in April 2007 and examined their Medicare coverage in  December 2006. MA plans that beneficiaries selected for 2007 generally  took effect from January through April 2007.
To describe the financial risks that beneficiaries in PFFS plans face,  compared to beneficiaries in other MA plans and Medicare FFS, if they do  not contact their plan prior to receiving services, we reviewed relevant  laws, regulations, documentation from CMS, and materials from nine PFFS  plan sponsors interviewed that accounted for about 81 percent of PFFS  enrollment in July 2007. We reviewed 2008 plan benefit information  provided to beneficiaries as well as provider terms and conditions of  payment for 30 PFFS plans, accounting for more than half of each  sponsor’s total enrollment in PFFS plans. We reviewed 2008 plan benefit  information provided to beneficiaries for 33 HMO or PPO plans operated  by the same nine plan sponsors, accounting for more than half of each  sponsor’s total enrollment in other MA plans. We also interviewed officials  from CMS and the plan sponsors. Information gathered from our review of  the benefit information provided to beneficiaries for PFFS and other MA  plans may not be representative of, or generalizable to, other MA plans  offered by these and other plan sponsors that were not in our sample.
To compare the rates at which beneficiaries in PFFS plans disenroll to the  rates for other MA plans, we used Medicare enrollment data for  beneficiaries in PFFS and other MA plans in December 2006 and April  2007 to identify beneficiaries whose disenrollment took effect from  January through April 2007. We calculated disenrollment rates for each  MA contract, which covered one or more MA plans of the same plan type.  To compare the health status of disenrollees to beneficiaries overall in  PFFS and other MA plans, we used risk scores for 2006 as a proxy for  health status. To evaluate whether CMS met statutory requirements to  mail disenrollment rates to beneficiaries, we interviewed CMS officials,  analyzed relevant federal laws and regulations, and reviewed  disenrollment information CMS provided to Medicare beneficiaries  through, for example, Medicare Options Compare (MOC) on Medicare’s  Web site. MOC is a source of information through which beneficiaries  can compare the quality, benefits, and premiums of MA plans.
We conducted interviews with CMS officials on the reliability of the CMS  data used in our analysis. We also reviewed data documentation and  performed certain data checks to ensure the data were reasonable and  consistent. We determined that the data were sufficiently reliable for our  purposes. We conducted our work from July 2007 through October 2008 in  accordance with generally accepted government auditing standards. Those  standards require that we plan and perform the audit to obtain sufficient,  appropriate evidence to provide a reasonable basis for our findings and  conclusions based on our audit objectives. We believe that the evidence  obtained provides a reasonable basis for our findings and conclusions  based on our audit objectives. See appendix I for more details on our  scope and methodology.
subsections: section_title: Background
paragraphs: Medicare is the federal government’s health insurance program that covers  more than 44 million people age 65 and older and certain individuals who  are disabled or have end-stage renal disease. Most Medicare beneficiaries  can choose to receive covered services through Medicare FFS or through  an MA plan if one is offered where they live. Beneficiaries in Medicare  FFS and in MA plans, including PFFS plans, pay monthly premiums and  are responsible for cost sharing, which can be in the form of coinsurance  (a percentage payment for a given service that a beneficiary must pay), a  copayment (a standard amount a beneficiary must pay for a medical  service), or a deductible (the amount a beneficiary must pay before  Medicare FFS or an MA plan begins to pay). MA plans operate under  annual contracts between MA plan sponsors and CMS and provide  Medicare benefits in exchange for a monthly payment from CMS for each  beneficiary enrolled in the plan.
Beneficiaries can disenroll from MA plans during the annual coordinated  election period, from November 15 through December 31 of a given year  by enrolling in another plan or in Medicare FFS. Changes made during the  annual coordinated election period take effect on January 1 of the  following year. Beneficiaries can also disenroll from MA plans once during  the open enrollment period, from January 1 through March 31 of a given  year. Changes made during this time period take effect on the first day of  the month following the plan’s receipt of the beneficiary’s request.
section_title: Beneficiaries in PFFS Plans Were Healthier and Younger Than Beneficiaries in Other MA Plans and Medicare FFS and Differed in Other Ways
paragraphs: Relative to beneficiaries in other MA plans and Medicare FFS in April  2007, beneficiaries in PFFS plans were healthier, generally younger, and  more likely to live in rural areas with fewer MA options. Specifically,  beneficiaries in PFFS plans had projected health care expenditures—an  indicator of health status—that were lower, on average, than those of  beneficiaries in other MA plans and Medicare FFS. Beneficiaries in PFFS  plans had projected health care expenditures that were 7 percent less than  those of beneficiaries in other MA plans and 10 percent less than  beneficiaries in Medicare FFS.
Beneficiaries in PFFS plans were generally more likely to be younger and  reside in rural areas than beneficiaries in other MA plans and Medicare  FFS (see table 1). PFFS plans had a smaller percentage of beneficiaries  age 85 or older compared to other MA plans and Medicare FFS.  Approximately 14 percent of PFFS beneficiaries lived in rural areas  compared to 1 percent of beneficiaries in other MA plans and 10 percent of  beneficiaries in Medicare FFS. Medicare beneficiaries in rural areas, on  average, had access to about 12 different PFFS plan options, but only  about 4 other MA plan options. In contrast, Medicare beneficiaries in  urban areas had access to an average of about 13 PFFS plan options and  about 12 other MA plan options. As a result, beneficiaries in rural areas  might have been more likely to enroll in a PFFS plan because there were  fewer other MA options available in those areas.
New enrollees in PFFS plans as of April 2007 were more likely than new  enrollees in other MA plans to have been in Medicare FFS prior to  enrollment but less likely to have been new to Medicare altogether or  previously in a different type of plan. About 81 percent of new enrollees in  PFFS plans were in Medicare FFS prior to joining their plan, compared to  65 percent of new enrollees in other MA plans (see table 2). About 6  percent of new PFFS enrollees were new Medicare beneficiaries prior to  joining their plan, compared to about 13 percent of new enrollees in other  MA plans. About 13 percent of new enrollees in PFFS plans were in a  different type of plan before enrolling in their current plan, compared to   23 percent of new enrollees in other MA plans.
section_title: PFFS Beneficiaries May Have Faced Certain Financial Risks Generally Not Assumed by Beneficiaries in Other MA Plans and Medicare FFS
paragraphs: In contrast to most beneficiaries in other MA plans and Medicare FFS,  beneficiaries in PFFS plans may have faced certain financial risks if they  or their providers did not contact their plan before receiving services.  Specifically, if PFFS beneficiaries or their providers did not obtain  advance coverage determinations, which specified whether services would  be covered and how much beneficiaries would have to pay, beneficiaries  unexpectedly may have been responsible for the entire cost of the service  if coverage was later denied by their PFFS plans as not medically  necessary. In addition, even if PFFS plans covered the services as  medically necessary, some PFFS beneficiaries may have experienced  substantially higher cost sharing if they or their providers did not contact  their plans before receiving certain services. PFFS plans sometimes used  the term prior authorization inappropriately to describe beneficiary or  provider responsibilities for contacting their plans. CMS officials stated  that PFFS plans should not have used this term because PFFS plans are  not permitted to deny coverage for services when prior plan approval was  not obtained. However, CMS guidance for PFFS plans related to prior  authorization has been inconsistent and sometimes incorrect.
subsections: section_title: PFFS Beneficiaries Who Did Not Contact Their Plans to Determine Service Coverage before Receiving Services May Have Faced Unexpected Costs
paragraphs: If PFFS beneficiaries or their providers did not contact their plan before  receiving a service to obtain an advance coverage determination,  beneficiaries may have been responsible for the entire cost of the service if  coverage for it was later denied by the plan because it was not medically  necessary. Beneficiaries may have learned, from the information they  received from their PFFS plan, whether a particular type of service would  be covered, subject to a determination of medical necessity. However,  from that information, the beneficiary would not know whether the plan  would determine a service to be medically necessary in a specific instance.  To ascertain before a specific service was received whether it would be  covered, beneficiaries or their providers may request an advance coverage  determination from the PFFS plan. CMS officials told us that they thought  it was rare for beneficiaries in PFFS plans to face unexpected costs of  denied claims, but they did not have data on the extent to which this  occurs.
Beneficiaries in other MA plans, such as HMOs and PPOs, generally had  certain protections from unexpected costs when receiving services from  network providers. Pursuant to CMS policy, when beneficiaries in other  MA plans seek care from network providers and these providers are  required to fulfill plan procedures to ensure coverage of services, such as  obtaining a referral or prior authorization, beneficiaries are held harmless  financially when providers fail to take these steps. In this circumstance, if  beneficiaries in other MA plans reasonably believe that services would be  covered, they would only be liable for their plan’s cost sharing for the  services, even if their plan later denies coverage. In addition, when these  beneficiaries are responsible for taking steps to ensure coverage of  services they receive from network providers, providers are required to  inform beneficiaries of their responsibilities before providing these  services. If the providers fail to do so, beneficiaries are responsible only  for their plans’ cost sharing for the services even if their plans later deny  coverage. Because virtually all PFFS plans did not have provider  networks, they did not provide these beneficiary protections.
Beneficiaries in Medicare FFS also had protection from the unexpected  costs of claims that were denied when services provided were  subsequently determined to be not medically necessary. Specifically,  beneficiaries in Medicare FFS generally are protected from incurring  financial liability if they do not receive an advance beneficiary notice  notifying them when Medicare is expected to deny coverage for a given  service because it was not medically necessary.
Some PFFS plans—plans administered by four of the nine PFFS plan  sponsors we reviewed—required their providers, under the terms and  conditions of the plans, to inform beneficiaries if a specific service was  likely to be denied by the plan. However, these terms and conditions did  not specify the penalty, if any, for not complying with this requirement.  The terms and conditions of the remaining five plan sponsors did not  require that providers notify beneficiaries if a service was likely to be  denied by the plan.
section_title: Even When Certain Services Were Covered, Some PFFS Beneficiaries Likely Experienced Higher Cost Sharing If They Did Not Contact Their Plans before Receiving Such Services
paragraphs: Beneficiaries in some PFFS plans were responsible for higher cost-sharing  amounts if they (or their health care providers) did not contact their plans  in advance (a process called prenotification) before obtaining certain  covered services. Under CMS policy, PFFS plans can vary cost sharing  depending on whether beneficiaries (or their providers) have notified the  plan before receiving certain services. Four of the nine PFFS plan  sponsors in our review offered plans that charged higher cost sharing if  prenotification did not occur for certain services, such as inpatient  hospital stays, durable medical equipment, inpatient mental health  services, and skilled nursing services. The specific services subject to  prenotification requirements and the amount of additional cost sharing  varied by PFFS plan and could have been substantial (see table 3), as the  following examples illustrate.
Three PFFS plan sponsors offered plans that required prenotification for  inpatient hospital stays. Plans offered by two of the three PPFS plan  sponsors increased required cost sharing by $100 to $150 per inpatient  hospital admission without prenotification, while plans offered by the  third sponsor required an additional $50 per day up to a maximum of $500  per admission.
Four PFFS plan sponsors offered plans that required prenotification for  durable medical equipment, and doubled, or more than doubled,  beneficiary coinsurance rates if prenotification did not occur. One plan  increased the coinsurance rate for durable medical equipment and  prosthetic devices from 30 percent to 70 percent for items that cost more  than $750 if beneficiaries or their providers did not prenotify. In these  plans, for example, cost sharing for beneficiaries who purchased a power  wheelchair for approximately $4,000 could increase from about $1,200 if  they notified their plan to about $2,800 if they did not.
Three PFFS plan sponsors offered plans that required prenotification for  inpatient mental health stays and increased cost sharing in amounts  ranging from $100 per admission to $50 per day up to a maximum of $500  if prenotification did not occur.
One PFFS plan sponsor offered plans that required prenotification for  skilled nursing facility stays and increased cost sharing by $50 per day up  to a maximum of $500 if prenotification did not occur.
In contrast to PFFS plans, the other MA plans we reviewed did not appear  to have prenotification requirements for services received from network  providers. CMS officials noted that prenotification was generally  unnecessary in HMOs, which accounted for about 89 percent of  beneficiaries in other MA plans in April 2007, because HMOs typically had  a primary care physician who authorized care for the beneficiary. CMS  officials also confirmed that Medicare FFS does not have prenotification  requirements.
Administrators from one of the four plan sponsors that required  prenotification told us that they did so for inpatient hospital stays and  other services in order to help them identify beneficiaries for case and  disease management and for discharge planning. Administrators from  another plan sponsor stated that they decided to require prenotificiation  for durable medical equipment because the benefit typically had a high  likelihood of abuse. A representative from another plan sponsor said that  when the plan was prenotified it determined whether the equipment was  medically necessary and informed the beneficiary of the potential financial  liability that would be associated with the use or purchase of the durable  medical equipment. The same representative noted that durable medical  equipment was often determined to be not medically necessary.
Some PFFS plans we reviewed inappropriately used the term prior  authorization rather than prenotification in the informational materials  they distributed to beneficiaries, which may have caused confusion about  beneficiaries’ financial risks. CMS officials stated that PFFS plans should  not have used the term prior authorization because PFFS plans are not  permitted to deny service coverage due to lack of prior plan approval.
Inconsistent information that CMS provided to PFFS plans may have  contributed to some PFFS plans’ inappropriate use of the term prior  authorization. One source of CMS guidance—a CMS manual—incorrectly  stated that PFFS plans’ terms and conditions were required to indicate  “whether the provider must obtain advance authorization from the PFFS  organization before furnishing a particular service.” CMS officials  acknowledged when we interviewed them in April 2008 that this statement  was incorrect and should be deleted from its manual; however, as of  August 2008 it had not been deleted.
Another source of inconsistent guidance from CMS was the data system  that the agency used to obtain benefits information from PFFS and other  MA plans. CMS officials explained that, prior to our inquiries, they did not  realize that the Plan Benefit Package (PBP) software, which PFFS plans  used to specify their benefits, did not allow plans to enter their  prenotification information, but did allow plans to specify whether they  had prior authorization requirements. As a result, some PFFS plans’  summaries of benefits incorrectly indicated that these plans had prior  authorization requirements. CMS officials said that they would update the  PBP software for contract year 2010 to ensure that PFFS plans would be  unable to specify prior authorization requirements and would make  available a screen where PFFS plans could enter their prenotification  information for specific services.
Following our inquiries on prior authorization and prenotification, CMS  issued guidance to all PFFS plan sponsors in May 2008 through an  operational policy memorandum to clarify its policy in these areas. This  policy memorandum reiterated that PFFS plans could not require prior  authorization from providers or beneficiaries as a condition of coverage.  Regarding prenotification, the policy memorandum clarified that PFFS  plans could not impose penalties, but that they were permitted to offer  cost-sharing reductions for complying with voluntary prenotification  protocols.
section_title: PFFS Plans Had Relatively High Beneficiary Disenrollment Rates and CMS Did Not Comply with Statutory Requirements to Mail Current Rates
paragraphs: From January through April 2007, beneficiaries in PFFS plans disenrolled  at an average rate that was more than twice that of other MA plans, and we  conclude that CMS did not comply with statutory requirements to mail  disenrollment rates to Medicare beneficiaries for the previous 2 years for  MA plans in their area. Furthermore, information CMS has provided to  beneficiaries on MA plan disenrollment rates and reasons for  disenrollment is outdated.
subsections: section_title: Beneficiaries Disenrolled from PFFS Plans at a Higher Rate Than from Other MA Plans
paragraphs: Beneficiaries in PFFS plans were more than twice as likely to disenroll as  beneficiaries in other MA plans from January through April 2007. PFFS  beneficiaries disenrolled at an average rate of about 21 percent, compared  to about 9 percent for beneficiaries in other MA plans. Disenrollment rates  varied by plan, which could reflect plan-level differences in factors such as  beneficiary satisfaction with care, service, and out-of-pocket costs. The  range of disenrollment rates for PFFS plans—about 4 percent to   59 percent—was similar to the range of rates for other MA plans—about   2 percent to 54 percent. However, PFFS beneficiaries were more likely  than other MA beneficiaries to be in a plan with high disenrollment rates.  For example, about 19 percent of PFFS beneficiaries were in plans that  experienced disenrollment rates of 30 percent or more. In contrast, only   3 percent of other MA beneficiaries were in plans that experienced such  high disenrollment rates. Approximately 15 percent of PFFS beneficiaries,  but about 65 percent of other MA beneficiaries, were in plans that had  disenrollment rates below 10 percent. (See fig. 1.)
On average, disenrollees from PFFS plans were generally sicker compared  to the average for all beneficiaries in PFFS plans. This pattern was also  evident in other MA plans, although the average health status difference  between disenrollees and all beneficiaries in these plans was less  pronounced. Beneficiaries’ risk scores indicated that the projected health  care expenditures, on average, of disenrollees from PFFS plans were  estimated to be about 6 percent higher than the average for all PFFS  beneficiaries. Similarly, beneficiaries who disenrolled from other MA  plans had projected health care expenditures that were, on average,  estimated to be about 3 percent higher compared to average projected  health care expenditures for all beneficiaries in other MA plans.
PFFS disenrollment rates differed depending on beneficiaries’ age group  and location (see table 4). Older beneficiaries in PFFS plans tended to  disenroll at higher rates. For example, PFFS beneficiaries age 85 and older  had the highest disenrollment rate (about 25 percent) while beneficiaries  younger than age 65 had the lowest disenrollment rate (about 18 percent).  In contrast, there was no such relationship between age and disenrollment  rates for other MA plans. Also, beneficiaries in PFFS plans who resided in  urban areas were more likely than rural beneficiaries to disenroll, but this  was not the case for other MA plans.
section_title: CMS Did Not Comply with Statutory Requirements to Mail Current Disenrollment Rates to Medicare Beneficiaries
paragraphs: We conclude that CMS did not comply with statutory requirements to mail  disenrollment rates to Medicare beneficiaries prior to the annual  coordinated election period. In creating the MA program (previously  called the Medicare+Choice program), Congress required CMS to annually  mail information to beneficiaries comparing MA plans, including PFFS  plans. The mailings were required to contain information about each MA  plan available in a beneficiary’s area, including beneficiary disenrollment  rates for the previous 2 years, to the extent that these data were  available.
CMS officials informed us that they had not mailed disenrollment rate  information to all Medicare beneficiaries since the Medicare & You 2001  handbook was sent in fall 2000, but more recent data were available. MA  plan sponsors are required to provide CMS with disenrollment rates for  beneficiaries who had been enrolled in their plans. Although CMS did not  respond to our questions about whether MA plan sponsors complied with  requirements to provide CMS with disenrollment rates, CMS does have the  information needed to calculate current disenrollment rates by using  Medicare enrollment data. We used Medicare enrollment data from CMS to  calculate disenrollment rates presented in this report for January through  April 2007 and also in previous reports in 1996 and 1998.
In response to our inquiries, CMS officials stated that there is no  requirement to mail disenrollment rates to Medicare beneficiaries, but did  not provide any explanation for the agency’s position. We, however,  disagree as under federal law, prior to each annual coordinated election  period, CMS is required to provide to Medicare beneficiaries disenrollment  rates for plans in their area to the extent these rates are available. Because  we concluded that disenrollment rates for MA plans were available, CMS  was required to include relevant disenrollment rates in annual mailings to  Medicare beneficiaries to enable them to make informed choices about  their Medicare coverage.
CMS published disenrollment rates and reasons for disenrollment through  MOC on Medicare’s Web site. As of August 2008, this information was  available through MOC based on data for 2004 and 2005. However, given  the recent growth in PFFS plans, from about 109,000 beneficiaries in June  2005 to about 2.3 million beneficiaries in June 2008, disenrollment rates  and reasons for disenrollment based on disenrollment in 2004 and 2005  may not accurately represent the experience of PFFS plans available to  beneficiaries in 2008. CMS officials stated that information on  beneficiaries’ reasons for disenrollment is necessary to understand the  underlying differences in disenrollment rates across plans. Nonetheless,  CMS officials said that the disenrollment reasons survey was discontinued  after 2005 due to budget constraints. A CMS official also noted that  providing disenrollment rates without reasons for disenrollment would be  misleading because one would not know the extent to which beneficiaries  left a plan, for example, because another plan was less expensive or due to  poor quality care. We disagree with CMS’s position. Although it would be  useful to know the reasons behind beneficiaries’ disenrollment decisions,  disenrollment rates alone can provide useful relative information about  MA plans and prompt beneficiaries to investigate plans further.
section_title: Conclusions
paragraphs: The substantial enrollment growth in PFFS plans shows that these plans  are an attractive option for Medicare beneficiaries. Yet, beneficiaries in  these plans may have faced unexpected out-of-pocket costs if plans denied  coverage for services for which beneficiaries or their providers had not  obtained an advance coverage determination. While officials from CMS did  not believe that PFFS plans often denied services unexpectedly for not  being medically necessary, it is important to determine the extent to which  such denials occur. Having this knowledge would inform CMS and policy  makers about whether additional protective measures or beneficiary  educational efforts are warranted. It is also important that beneficiaries  have accurate and current information about MA plans’ policies and  procedures. As such, ensuring that prior authorization guidance is  accurate will help beneficiaries and providers better understand the  obligations and financial risks associated with PFFS plans. Similarly,  providing beneficiaries with current information about MA plan  disenrollment rates would help them make more informed choices when  considering enrolling in an MA plan.
section_title: Recommendations for Executive Action
paragraphs: We recommend that the Acting Administrator of CMS take the following  three actions:  investigate the extent to which beneficiaries in PFFS plans are faced with  unexpected out-of-pocket costs due to the denial of coverage when they  did not obtain an advance coverage determination from their plan;    ensure that CMS guidance on prior authorization accurately reflects CMS  policy and that PFFS plan materials conform to CMS requirements; and   mail to Medicare beneficiaries MA plan disenrollment rates for the  previous 2 years for MA plans that are or will be available in their areas, as  required by statute, and update disenrollment rates provided to Medicare  beneficiaries through MOC.
section_title: Agency and Other External Comments
paragraphs: We provided a draft of this report to CMS and AHIP for comment. CMS  provided us with written comments that are reprinted in appendix II, and  representatives from AHIP provided us with oral comments.
subsections: section_title: CMS Comments
paragraphs: CMS stated that beneficiaries may have more certainty that a particular  service will be covered if that service is obtained from a provider in a  plan’s network.  As a consequence, CMS stated that it is important for  beneficiaries in non-network plans (such as virtually all PFFS plans) to  understand their rights and obligations.  CMS advised that beneficiaries in  non-network plans may want to consider obtaining advance  determinations from their plans in appropriate circumstances. CMS said  that it would continue to work closely with Congress, GAO, beneficiary  advocacy groups, and other interested parties to ensure that beneficiaries  receive appropriate health care and do not incur unexpected financial  risks.
CMS outlined the steps that it was taking, or planned to take, in response  to each of our three recommendations. In response to our  recommendation that CMS investigate the extent to which beneficiaries in  PFFS plans are faced with out-of-pocket costs due to the denial of  coverage when they did not obtain an advance coverage determination  from their plan, CMS is examining coverage denials and complaints, and  will be collecting new information from plans and refining its complaint  tracking module to support this effort. In response to our recommendation  that CMS ensure prior authorization guidance accurately reflects CMS  policy, the agency described several steps it has already taken and planned  to take to address the inaccuracies, including providing new guidance,  modifying the PBP, and providing model terms and conditions that PFFS  plans will be required to use in 2009. In response to our recommendation  that CMS mail disenrollment rates to Medicare beneficiaries and update  disenrollment rates through MOC, the agency commented that it had  recently awarded a contract to obtain disenrollment rates and other  performance metrics by late 2009. However, the agency was silent as to  how it would distribute information on MA plan disenrollment rates to  beneficiaries.
section_title: AHIP Comments
paragraphs: In general, AHIP representatives thought the report could better highlight  certain points related to prenotification, MIPPA, and case management,  and AHIP representatives made several observations about other aspects  of the report.
AHIP representatives stated that, while our presentation of prenotification  requirements was accurate, the report should have more clearly stated  that we did not know the extent to which beneficiaries actually faced  higher cost sharing as a result of not fulfilling prenotification  requirements. They also stated that our discussion of MIPPA should have  occurred earlier in the report given the potential impact of this legislation  on PFFS plans, and suggested that our finding that all nine PFFS  organizations in our study provided either case management or disease  management services should have been given greater prominence in the  report. We believe our methodology and findings regarding prenotification  are clearly presented in the report and do not agree that clarifications are  warranted. We also believe the placement and emphasis on MIPPA and  case and disease management are appropriate given the focus and timing  of our work.
AHIP representatives made several other observations they thought might  help clarify aspects of the report. They explained that prenotification was  originally intended to protect beneficiaries by providing them with an  incentive to contact their plan to determine whether a service was covered  before the service was rendered. AHIP representatives informed us that  CMS had posted standard terms and conditions on its Web site that would  help to address use of incorrect terms by the industry. They also stated  that one explanation for our finding that beneficiaries in PFFS plans were  younger on average could be that younger beneficiaries were more likely  to try new types of plans. In addition, AHIP representatives emphasized  the importance of collecting information about beneficiary reasons for  disenrollment and endorsed making this information available to  beneficiaries.
As agreed with your offices, unless you publicly announce the contents of  this report earlier, we plan no further distribution until 30 days from the  report date. At that time, we will send copies to the Acting CMS  Administrator, appropriate congressional committees and others. The  report also will be available at no charge on the GAO Web site at  http://www.gao.gov/.
If you or your staff have any questions about this report, please contact me  at (202) 512-7114 or cosgrovej@gao.gov. Contact points for our Offices of  Congressional Relations and Public Affairs may be found on the last page  of this report. GAO staff who made major contributions to this report are  listed in appendix III.
section_title: Appendix I: Scope and Methodology
paragraphs: This appendix explains the scope and methodology that we used to  address our reporting objectives that (1) compare the characteristics of  beneficiaries in private fee-for-service (PFFS) plans to the characteristics  of beneficiaries in other MA plans and Medicare FFS; (2) describe the  financial risks that beneficiaries in PFFS plans face, compared to  beneficiaries in other Medicare Advantage (MA) plans and Medicare fee- for-service (FFS), if they do not contact their plan prior to receiving  services; and (3) compare the rates at which beneficiaries in PFFS plans  disenroll to the rates for other MA plans and evaluate whether the Centers  for Medicare & Medicaid Services (CMS) met statutory requirements to  mail disenrollment rates to beneficiaries.
To compare the characteristics of beneficiaries in PFFS plans, specifically  age, gender, and residential location, to the characteristics of beneficiaries  in other MA plans and Medicare FFS, we used Medicare enrollment data  from CMS for April 2007 from the Management Information Integrated  Repository (MIIR) database and data from CMS on the average risk score  for each MA plan in 2007, which provide an indicator of the health status  of the plan’s beneficiaries. We focused our analysis on beneficiaries  enrolled in five types of MA plans as of April 2007 that accounted for more  than 99 percent of the approximately 7.8 million beneficiaries in MA plans  at that time—PFFS plans and four other types of MA plans—Health  Maintenance Organizations (HMO), Local Preferred Provider  Organizations (PPO), regional PPOs, and Provider-Sponsored  Organizations (PSO). Among beneficiaries in the five MA plan types in our  analysis, we excluded those (1) who were in plans that have enrollment  restrictions (i.e., employer plans, Special Needs Plans (SNP), and plans  that only cover Medicare Part B services) and (2) who live outside the 50  states, the District of Columbia, and Puerto Rico. After implementing these  exclusions, we analyzed data as of April 2007 for 1,304,288 beneficiaries in  431 PFFS plans, 4,535,881 beneficiaries in 1,567 other MA plans, and  31,680,824 beneficiaries in Medicare FFS. We used the Health Resources  and Services Administration’s Area Resource File for 2006 to obtain data  on counties’ level of urbanization. We defined new enrollees in PFFS and  other MA plans as beneficiaries who were in a given MA plan type in April  2007, based on data from the MIIR database, but who were not in that  same plan type in December 2006. To compare the health status of  beneficiaries in PFFS plans, other MA plans, and Medicare FFS, we used  plan-level risk scores from CMS as a proxy for health status. After  excluding beneficiaries in employer plans, SNPs, and plans that only cover  certain Medicare FFS services as described above, we analyzed risk scores  for 430 PFFS plans in which 1,371,169 beneficiaries were enrolled and  1,576 other MA plans in which 4,610,368 beneficiaries were enrolled as of  July 2007.
To describe the financial risks that beneficiaries in PFFS plans face,  compared to beneficiaries in other MA plans and Medicare FFS, if they do  not contact their plan prior to receiving services, we reviewed relevant  laws, regulations, documentation from CMS, and materials from nine PFFS  plan sponsors interviewed that accounted for about 81 percent of PFFS  enrollment in July 2007. We reviewed plan benefit information for 2008  provided to beneficiaries as well as provider terms and conditions of  payment for 30 PFFS plans, accounting for more than half of each  sponsor’s total PFFS plan enrollment. We reviewed plan benefit  information for 2008 provided to beneficiaries for 33 HMO or PPO plans  operated by the same nine plan sponsors, accounting for more than half of  each sponsor’s total enrollment in other MA plans. If the plan’s benefit  information provided to beneficiaries explicitly stated that beneficiaries  would face higher cost sharing for certain services if they or their provider  did not notify the plan before receiving such services, we considered that  plan to have a prenotification requirement. We also interviewed officials  from CMS and the plan sponsors. Information gathered from our review of  the benefit information provided to beneficiaries for PFFS and other MA  plans may not be representative of, or generalizeable to, other types of  plans offered by these plan sponsors or to other PFFS and other MA plans  that were not in our sample.
To compare the rates at which beneficiaries in PFFS plans disenroll to the  rates for other MA plans, we used Medicare enrollment data from the MIIR  database for 6,913,780 beneficiaries in MA plans in December 2006.  Because MA plan selections for 2007 generally take effect from January  through April 2007, we identified disenrollees as beneficiaries who were  covered under a given MA contract in December 2006 but were no longer  covered under that contract in April 2007 based on Medicare enrollment  data. Because we calculated disenrollment at the MA contract level, we  did not address the extent to which beneficiaries transferred from one  plan to another within an MA contract. We chose to calculate  disenrollment rates at the MA contract level, rather than at the MA plan  level, for two reasons: (1) transferring from one plan to another within a  contract can occur for administrative reasons and therefore may not  reflect beneficiary decisions, and (2) a beneficiary’s decision to transfer,  for example, from a zero premium plan to a plan within the same MA  contract that charges a premium and has a richer benefit package does not  suggest dissatisfaction with the type of MA plan or the sponsor that  administers it. We calculated disenrollment rates for each MA contract as  the total number of beneficiaries who disenrolled from their MA contract  divided by total enrollment in that contract. The disenrollment rate for an  MA contract applies to all plans under that contract.
We did not include beneficiaries in disenrollment rate calculations if they  disenrolled involuntarily due to factors such as death, loss of Medicare  eligibility, moving out of their MA contract’s service area, or to  administrative factors such as a change in their MA contract’s service area  or a termination of their MA contract or plan. After excluding  beneficiaries (1) in certain plans and locations as described above and   (2) in contracts or plans that were terminated in 2006 or 2007, we analyzed  data for 158 PFFS plans accounting for 805,734 beneficiaries and 169,465  disenrollees and for 1,410 other MA plans accounting for 4,488,653  beneficiaries and 392,704 disenrollees.
We used risk scores for 2006—an indicator of projected health care  expenditures—to compare the health status of disenrollees to  beneficiaries overall in PFFS and other MA plans. To estimate average risk  scores of disenrollees from PFFS and other MA plans, we used 2006  beneficiary-level risk scores for 169,271 beneficiaries who disenrolled  from PFFS plans and for 391,126 beneficiaries who disenrolled from other  MA plans from January through April 2007. To estimate the average risk  scores of beneficiaries overall in these plans, we used 2006 plan-level risk  scores, which are based on 725,110 beneficiaries in 154 PFFS plans and  4,421,308 beneficiaries in 1,400 other MA plans in July 2006, and weighted  each plan’s risk score by its July 2006 enrollment. According to a CMS  official, MA plans’ risk scores generally decline over the course of a year,  so a plan’s risk score based on beneficiaries in the plan in July 2006 could  be higher than it would have been based on beneficiaries in the plan in  December 2006. As a result, the actual percentage difference between the  average projected health care expenditures for disenrollees in PFFS and  other MA plans and beneficiaries overall in these plans may be larger than  our estimates indicate. To evaluate whether CMS met statutory  requirements to mail disenrollment rates to beneficiaries, we interviewed  CMS officials, analyzed relevant federal laws and regulations, and  reviewed information CMS provided to Medicare beneficiaries through, for  example, Medicare Options Compare (MOC) on Medicare’s Web site.
section_title: Appendix II: Comments from the Centers for Medicare & Medicaid Services
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: Contact
section_title: Acknowledgments
paragraphs: Other contributors to this report include Christine Brudevold, Assistant  Director; Jennie Apter; William Black; Daniel Lee; Ba Lin; Hillary Loeffler;  and Hemi Tewarson.