Medicare Managed Care: Observations about Medicare Cost Plans
Published: 2009-12-28T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: Medicare cost plans--managed care plans paid based on the reasonable costs of delivering Medicare-covered services--enroll a small number of beneficiaries compared to Medicare Advantage (MA), Medicare's managed care program in which the plans accept financial risk if their costs exceed fixed payments received for each enrolled beneficiary. Despite the small enrollment, industry representatives stated that cost plans provide a managed care option in areas that traditionally had few or no MA plans. Current law allows existing cost plans to continue operating unless specific MA plans of sufficient enrollment serve the same area. In such cases, the cost plan must discontinue serving that area beginning in 2011. The Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) required the Government Accountability Office (GAO) to examine issues related to the conversion of Medicare cost plans to MA plans. In response, GAO (1) determined the MA options available to beneficiaries in cost plans, (2) described key differences for beneficiaries between cost plans, MA plans, and Medicare fee-for-service (FFS); (3) determined the extent to which organizations offering cost plans also offer MA plans; and (4) described concerns cost plans have about converting to MA plans. GAO analyzed data from the Centers for Medicare & Medicaid Services (CMS), the agency that administers Medicare. GAO also reviewed requirements for Medicare managed care plans and interviewed officials from all Medicare cost plans and CMS.
section_title: What GAO Found
paragraphs: All Medicare beneficiaries enrolled in the 22 cost plans had multiple MA options available to them. Nearly all beneficiaries enrolled in cost plans had at least 5 MA plans serving their county in June 2009, and more than 57 percent had a choice of 15 or more MA plans. Some of the differences between cost plans and MA plans that affect beneficiaries are out-of-network coverage, enrollment periods, and prescription drug coverage. Cost plans' quality scores, on average, were higher than the average of competing MA plans' scores in the county with the cost plan's highest enrollment. Estimated out-of-pocket costs varied between cost plans and other options depending on the self-reported health status of the beneficiary. In general, beneficiaries reporting poor health had lower estimated average out-of-pocket costs in most cost plans compared to competitor MA plans and FFS, while beneficiaries reporting good or excellent health had relatively higher estimated costs in most cost plans compared to MA plans and FFS. Half of the 18 organizations offering cost plans also offered at least one MA plan in some or all of their cost plans' service area. These 9 organizations operated a total of 12 cost plans. In general, organizations that offer cost plans and MA plans in the same service area must close their cost plan to enrollment. Officials from organizations that offered cost plans cited potential future changes to MA payments and difficulty assuming financial risk as concerns about converting cost plans to MA plans. Unlike cost plans, MA plans assume financial risk if payments from CMS do not cover their costs. Officials from 13 of the 18 organizations offering cost plans identified past and the potential for future payment changes in the MA program as reasons the decision to convert was difficult, though 6 of these organizations offered an MA plan in some or all of their cost plan's service area in 2009. Additionally, officials from 5 organizations said that their enrollment was insufficient to manage the financial risk plans would need to accept in the MA program. Officials from more than half of the organizations that offered cost plans also expressed concerns about the potential disruption to beneficiaries caused by transferring beneficiaries from cost plans to MA plans. GAO provided a draft of this report to CMS. CMS provided GAO with technical comments, which were incorporated as appropriate.

section_title: Letter
paragraphs: Medicare cost plans—managed care plans paid based on their reasonable  costs incurred delivering Medicare-covered services—enroll a small  number of Medicare beneficiaries compared with the number enrolled in  Medicare Advantage (MA), Medicare’s managed care program that pays  health plans on a risk basis. Risk-based plans are paid a fixed monthly  payment per beneficiary enrolled in the plan to furnish Medicare-covered  services, and the health plans bear financial risk if their costs exceed  Medicare payments.
As of June 2009, 22 Medicare cost plans enrolled approximately 288,000  Medicare beneficiaries, compared to 633 MA plans that served  approximately 10.7 million Medicare beneficiaries. Despite their relatively  small enrollment, industry representatives stated that cost plans fill a  unique niche by providing a Medicare managed care option in rural and  other areas that traditionally had few or no MA plans. Congress acted to  curtail the expansion of cost plans multiple times. In 1997 Congress passed  legislation prohibiting new cost plans from entering the Medicare market  and prohibiting existing cost plans from being renewed or extended  beyond 2002. Subsequent legislation extended the authorization of existing  cost plans and, most recently, the Medicare Improvements for Patients and  Providers Act of 2008 (MIPPA) allowed existing Medicare cost plans to  continue to operate except where MA plans of sufficient enrollment  served a cost plan’s service area for the previous year. In such cases, the  cost plan must discontinue serving that area beginning January 1, 2011.
MIPPA also required GAO to report, by December 31, 2009, on issues  related to the conversion of Medicare cost plans to MA plans. To respond  to the mandate, we (1) determined the MA options available to  beneficiaries enrolled in Medicare cost plans; (2) described the key  differences for beneficiaries between cost plans, MA plans, and Medicare  fee-for-service (FFS); (3) determined the extent to which organizations  offering cost plans also offer MA plans; and (4) described concerns cost  plans have about converting to MA plans.
To determine the MA options available to beneficiaries enrolled in  Medicare cost plans, we analyzed June 2009 MA and cost plan service area  and enrollment data at the contract level from the Centers for Medicare &  Medicaid Services (CMS), the agency that administers the Medicare  program.
To describe the key differences for beneficiaries between cost plans, MA  plans, and Medicare FFS, we reviewed CMS requirements for Medicare  cost plans, MA plans, and Medicare FFS. We examined quality data for  cost plans and MA plans. We limited our quality analysis to the county in  each cost plan’s service area with the highest cost plan enrollment  because the MA competitor plans for a cost plan may differ depending on  the county within the service area. If a cost plan was missing a quality  score, we did not report a comparison. We also analyzed CMS data that  estimate total monthly out-of-pocket costs for beneficiaries in different  managed care benefit packages and Medicare FFS. CMS reports the  estimated out-of-pocket costs according to self-reported health status  within a range of age groups, for example, among 80 to 84 year olds  reporting good health. For our analysis, we compared enrollment- weighted averages of estimated out-of-pocket costs for each cost plan  benefit package to enrollment-weighted estimates for MA benefit packages  in the same service area. We separated the analysis according to whether  the benefit package included Part D, Medicare’s prescription drug benefit.  Similarly, because the FFS-only estimate does not include Part D coverage,  we compared the estimated out-of-pocket costs for beneficiaries enrolled  in non-Part D cost plan benefit packages to the out-of-pocket costs for  beneficiaries in Medicare FFS. We presented the results for beneficiaries  that reported themselves as 80 to 84 years old and in poor, good, and  excellent health; we used results for this age group because officials from  the industry and CMS told us that beneficiaries in cost plans are generally  older than the average MA beneficiary.
To determine the extent to which organizations that offer cost plans also  offer MA plans, we analyzed CMS service area and enrollment data to  identify organizations offering both. We interviewed officials from each  organization that offers a cost plan to verify the CMS data. We then  compared the service areas of the MA plans with those of the cost plans  offered by the same organizations.
To describe the concerns that cost plans have about converting to MA  plans, we interviewed officials from each organization that offers a cost  plan, the CMS office responsible for oversight of Medicare’s managed care  programs, the Medicare Cost Contractors Alliance, which is an alliance of  cost plans that advocates for cost plans in Congress and with CMS, and the  National Association of Insurance Commissioners (NAIC), which is the  organization of state insurance regulators.
To determine the reliability of the data, we reviewed documentation for all  the data sets we used. We conducted tests to look for obvious errors in the  data and compared results to other published sources for CMS data on  cost plan and MA plan service areas and enrollment. We interviewed CMS  officials regarding the reliability of the out-of-pocket cost data and the  quality ratings data. We determined that all data were sufficiently reliable  for our purposes.
We conducted our work from February 2009 to November 2009 in  accordance with all sections of GAO’s Quality Assurance Framework that  are relevant to our objectives. The framework requires that we plan and  perform the engagement to obtain sufficient and appropriate evidence to  meet our stated objectives and to discuss any limitations in our work. We  believe that the information and data obtained, and the analysis  conducted, provide a reasonable basis for any findings and conclusions in  this product.
subsections: section_title: Background
paragraphs: Medicare began contracting with managed care plans on a cost- reimbursement basis in the 1970s. In 1982, Congress passed the Tax Equity  and Fiscal Responsibility Act (TEFRA), which created the first Medicare  risk contracting program for managed care plans beginning in 1985. The  Medicare risk program evolved into today’s MA program. TEFRA also  retained and authorized Medicare cost plans as an option if an  organization did not have the capacity to bear the risk of potential losses,  had an insufficient number of members to be eligible for a risk-sharing  contract, or the organization elected to offer a cost plan rather than a risk  plan.
subsections: section_title: Evolution of Medicare Advantage
paragraphs: Enrollment in the Medicare risk program grew from nearly 498,000 in 1985  to about 5.2 million beneficiaries by 1997, primarily concentrated in urban  counties. The Balanced Budget Act of 1997 (BBA) phased out the existing  risk program and created a new risk program called Medicare+Choice  (M+C). Under the M+C program, the method used to pay participating  plans was revised significantly, and, due in part to these payment changes,  by 2000 many health plans began to withdraw from the program.  Enrollment fell from 6.3 million in 1999 to 4.6 million by 2003. The  Medicare Prescription Drug, Improvement, and Modernization Act of 2003  (MMA) renamed the M+C program Medicare Advantage and provided  increases to MA plan payment rates and other program changes. MA  enrollment increased steadily from 2003 to 2009.
The MA program includes several types of plans:    Local coordinated care plans (CCP) consist of:    Health maintenance organizations (HMO), which have defined  provider networks and primary care gatekeepers. Beneficiaries  enrolled in HMOs generally are required to obtain services from  hospitals and doctors in the plan’s network, but some HMOs offer a  point-of-service option under which a beneficiary may elect to obtain  services from a non-network provider, though at a higher out-of-pocket  cost.
Preferred provider organizations (PPO), which have defined provider  networks and no requirement that beneficiaries obtain referrals for  care. Beneficiaries enrolled in PPOs can use non-network providers,  but at a higher out-of-pocket cost than in-network providers.
Provider sponsored organizations (PSO), which doctors, hospitals, or  other Medicare providers operate rather than a health insurance  company. The providers that operate the PSO furnish the majority of  the health care and share in the financial risk of providing the health  care to the beneficiaries enrolled in the plan.
Regional PPOs, which have a service area comprising 1 or more of 26  state-level or multistate-level CMS-defined regions. Regional PPOs are also  CCPs.
Special needs plans exclusively or disproportionately enroll special needs  individuals. Special needs individuals are beneficiaries who are  institutionalized, eligible for both Medicare and Medicaid, or have a  disability or chronic condition. Special needs plans can be any type of  CCP.
Private fee-for-service (PFFS) plans, which are local plans that are not  required to have a contracted provider network as long as they pay willing  providers at least the Medicare FFS rate.
MA benefit packages may include Medicare Part D coverage; however, all  CCPs must offer at least one benefit package with Part D coverage.
section_title: Medicare Cost Plans
paragraphs: CMS pays cost plans the reasonable cost of the Medicare-covered services  they furnish directly to, or arrange for, Medicare beneficiaries enrolled in  their plan, less the value of the deductible and coinsurance. In addition to  the costs directly related to the provision of health services, CMS also pays  reasonable costs associated with operating a health plan, such as  marketing, enrollment, and membership expenses. Cost plans receive an  advance interim payment per member per month based on the cost plan’s  estimated reimbursable costs. CMS and the cost plans make adjustments  after the contract period to align the payments with the actual costs  incurred following the plan’s submission of an independently certified cost  report that details cost, utilization, and enrollment data for the entire  contract period.
As of December 2009, 18 organizations operated 22 cost plans, with  enrollments ranging from 50 to 74,190. Of the 22 cost plans, 15 were open  to enrollment. Nonprofit organizations operated 17 of the 22 cost plans.  (See app. I for a list of the organizations that offer cost plans.) Eight cost  plans offered Part D coverage in 2009. Cost plans served at least one  county in 16 states and the District of Columbia in 2009. Cost plans were  most prevalent in Minnesota, where 3 cost plans operated across most of  the state. (See fig. 1.)
Congress acted to curtail the expansion of cost plans multiple times. The  BBA provided that upon enactment, with few exceptions, the Secretary of  Health and Human Services could not enter into any new cost plan  contracts and could not extend or renew a cost plan contract beyond  December 31, 2002. Subsequent laws modified the circumstances under  which existing cost plans could continue to operate. The MMA, for  example, allowed existing cost plans to be extended indefinitely, with the  exception that, beginning January 1, 2008, the Secretary could no longer  renew or extend contracts for cost plans serving an area that for the  previous year was also served by two or more regional CCPs or two or  more local CCPs and that also met specified enrollment thresholds. A  cost plan would only be required to leave the counties within its service  area that were also served by the CCPs. Most recently, MIPPA extended  the exception provision to January 1, 2010, meaning cost plans affected by  this provision would close at the beginning of calendar year 2011. MIPPA  also requires that the qualifying CCPs used to determine whether the cost  plan must close must be offered by more than one organization (see fig. 2).  Separately, CMS requires organizations operating cost plans to close their  cost plans to new enrollment if they open an MA plan in the same service  area.
Based on 2009 enrollment information through December, CMS’s  preliminary estimates were that 7 of the 22 cost plans would need to  withdraw from some or all of their 2009 service area in 2011. Three of the  7 cost plans would need to withdraw from their entire service area. All 3 of  these plans already were closed to new enrollment in 2009. In total, CMS  estimated that approximately 8,000 beneficiaries enrolled in cost plans, or  about 3 percent of total cost plan enrollment, are in counties where their  cost plan must discontinue service in 2011. (See app. II for a list of the cost  plans that would likely be affected by the MIPPA provision.)
section_title: Beneficiaries in Cost Plans Had Multiple MA Options
paragraphs: All beneficiaries enrolled in cost plans had multiple MA options available  to them. Nearly 100 percent of beneficiaries enrolled in cost plans had   at least 5 MA plans serving their county in June 2009, and more than   57 percent had a choice of 15 or more MA plans (see fig. 3). About   10 percent of beneficiaries enrolled in cost plans had no local CCPs in  their county, which is the MA plan type with the highest enrollment. Two  cost plans, located in Colorado and Texas, enrolled about 90 percent of  the beneficiaries without a local CCP plan option.
About 10 percent of beneficiaries in cost plans were in counties without   an HMO, about 62 percent were in counties without a local PPO, and about  8 percent were in counties without a regional PPO. Approximately   42 percent of beneficiaries enrolled in a cost plan were in counties with  five or more MA HMOs. All beneficiaries enrolled in a cost plan could  enroll in a PFFS plan in June 2009. (See table 1.)
section_title: Cost Plan Quality Scores Higher Than MA Plans While Estimated Out-of- Pocket Costs Vary by Health Status
paragraphs: Some of the differences between cost plans and MA plans that affect  beneficiaries involve out-of-network coverage, enrollment periods, and  prescription drug coverage. Cost plans generally scored higher than  competing MA plans on the quality scores CMS reports, and their  estimated out-of-pocket costs compared to competing MA plans and FFS  varied by health status.
subsections: section_title: Cost Plan Structure Differs from MA Plans and Medicare FFS
paragraphs: Cost plans differ structurally from MA plans and Medicare FFS in several  ways, including enrollment periods, out-of-network coverage, and  prescription drug coverage. For example, cost plans that are open to  enrollment must have an open enrollment period of at least 30 consecutive  days annually, and some cost plans choose to allow new enrollment all  year. Beneficiaries enrolled in cost plans may disenroll at any time. In  contrast, beneficiaries enrolled in an MA plan can join, switch, or drop  plans, or join FFS, only during certain specified enrollment periods.
Beneficiaries enrolled in cost plans who receive Medicare-covered  services out of network are covered by Medicare FFS. These services are  therefore subject to Medicare FFS coinsurance and deductibles. Out-of- network coverage varies among MA plans according to plan type, but if  offered, it is covered by the MA plan, not Medicare FFS. Medicare FFS  beneficiaries can receive services from any provider that accepts  Medicare.
Beneficiaries enrolled in cost plans may obtain Medicare prescription drug  coverage by enrolling in any stand-alone Part D plan or a Part D plan  offered by the cost plan sponsor. Beneficiaries enrolled in MA plans must  choose a Part D plan offered by the MA plan sponsor. Beneficiaries  enrolled in PFFS plans also must choose a Part D plan offered by the PFFS  sponsor, unless the sponsor does not offer one, in which case beneficiaries  can choose any Part D Plan. Beneficiaries enrolled in FFS may choose any  Part D plan. For additional information about structural differences  between cost plans, MA plans, and Medicare FFS, see appendix III.
section_title: Cost Plan Quality Scores Generally Higher Than Competitor MA Plans
paragraphs: Our analysis of CMS quality scores found that cost plans’ quality scores, on  average, were higher than the average of competing MA plans. All 12 of the  cost plans with plan summary scores, based on a scale of 1 (poor quality)  to 5 (excellent quality), were rated higher than or the same as their MA  competitors in the county with the cost plan’s highest enrollment. These  12 cost plans enrolled about 202,500 beneficiaries, or about 70 percent of  the total cost plan enrollment nationwide. (See fig. 4.)
The majority of cost plans had higher scores than their MA competitors in  each of the five quality dimensions that make up the plan summary score.  For example, 15 of the 18 cost plans with a score for the dimension  “Ratings of Health Plans Responsiveness and Care,” which includes ratings  of beneficiary satisfaction with the plan, were rated higher than their MA  competitors. Similarly, 17 of the 20 cost plans with a score for the  dimension “Staying Healthy,” which includes how often beneficiaries got  various screening tests, vaccines, and other check-ups, were rated higher  than their competitors. The majority of cost plans also rated higher than  their competitors in the other three quality dimensions reported by CMS.  (See fig. 5.)
section_title: Cost Plans’ Estimated Average Out-of-Pocket Costs Generally Lower for Beneficiaries Reporting Poor Health, Higher for Beneficiaries Reporting Good and Excellent Health
paragraphs: In 2009, estimated average out-of-pocket costs in cost plans, MA plans, and  Medicare FFS varied by the health status of beneficiaries. In general,  beneficiaries 80 to 84 years old reporting poor health had lower estimated  average out-of-pocket costs in cost plans compared to competitor MA  plans and Medicare FFS, while beneficiaries in the same age group in cost  plans reporting good or excellent health had higher estimated average out- of-pocket costs. Specifically, we found estimated out-of-pocket costs for  beneficiaries reporting poor health in 11 of the 12 cost plans without drug  coverage to be lower than other MA options, on average, ranging from 69  to 99 percent of the competitor MA plans. Similarly, beneficiaries  reporting poor health in all of the cost plans without drug coverage had  out-of-pocket costs that ranged from 67 to 92 percent of Medicare FFS. We  also found out-of-pocket costs to be lower by similar amounts for  beneficiaries in poor health in 4 of the 8 cost plans with drug coverage  compared to other MA plans with drug coverage. (See fig. 6.)
For 80- to 84-year-old beneficiaries reporting good and excellent health in  8 of the 12 cost plans without drug coverage, we found estimated out-of- pocket costs, on average, that were 5 to 37 percent higher than in  competing MA plans without drug coverage. Beneficiaries in the same age  category reporting good health in 6 of the 12 cost plans without drug  coverage had, on average, higher out-of-pocket costs than FFS, and  beneficiaries reporting excellent health in 11 of the 12 cost plans had  higher estimated out-of-pocket costs than FFS. Similarly, for beneficiaries  reporting good and excellent health in 7 of the 8 cost plans with drug  coverage, the estimated out-of-pocket costs were 6 to 36 percent higher  than competitor MA plans with drug coverage.
section_title: Half of Organizations Offering Cost Plans Also Offered MA Plans
paragraphs: In June 2009, 9 of the 18 organizations offering cost plans also offered MA  plans in some or all of their cost plans’ service area, which demonstrates  that these organizations were capable of bearing financial risk. (See   table 2.) These 9 organizations operated a total of 12 cost plans. The  combined enrollment in these 12 cost plans in June 2009 was 124,467, or  43 percent of all beneficiaries in cost plans. Seven of the 12 cost plans  enrolled fewer than 2,000 beneficiaries, and 2 of the plans enrolled more  than 30,000 beneficiaries. Of the 9 organizations that offered both cost  plans and MA plans, 1 organization’s only MA plan was a special needs  plan. Special needs plans exclusively or disproportionately enroll special  needs individuals, so these plans may not be an appropriate option for the  beneficiaries enrolled in this organization’s cost plan.
All eight organizations offering both cost plans and MA plans that were not  special needs plans operated at least one MA plan in some or all of their  cost plan’s service area. Seven operated at least one MA plan in their cost  plan’s entire service area and one operated at least one MA plan in part of  their cost plan’s service area. CMS requires that organizations that offer an  MA plan in the same service area as their cost plan close the cost plan to  new enrollment. However, officials from CMS stated that there are some  exceptions to this requirement. For instance, some organizations were  able to keep their cost plan open to enrollment because the units of the  organization that contracted with CMS were two distinct entities. The  officials stated that they may inspect these organizations to ensure that  they do not share beneficiary information across companies and do not  route certain beneficiaries into different plans to maximize their profits.
The Medicare managed care enrollment composition for the eight  organizations that operated both a cost plan and an MA plan that were not  special needs plans varied. All eight of these organizations had a total  enrollment, including both their cost plan enrollment and MA enrollment,  of at least 3,000 beneficiaries. Four of the eight organizations enrolled  more than 95 percent of their total Medicare managed care enrollment in  their MA plans. Another organization’s Medicare managed care enrollment  was fairly evenly split between its MA plan and cost plan. The remaining  three organizations had more than 75 percent of their Medicare managed  care enrollment in their cost plan. Six of the 11 MA plans offered by  organizations that offered both cost plans and MA plans were local HMOs  (see table 3).
section_title: Financial and Beneficiary Transition Issues Cited as Concerns Regarding Conversion to MA Plans
paragraphs: Officials from organizations that offered cost plans cited potential future  changes to MA payments and difficulty assuming financial risk as concerns  about converting cost plans to MA plans. Officials also expressed concerns  about the potential disruption to beneficiaries that could be caused by  transferring beneficiaries in cost plans to an MA plan.
subsections: section_title: Organizations Cited MA Payment Rates and Financial Risk as Concerns to Becoming MA Plans
paragraphs: Officials from organizations that offered cost plans reported that potential  changes to MA payments were a significant concern in their decision  about whether to convert their cost plans to MA plans. Officials from 13 of  the 18 organizations that offered cost plans identified past payment  changes in the Medicare risk programs and the potential for future  payment changes in the MA program as making the decision to convert  difficult, though 6 of these organizations offered an MA plan in some or all  of their cost plan’s service area in 2009. For instance, officials from one  organization who told us that they would prefer to convert their cost plan  to an MA plan, said they have not done so because of concerns future MA  payment changes may then necessitate closing the plan. Recent  congressional and administration proposals have called for slowing the  increase in or reducing MA payments.
Officials from some organizations said that the size of their enrollment  was insufficient to manage the financial risk associated with the MA  program. Officials from 5 of the 18 organizations that offered cost plans  stated that their enrollment was too low to spread financial risk. For  example, an official from 1 of these 5 organizations stated that, because of  the plan’s location in a rural area, its enrollment would never be large, and  its cost plan could not take on the financial risk. This official told us that a  few high-cost beneficiaries would consume the payments the plan would  receive from CMS. In June 2009, the cost plan enrollment levels for these 5  organizations ranged from fewer than 500 beneficiaries to about 37,000  beneficiaries. Despite the concerns of these 5 organizations, we found  that plans of equivalent size were able to operate in the MA program.  Nationwide, 130 MA plans, or about 21 percent of all MA plans, enrolled  fewer than 500 beneficiaries, and 69 percent of MA plans enrolled from 501  to 37,000 beneficiaries. Eleven percent of MA plans enrolled more than  37,000 beneficiaries. According to CMS officials, after 3 years of  operation, MA organizations should be able to meet the agency’s  enrollment threshold of 1,500 in rural areas and 5,000 in urban areas.  However, these officials noted that the total enrollment can include  enrollment from other lines of business if the enrollment is with the same  legal entity that holds the contract with CMS.
Officials from 3 of the 18 organizations that offered cost plans expressed  concern about meeting risk-based capital (RBC) requirements, should they  be required to convert to an MA plan. An official from the Medicare Cost  Contractors Alliance also expressed concern about the ability of some  organizations that offered cost plans to raise RBC in the event of a  required conversion to an MA plan. The official noted that nonprofit  organizations operate most cost plans, and some of these organizations  have reservations about their ability to raise additional capital. NAIC  officials confirmed that if an organization converted a cost plan to an MA  plan, thus assuming more financial risk, the organization would probably  need to raise more capital, though the extent of capital needed would  depend on the size of the organization and how much of the organization’s  business was dependent on Medicare enrollment. Two of the three  organizations that reported concerns about RBC did not have an MA plan  in June 2009. The third organization operated at least one MA plan, but  nearly 85 percent of the organization’s Medicare managed care enrollment  was in its cost plan.
section_title: Cost Plans Cited Concerns about Transitioning Beneficiaries
paragraphs: Officials from more than half of the 18 organizations with cost plans stated  they were concerned about the potential disruption to beneficiaries if they  were required to convert to a MA plan. Some of these officials noted that  the beneficiaries enrolled in their cost plan(s) would not understand the  process and would default to Medicare FFS. Officials from two  organizations with closed cost plans stated that they have tried in the past  to transfer the beneficiaries enrolled in their cost plan into the  organization’s MA plan, but had trouble convincing beneficiaries to change  plans.
In general, if an organization decided to convert a cost plan to an MA plan,  the organization would need to close the cost plan and open a new MA  plan, if the organization did not already have one. Beneficiaries who wish  to enroll in an MA plan offered by the organization that offered their cost  plan must affirmatively enroll in the organization’s MA plan. Those who do  not choose a plan—whether unintentionally or by design—will be enrolled  by default in Medicare FFS.
CMS does have a standard process in place to alert beneficiaries when  their MA or cost plan discontinues serving the beneficiaries’ area. CMS  requires cost plans that discontinue serving an area to notify each  Medicare beneficiary enrolled in the plan by mail at least 60 days prior to  the end of the contract period and notify the general public at least 30 days  prior to the end of the contract period. CMS stated that they would  strongly suggest that the cost plans adhere to the more stringent MA  requirements regarding plan closures, which require the organization  offering the plan to notify each Medicare beneficiary enrolled in the plan  at least 90 days before it stops operating by sending a CMS-approved  notice to beneficiaries describing available alternatives for obtaining  Medicare services within the service area, including MA plans and  Medicare FFS. The organization also must publish a notice in one or more  local newspapers at least 90 days before the end of the calendar year to  alert the public.
section_title: Agency and Other External Comments
paragraphs: We provided a draft of this report to CMS and the Medicare Cost  Contractors Alliance. CMS provided us with technical comments, which  we have incorporated as appropriate, and representatives from the  Medicare Cost Contractors Alliance provided us with oral comments.
subsections: section_title: Medicare Cost Contractors Alliance Comments
paragraphs: Officials from the Medicare Cost Contractors Alliance stated that it was  important to know whether cost plans were open or closed to enrollment  in our discussion of competitors and the discussion of organizations  offering both cost plans and MA plans. Information on the enrollment  status of cost plans is provided in appendices I and II. The Medicare Cost  Contractors Alliance officials also stated that cost plans have been in the  Medicare managed care market significantly longer than most MA plans  and it is this experience that has led the organizations to be weary of  potential payment changes to the MA program. In addition, the Medicare  Cost Contractors Alliance officials provided technical comments, which  we incorporated as appropriate.
We are sending copies of this report to the Administrator of CMS and  other interested parties. In addition, this report 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 IV.
section_title: Appendix I: Organizations That Offer Medicare Cost Plans
paragraphs: As of December 2009, 18 organizations operated 22 cost plans, with  enrollments ranging from 50 to 74,190. Of the 22 cost plans, 15 were open  to enrollment. Nonprofit organizations operated 17 of the 22 cost plans.
section_title: Appendix II: Organizations That Would Likely Be Affected by Medicare Improvements for Patients and Providers Act of 2008 Provision
paragraphs: The Medicare Improvements for Patients and Providers Act of 2008  (MIPPA) provides that, the Secretary of Health and Human Services would  not extend or renew cost plan contracts for service areas where, during  the entire previous year, two or more regional coordinated care plans  (CCP) or two or more local CCPs were offered by different organizations,  if the MA plans met specified enrollment thresholds. Private fee-for-service  plans are not CCPs.
section_title: Appendix III: Structural Differences among Cost Plans, MA Plans, and Medicare FFS for Beneficiaries
paragraphs: Appendix III: Structural Differences among  Cost Plans, MA Plans, and Medicare FFS for  Beneficiaries Medicare  Advantage (MA)  Preferred Provider  Organization (PPO) (Local & Regional)
MA Health  Maintenance  Organization  (HMO)
Medicare Fee-For- Service (FFS)
Enrollment period  Cost plans that are  open to enrollment  must have an open  enrollment period of  at least 30  consecutive days  annually.
When beneficiary  becomes eligible for  Medicare, during the  Annual Election  Period (AEP), the  MA Open Enrollment  Period (MA OEP), or  a Special Enrollment  Period (SEP).
When beneficiary  becomes eligible for  Medicare, during the  AEP, the MA OEP,  or a SEP.
When beneficiary  becomes eligible for  Medicare, during the  AEP, the MA OEP,  or a SEP.
When beneficiary  becomes eligible for  Medicare, during the  general enrollment  period of January 1st  to March 31st of  each year, or during  a SEP.
Beneficiary may  disenroll at any time  and return to FFS.
In most cases,  beneficiary must  stay enrolled for the  calendar year in  which coverage  begins.
In most cases,  beneficiary must  stay enrolled for the  calendar year in  which coverage  begins.
In most cases,  beneficiary must  stay enrolled for the  calendar year in  which coverage  begins.
In most cases,  beneficiary must  stay enrolled until  next AEP or MA- OEP.
Through Medicare  FFS; beneficiary is  responsible for FFS  coinsurance and  deductibles.
Services received  out of network will  generally cost more,  but they are covered  by the plan.
Beneficiary generally  responsible for full  cost of out-of- network services,  however some plans  may cover certain  services out of  network at a higher  cost.
Any Medicare- approved provider  that accepts the  plan’s terms.
Any provider that  accepts Medicare.
Any stand-alone  Medicare  Prescription Drug  Plan (PDP) or PDP  offered by the cost  plan organization.
A Part D plan offered  by the MA  organization.
A Part D plan offered  by the MA  organization.
A PDP offered by  the PFFS  organization. If the  organization does  not offer a PDP plan,  beneficiaries can  choose any PDP.
Any PDP.
Subject to MA plan’s  internal appeal  process.
Subject to MA plan’s  internal appeal  process.
Subject to MA plan’s  internal appeal  process.
Subject to Medicare  appeals process.
The Annual Election Period (AEP) is from November 15th to December 1st, the MA Open  Enrollment Period (MA OEP) is from January 1st to March 1st, and Special Enrollment Periods  (SEP) apply whenever a beneficiary meets certain criteria, such as moving out of their current plan’s  service area.
Beneficiaries have the right to appeal coverage decisions. This chart relates to the first of the five  levels of appeals.
section_title: Appendix IV: GAO Contact and Staff Acknowledgments
subsections: section_title: Staff Acknowledgments
paragraphs: In addition to the contact above, Christine Brudevold, Assistant Director;  Lori Achman; Julianne Flowers; Hannah Marston; Sarah Marshall;  Elizabeth T. Morrison; and Amanda Pusey made key contributions to this  report.