Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO Performance
Released: 1996-10-31T00:00:00

Letter

Introduction

Between August 1994 and August 1996, enrollment in Medicare risk-contract health maintenance organizations (HMO) rose by over 80 percent (from 2.1 million to 3.8 million), and the number of risk-contract HMOs rose from 141 to 229. As managed care options become increasingly available to Medicare beneficiaries, the need for information that can help them make prudent health care decisions has become more urgent. The need for straightforward and accurate information is also important because in the past some HMO sales agents have misled beneficiaries or used otherwise questionable sales practices to get them to enroll.

Traditional Fee-for-Service Medicare Available to All Beneficiaries

For most 65-year-olds, notice of coverage for Medicare benefits comes in the mail—a Medicare card from the Health Care Financing Administration (HCFA), which administers the Medicare program. Unless beneficiaries enroll in an HMO, HCFA automatically enrolls them in Medicare’s fee-for-service program.

Medicare’s fee-for-service program, available nationwide, offers a standard package of benefits covering (1) hospitalization and related benefits (part A), with certain coinsurance and deductibles paid by the beneficiary, and (2) physician and related services (part B) for a monthly premium ($42.50 in 1996), a deductible, and coinsurance. Medicare part B coverage is optional, though almost all beneficiaries entitled to part A also enroll in part B. Many beneficiaries in the fee-for-service program enhance their Medicare coverage by purchasing a private insurance product known as Medigap. Medigap policies can cost beneficiaries $1,000 a year or more and must cover Medicare coinsurance. Some policies also cover deductibles and benefits not covered under Medicare such as outpatient prescription drugs.

Medicare HMOs Typically Offer Additional Benefits but Restrict Provider Choice

Medicare beneficiaries may enroll in a Medicare-approved “risk” HMO if available in their area. Such a plan receives a fixed monthly payment, called a capitation payment, from Medicare for each beneficiary it enrolls. The payment is fixed per enrollee regardless of what the HMO spends for each enrollee’s care. An HMO paid by capitation is called a risk-contract HMO because it assumes the financial risk of providing health care within a fixed budget. Although other types of Medicare managed care exist, almost 90 percent of Medicare beneficiaries now in managed care are enrolled in risk-contract HMOs.

Compared with the traditional Medicare fee-for-service program, HMOs typically cost beneficiaries less money, cover additional benefits, and offer freedom from complicated billing statements. Although some HMOs charge a monthly premium, many do not. (Beneficiaries enrolled in HMOs must continue to pay the Medicare part B premium and any specified HMO copayments.) HMOs are required to cover all Medicare part A and B benefits. Many HMOs also cover part A copayments and deductibles and additional services—such as outpatient prescription drugs, routine physical exams, hearing aids, and eyeglasses—that are not covered under traditional Medicare. In effect, the HMO often acts much like a Medigap policy by covering deductibles, coinsurance, and additional services.

In return for the additional benefits HMOs furnish, beneficiaries give up their freedom to choose any provider. If a beneficiary enrolled in an HMO seeks nonemergency care from providers other than those designated by the HMO or seeks care without following the HMO’s referral policy, the beneficiary is liable for the full cost of that care. Recently, Medicare allowed HMOs to offer a “point-of-service” (POS) option (also known as a “self-referral” or “open-ended” option) that covers beneficiaries for some care received outside of the network. This option is not yet widely available among Medicare HMOs.

HMOs Market Continuously in Response to Beneficiaries’ Freedom to Join and Switch Plans Monthly

Managed care plans’ marketing strategies and enrollment procedures reflect Medicare beneficiaries’ freedom to move between the fee-for-service and managed care programs. Unlike much of the privately insured population under age 65, beneficiaries are not limited to enrolling or disenrolling only during a specified “open season;” they may select any of the Medicare-approved HMOs in their area and may switch plans monthly or choose the fee-for-service program. Thus, HMOs market their plans to Medicare beneficiaries continuously rather than during an established 30- or 60-day period. HMOs and their sales agents, not HCFA, enroll beneficiaries who wish to join a managed care plan.

Most beneficiaries have access to at least one Medicare HMO, and more than 50 percent of beneficiaries have at least two HMOs available in their area. In some urban areas, beneficiaries can choose from as many as 14 different HMOs. Each HMO may be distinguished from its competitors by its coverage of optional benefits, cost-sharing arrangements, and network restrictions. As a practical matter, the number of choices is likely to be greater than the number of HMOs because a single HMO may offer multiple Medicare products, each with its own combination of covered benefits and premium levels.

Objectives, Scope, and Methodology

In February 1996, Senator Pryor, the Ranking Minority Member of the Senate Special Committee on Aging asked us to examine issues related to the marketing, education, and enrollment practices of health plans participating in the Medicare risk-contract HMO program. Subsequently, he was joined by Committee Chairman Cohen and by Senators Grassley, Breaux, Feingold, and Wyden as corequesters. This report focuses on information that can help beneficiaries become discerning consumers. In particular, the report reviews (1) HCFA’s performance in providing beneficiaries comparative information about Medicare HMOs to assist their decision-making and (2) the usefulness of readily available data that could inform beneficiaries and caution them about poorly performing HMOs.

Our study focused on risk-contract HMO plans, which (as of August 1996) enrolled almost 90 percent of Medicare beneficiaries enrolled in managed care. In conducting our study, we reviewed records at HCFA headquarters and regional offices and interviewed HCFA officials, Medicare beneficiary advocates, provider advocates, Medicare HMO managers, and representatives of large health insurance purchasing organizations. We also analyzed enrollment and disenrollment data from HCFA’s automated systems. In addition, we reviewed beneficiary complaint case files and observed certain HCFA oversight and education activities. Finally, we reviewed relevant literature. Our work was performed between October 1995 and August 1996 in accordance with generally accepted government auditing standards. (For further detail on our data analysis methodology, see app. I.)

Beneficiaries Do Not Get the Information Needed to Help Them Choose an HMO

Though Medicare is the nation’s largest purchaser of managed care services, it lags other large purchasers in helping beneficiaries choose among plans. HCFA has responsibility for protecting beneficiaries’ rights and obtaining and disseminating information from Medicare HMOs to beneficiaries. HCFA has not yet, however, provided information to beneficiaries on individual HMOs. It has announced several efforts to develop HMO health care quality indicators. HCFA has, however, the capability to provide Medicare beneficiaries useful, comparative information now, using the administrative data it already collects.

Although Other Large Purchasers Offer Comparative Benefit Guides, HCFA Does Not

Unlike leading private and public health care purchasing organizations, Medicare does not provide its beneficiaries with comparative information about available HMOs. Other large purchasers of health care—for example, the Federal Employees Health Benefits Program, the California Public Employees’ Retirement System (CalPERS), Minnesota Medicaid, Xerox Corporation, and Southern California Edison—publish summary charts of comparative information such as available plans, premium rates, benefits, out-of-pocket costs, and member satisfaction surveys. Table 2.1 compares the information provided by HCFA and these other large health purchasers.

A few purchasers also give enrollees information that helps them compare HMOs’ provision of services in such areas as preventive health and care of chronic illness. For example, CalPERS publishes the percentage of members in each plan who receive cholesterol screening, cervical and breast cancer screening, and eye exams for diabetics. Some purchasers also provide indicators of physician availability and competence, such as percentage of physicians accepting new patients, physician turnover, and percentage of physicians who are board certified.

Comparative Benefits Information Available to HCFA Staff but Not to Medicare Beneficiaries

HCFA currently collects benefit and cost data in a standardized format from Medicare HMOs. HCFA’s professional staff use the data to determine that each HMO is providing a fairly priced package of Medicare services or that Medicare is paying a fair price for the services provided. HCFA could provide this benefit and cost information to beneficiaries with little additional effort.

Using these data, HCFA’s regional office in San Francisco, on its own initiative, developed benefit and premium comparison charts 2 years ago for markets in southern and northern California, Arizona, and Nevada. However, distribution of these charts has been limited primarily to news organizations and insurance counselors. Beneficiaries may request the charts, but few do because HCFA does not widely publicize the charts’ existence. In fact, when we called a Los Angeles insurance counselor (without identifying ourselves as GAO staff) and asked specifically about Medicare HMO information, we were not told about the comparison charts. Recently, HCFA’s Philadelphia office began producing and distributing similar charts. While HCFA’s Office of Managed Care has been studying how to provide information to beneficiaries for a year and a half, the local initiatives in the San Francisco and Philadelphia offices demonstrate that HCFA could be distributing comparison charts to beneficiaries nationwide.

HMO Marketing Materials Not Required to Standardize Presentation or Terminology for Benefits

Although HMOs provide beneficiaries information about benefits and premiums through marketing brochures, each plan uses its own terminology to describe benefits, premiums, and the rules enrollees must follow in selecting physicians and hospitals. Despite HCFA’s authority to do so, the agency does not require a standardized terminology or format for describing benefits. HCFA does review HMO marketing and informational materials to prevent false or misleading claims and to ensure that certain provider access restrictions are noted. HCFA has not ensured that HMO marketing materials are clear, however, because the agency does not require standard terminology or formats. For example, one plan’s brochure, to note its access restrictions, states that “. . . Should you ever require a specialist, your plan doctor can refer you to one” but never states that beneficiaries must get a referral before seeing a specialist.

In addition, each HMO develops its own format to summarize its benefits and premiums. As a result, beneficiaries seeking to compare HMOs’ coverage of mammography services, for example, have to look under “mammography,” “X ray,” or another term, depending on the particular brochure. The length of some HMOs’ benefit summaries varies widely. For example, some brochures we received from the Los Angeles market, which has 14 Medicare HMOs, contain a summary of benefits spanning 14 pages; others have only a 1-page summary. Such diverse formats—without a comparison guide from HCFA—place the burden of comparing the HMOs’ benefits and costs exclusively on the beneficiary.

Beneficiaries Must Obtain and Distill Comparative Information Themselves

To collect, distill, and compare HMO information would, in some markets, require substantial time and persistence (see figs. 2.1 and 2.2). First, beneficiaries would need to find and call a toll-free number to learn the names of available HMOs. This telephone number appears in the back of the Medicare handbook. However, the handbook generally is mailed to only those individuals turning age 65 or to beneficiaries who specially request it. Next, beneficiaries would have to contact each HMO to get benefit, premium, and provider network details. Finally, they would have to compare plans’ benefit packages and cost information without the benefit of standardized formats or terminology. This set of tasks is likely to be difficult for determined beneficiaries and may be too daunting for others.

To test the difficulty of these tasks, we called all 14 Medicare HMOs in Los Angeles to request their marketing materials. After several weeks and follow-up calls, we had received information from only 10 plans. Some plans were reluctant to mail the information but offered to send it out with a sales agent. Declining visits from sales agents, we finally obtained the missing brochures by calling the HMOs’ marketing directors, identifying ourselves as GAO staff, and insisting that the marketing materials be mailed. The materials gathered show that beneficiaries in the Los Angeles market would have to sort through pounds of literature and compare benefits charts of 14 different HMOs. (See fig. 2.2.)

Although HCFA has been studying ways to provide comparative benefits information nationwide since mid-1995, it has decided not to distribute printed information directly to beneficiaries. Instead, HCFA plans to make information on benefits, copayments, and deductibles available on the Internet. HCFA expects the primary users of this information to be beneficiary advocates, insurance counselors, and government entities— not beneficiaries. As of September 6, 1996, HCFA expected the information to be available electronically by June 1997—at the earliest.

HCFA Could Readily Provide Indicators of Beneficiary Satisfaction and Other Plan-Specific Information

HCFA has a wealth of data, collected for program administration and contract oversight purposes, that can indicate beneficiaries’ relative satisfaction with individual HMOs. The data include statistics on beneficiary disenrollment and complaints. HCFA also collects other information that could be useful to beneficiaries, including HMOs’ financial data and reports from HCFA’s periodic monitoring visits to HMOs. As noted, however, HCFA does not routinely distribute this potentially useful information.

Disenrollment Data

Because of Medicare beneficiaries’ freedom to disenroll from managed care or change plans in any month, disenrollment data objectively measure consumer behavior toward and indicate their satisfaction with a specific HMO. Disenrollments may be more reliable than some other satisfaction measures—such as surveys—because disenrollment data do not depend on beneficiary recollection.

Enrollment and disenrollment data, although collected primarily to determine payments to HMOs, can be used to construct several useful indicators of beneficiary satisfaction, such as the annual disenrollment rate: total number of disenrollees as a percentage of total enrollment averaged over the year, cancellation rate: percent of signed applications canceled before the “rapid” disenrollment rate: percent of new enrollees who disenroll within 3 “long-term” disenrollment rate: percent of enrollees who disenroll after 12 rate of return to fee for service: percent of disenrollees who return to traditional Medicare rather than enroll in another HMO, and retroactive disenrollment rate: percent of disenrollments processed retroactively by HCFA (typically done in cases of alleged beneficiary misunderstanding or sales agent abuse).

Disenrollment rates that are high compared with rates for competing HMOs can serve as early warning indicators for beneficiaries, HMOs, and HCFA. (See ch. 3 for a discussion on interpreting these indicators and an analysis of disenrollment rates for HMOs serving the Miami and Los Angeles markets.) Disenrollment rates have already been used to help measure membership stability and enrollee satisfaction in the Health Plan Employer Data and Information Set (HEDIS), developed by large employers, HMOs, and HCFA under the auspices of the National Committee on Quality Assurance (NCQA). However, HEDIS’ measure of disenrollment behavior is limited to a single indicator—an annual disenrollment rate. HCFA could perform a more extensive analysis of the disenrollment data available now.

Complaint Data

The relative volume of beneficiary complaints about HMOs is another satisfaction indicator that HCFA could readily provide beneficiaries. HCFA regional staff routinely receive beneficiary complaints of sales abuses, the unresponsiveness of plans to beneficiary concerns, and other more routine service and care issues. Regardless of the type of complaint, a comparison of the number of complaints per 1,000 HMO members can give beneficiaries a view of members’ relative satisfaction with area HMOs. Although some HCFA regional offices already track complaints through the Beneficiary Inquiry Tracking System, HCFA has no plans to make these data consistent across regions or provide beneficiaries complaint volume information.

HMO Financial Information

HCFA could readily report on various HMO financial indicators. Large employers and HMOs have already incorporated several financial indicators—such as plans’ total revenue and net worth—into the current Health Plan Employer Data and Information Set (HEDIS 2.5). HEDIS 2.5 also requires HMOs to report the percentage of HMO revenues spent on medical services—known to insurers as the medical “loss ratio.” Xerox Corporation, for example, publicizes medical loss ratios to help employees compare the plans it offers. In addition, federal law establishes loss ratio standards for Medigap insurers. HCFA routinely collects financial information from HMOs in standard formats it jointly developed with the National Association of Insurance Commissioners in the early 1980s. HCFA uses these data to monitor contracts for compliance with federal financial and quality standards.

HCFA Monitoring Visit Results

HCFA could also report the results of periodic visits to verify HMO contract compliance in 13 separate dimensions, such as health services delivery, quality, and utilization management; treatment of beneficiaries in carrying out such administrative functions as marketing, enrollment, and grievance procedures; and management, administration, and financial soundness.

After each visit, HCFA records any noncompliance with standards but does not make these reports public unless a Freedom of Information Act request is made. In contrast, NCQA, a leading HMO accreditation organization, has begun distributing brief summaries of its site visit reports to the public. NCQA’s summaries rate the degree of HMO compliance on six different dimensions, including quality management and improvement, utilization management, preventive health services, medical records, physician qualifications and evaluation, and members’ rights and responsibilities.

Although HCFA Has Plans for Consumer Information, Beneficiaries Await Basic Comparative Data

HCFA has authority to obtain and distribute useful comparative data on health plans. Although HCFA is not now providing these data to beneficiaries and the marketplace, it is studying several future options, including joint efforts with the private sector. Eventually, these efforts could yield comparative plan information on satisfaction survey results, physician incentives, measures of access to care, utilization of services, health outcomes, and other aspects of plans’ operations. The following are examples of these efforts:

HCFA is developing a standard survey, through HHS’ Agency for Health Care Policy and Research, to obtain beneficiaries’ perceptions of their managed care plans. This effort aims to standardize surveys and report formats to yield comparative information about, for example, enrollees’ experiences with access to services, interactions with providers, continuity of care, and perceived quality of care.

HCFA has been developing regulations since 1990 to address financial incentives HMOs give their physicians. HCFA’s regulations, published in 1996 and scheduled to be effective beginning in January 1997, will require HMOs to disclose to beneficiaries, on request, the existence and type of any physician incentive arrangements that affect the use of services.

HCFA is working with the managed care industry, other purchasers, providers, public health officials, and consumer advocates to develop a new version of HEDIS—HEDIS 3.0—that will incorporate measures relevant to the elderly population. It is also working with the Foundation for Accountability (FAcct) to develop more patient-oriented measures of health care quality.

The HEDIS and FAcct initiatives are aimed at generating more direct measures of the quality of medical care and may require new data collection efforts by plans. These initiatives may eventually provide Medicare beneficiaries with objective information that will help them compare available plans. However, HCFA could do more to inform beneficiaries today. For this reason, we stress the importance of such measures as disenrollment rates, complaint rates, and results of monitoring visits, which can be readily generated from information HCFA routinely compiles.

Publishing Disenrollment Rates Could Discourage Poor Marketing Practices

Public disclosure of disenrollment rates could help beneficiaries choose among competing HMOs and encourage HMOs to do a better job of marketing their plans and serving enrollees. Nonetheless, HCFA does not routinely compare plans’ disenrollment rates or disclose such information to the public.

Because Medicare beneficiaries enrolled in HMOs can vote with their feet each month—by switching plans or returning to fee for service— comparing plans’ disenrollment rates can suggest beneficiaries’ relative satisfaction with competing HMOs. For this reason, we analyzed HCFA disenrollment data and found that Medicare HMOs’ ability to retain beneficiaries varies widely, even among HMOs in the same market. In the Miami area, for example, the share of a Medicare HMO’s total enrollment lost to voluntary disenrollment in 1995 ranged from 12 percent—about one in eight enrollees—to 37 percent—more than one in three enrollees.

Relative Disenrollment Rates Indicate Beneficiary Satisfaction

Although all HMOs experience some voluntary disenrollment, disenrollment rates should be about the same for all HMOs in a given market area if beneficiaries are about equally satisfied with each plan. An HMO’s disenrollment rate compared with other HMOs in the same market area, rather than a single HMO’s disenrollment rate, can indicate beneficiary satisfaction with care, service, and out-of-pocket costs.

High disenrollment rates may result from poor education of enrollees during an HMO’s marketing and enrollment process. In this case enrollees may be ill informed about HMO provider-choice restrictions in general or the operation of their particular plan. High disenrollment rates may also result from beneficiaries’ dissatisfaction with access or quality of care. Alternatively, high disenrollment rates may reflect a different aspect of relative satisfaction—beneficiaries’ awareness that competing HMOs are offering better benefits or lower premiums. While statistics alone cannot distinguish among these causes, a relatively high disenrollment rate should caution beneficiaries to investigate further before enrolling.

Beneficiaries Voluntarily Disenroll From HMOs for Many Reasons

Medicare beneficiaries voluntarily disenroll from their HMOs for a variety of reasons: many who leave are dissatisfied with their HMOs’ service, but others leave for different reasons. A 1992 study reported that 48 percent of disenrollees from Medicare HMOs cited dissatisfaction as their reason for leaving, 23 percent cited a misunderstanding of HMO services or procedures, and 29 percent cited some other reason—such as a move out of the HMO’s service area. Some commonly cited reasons beneficiaries disenroll include dissatisfaction with the HMO’s provision of care, did not know had joined an HMO, did not understand HMO restrictions when joined, reached HMO’s annual drug benefit limit and enrolled in a different HMO for continued coverage of prescription drugs, attracted to competing HMO offering lower premiums or more generous moved out of HMO service area, and personal physician no longer contracts with HMO.

HMOs’ Differing Disenrollment Rates Suggest That Beneficiary Satisfaction Varies Widely

Health plans’ retention of their members varies widely, as illustrated by our analysis of these rates for the Miami and Los Angeles markets. (See fig. 3.1 for the names of these HMOs and their associated Medicare products.) For some HMOs, disenrollment rates were high enough to raise questions about whether the HMO’s business emphasis was on providing health care or on marketing to new enrollees to replace the many who disenroll.

1995 Disenrollment Rate Reached 37 Percent for One Miami HMO, 42 Percent for One Los Angeles HMO

The voluntary disenrollment rates of the seven plans active in the Miami market for all of 1995 varied substantially as measured by the percentage of an HMO’s average Medicare enrollment lost to disenrollment. (See fig. 3.2.) PCA Health Plan of Florida’s (PCA) disenrollment rate reached 37 percent; two other HMOs (HIP Health Plan of Florida (HIP) and CareFlorida) had disenrollment rates of 30 percent or higher. In contrast, Health Options had a disenrollment rate of 12 percent. The remaining five plans had a median disenrollment rate of about 17 percent. To keep total enrollment constant, HMOs must replace not only those members who leave voluntarily, but also those members who die. Thus, PCA had to recruit new enrollees equal in number to 41 percent of its membership just to maintain its total enrollment count.

Percentage of Members in Plan The Los Angeles market, like Miami’s, showed substantial variation in HMOs’ disenrollment rates. (See fig. 3.3.) Los Angeles’ rates, in fact, varied slightly more than Miami’s. Foundation Health had the highest disenrollment rate (42 percent); Kaiser Foundation Health Plan (Kaiser) had the lowest (4 percent).

Nearly One in Three New Enrollees Left Miami HMO Within 3 Months of Joining

Although reasons for disenrollment vary, beneficiaries who leave within a very short time are more likely to have been poorly informed about managed care in general or about the specific HMO they joined than those who leave after a longer time. Consequently, early disenrollment rates may better indicate beneficiary confusion and marketing problems than total disenrollment rates.

Our analysis showed wide variation in plans’ early disenrollment rates. In our calculations we included both cancellations—beneficiaries who signed an application but canceled before the effective enrollment date—and “rapid disenrollment”—beneficiaries who left within 3 months of enrollment.

In 1995, Medicare HMOs in the Miami market had cancellation rates of 3 to 8 percent, rapid disenrollment rates of 6 to 23 percent, and combined cancellations and rapid disenrollments of 9 to 30 percent.

As figure 3.4 shows, nearly one in three beneficiaries who signed a CareFlorida application and more than one in five beneficiaries who signed a PCA application either canceled or left within the first 3 months. In contrast, only about 10 percent of Health Options’ and Prudential’s applicants left this early.

Percentage of Beneficiaries Who Applied In 1995, Medicare HMOs in the Los Angeles market had cancellation rates of 1 to 7 percent, rapid disenrollment rates of 4 to 22 percent, and combined cancellations and rapid disenrollments of 5 to 29 percent.

As figure 3.5 shows, a few Los Angeles plans lost beneficiaries at a rate significantly higher than the market average, and a few performed notably better than the market average. The broad middle group of plans lost between about 9 and 14 percent of new applicants before the 3-month time frame.

Beneficiary Confusion, Abusive Sales Practices Help Explain High Disenrollment Rates

The substantial variation in early disenrollments suggests that some HMOs do a better job than others of representing their plans to potential enrollees. Two 1991 HHS Office of Inspector General (OIG) studies support this idea. According to the studies, about one in four CareFlorida enrollees did not understand that they were joining an HMO, and one in four did not understand that they would be restricted to HMO physicians after they enrolled. In contrast, only about 1 in 25 Health Options enrollees failed to understand these fundamentals. OIG reported that CareFlorida’s disenrollment rates among beneficiaries enrolled less than a year were the highest in the Miami market for the federal fiscal years 1988 and 1989. This pattern persists, as our analysis of 1995 early disenrollment data shows.

Complaints to HCFA regional offices of beneficiary confusion primarily fall into one of two categories: (1) mistaking the HMO application for a Medigap insurance application and (2) not understanding that HMO enrollees are restricted to certain providers. Confusion, whether the result of beneficiary ignorance of Medicare’s HMO option or intentional misrepresentation by HMO sales agents, exposes beneficiaries to unanticipated health expenses. Beneficiaries may also face months of uncertainty about their insured status and which specific providers they must see to have their health expenses covered.

Beneficiaries May Confuse HMOs With Supplemental Medigap Insurance

A typical complaint, according to HCFA staff, involves beneficiaries who find themselves enrolled in an HMO when they thought they were signing up for a Medicare supplemental policy. For example, in February 1995, a husband and wife signed an application for a South Florida HMO. They continued using their former physicians, who were not with the HMO, and incurred 17 separate charges in May 1995 for a knee replacement, including related services and a hospital stay. When Medicare denied payment, the couple found they were enrolled in the HMO. The HMO also denied payment, so the couple disenrolled, through the HMO, effective May 31. Still facing unpaid claims, they contacted HCFA in mid-June and complained that the sales agent had “talked real fast” and misrepresented the HMO plan as supplemental insurance. They allege he later told them they “didn’t read the fine print.” They complained that neither the government (Medicare) nor the sales agent explained the consequences of enrollment, and they would not have enrolled if they had known they would be giving up fee-for-service Medicare. In late July, HCFA retroactively disenrolled the couple and eventually paid their bills under fee-for-service Medicare. The HMO told HCFA that the sales agent had been terminated because of past concerns.

Beneficiaries May Not Understand HMO Restrictions

Another leading category of complaints, according to HCFA staff, involves new HMO enrollees who do not understand HMO restrictions on access to care. In 1995, OIG reported that nearly one in four Medicare enrollees did not answer affirmatively when asked if they had a good knowledge from the beginning of how the HMO would operate; and one in four did not know they could appeal HMO denials of care they believe they are entitled to. Furthermore, 1 in 10 did not understand that they would need a referral from their primary care physician before they could see a specialist. The following complaint to HCFA about a Miami HMO illustrates beneficiary confusion over HMO restrictions.

CareFlorida marketed its plan to an 81-year-old woman who subsequently enrolled in the plan effective February 1994, although she traveled regularly to a distant state. In her first months of membership, she visited her doctor, who was with the HMO. When she later visited a non-network physician who had also been her regular provider, Medicare denied her claims. She then requested to disenroll and told HCFA that if she had understood the requirement to visit specific providers, she would not have enrolled in the HMO. HCFA disenrolled the beneficiary from the plan effective with her use of non-network providers. This left her responsible for about $700 in out-of-plan charges.

Other typical misunderstandings cited by HCFA staff and local insurance counselors include not understanding restrictions on access to specialists or other services nor restrictions to a specific medical group in an HMO’s provider network.

Some HMO Sales Practices Are Clearly Abusive

Medicare regulations prohibit certain marketing practices, such as activities that mislead, confuse, or misrepresent; door-to-door solicitation; and gifts or payments used to influence enrollment decisions. These prohibitions are to help protect beneficiaries from abusive sales practices. Although HCFA staff could not measure the frequency of sales abuses, they expressed concern about continuing complaints of apparent abuses by sales agents.

A recurring complaint, according to HCFA staff, is from beneficiaries whose signatures on enrollment forms are acquired under false pretenses. Many of these beneficiaries mistakenly believed that the form they signed—actually an enrollment form—was a request for more information or that it confirmed attendance at a sales presentation. In 1991, HCFA investigated the marketing practices of an HMO after receiving complaints and noting a high rate of retroactive disenrollments. The complaints alleged that sales agents were asking beneficiaries to sign a form indicating the agent had made a presentation. In fact, the document was an enrollment form.

A recent case documented by HCFA staff is one in which at least 20 beneficiaries were inappropriately enrolled in an HMO after attending the same sales seminar in August 1995. The beneficiaries thought they were signing up to receive more information but later discovered the sales agent had enrolled them in the plan.

In other cases, beneficiaries’ signatures were forged. In January 1995, for example, a beneficiary was notified by his medical group before an appointment that he was now enrolled in another plan. The beneficiary had no idea how this could be as he had not intended to change plans. Though the beneficiary signs with an “X,” the new enrollment application was signed with a legible cursive signature. HCFA re-enrolled the beneficiary into his former plan but took no action against the plan or sales agent.

HCFA’s Regulatory Approach Does Not Protect Beneficiaries From HMOs Not Meeting Federal Standards

HCFA’s failure to take effective enforcement actions and to inform beneficiaries allows problems to persist at some HMOs. Historically, HCFA has been unwilling to sanction the HMOs it cites for violations found repeatedly during site monitoring visits. In 1988, 1991, and 1995, we reported on the agency’s pattern of ineffective oversight of HMOs violating Medicare requirements for marketing, beneficiary appeal rights, and quality assurance. Table 3.2 illustrates the weakness of HCFA’s responses in addressing one Florida HMO’s persistent problems. In the absence of HMO-specific performance indicators, beneficiaries joining this HMO have no way of knowing about its problem-plagued history spanning nearly a decade. Our reports show that this is not an isolated example.

Analyzing and Publishing Disenrollment Rates Could Improve HCFA Oversight and Encourage HMOs to Improve Performance

Disenrollment and complaint statistics can help identify HMOs whose sales agents mislead or fail to adequately educate new enrollees. However, HCFA does not routinely and systematically analyze these data. HCFA has uncovered problems with HMOs’ sales operations during routine visits to monitor contract compliance or when regional staff have noticed an unusual amount of complaints or disenrollments.

The HHS OIG recently recommended that systematically developed disenrollment data be used in conjunction with surveys of beneficiaries to improve HCFA’s monitoring of HMOs. The OIG found that higher disenrollment rates correlated with higher beneficiary survey responses of poor service. Enrollees who said they got poor service and whose complaints were not taken seriously were more likely to come from HMOs with higher disenrollment rates. In contrast to the other surveyed HMOs, those with the five highest disenrollment rates were 1.5 times more likely to have beneficiaries report poor service (18 percent versus 12 percent).

Although HCFA can identify HMOs with sales and marketing problems, it lacks the information to identify specific sales agents who might be at fault. HCFA does not routinely require HMOs to match disenrollment and complaint statistics to individual sales agents. In fact, HCFA made clear in 1991 that oversight standards for sales agents dealing with Medicare beneficiaries would be left largely to the states. States’ regulation and oversight of sales agents vary, although 32 states require HMO sales agents to be licensed. Representatives of the Florida Department of Insurance and its HMO monitoring unit said their oversight, beyond agent licensing, consisted of responding to specific complaints. One official commented that sales agents have to do something egregious to have their licenses revoked.

HCFA’s HMO manual suggests specific practices that HMOs could employ to minimize marketing problems. These suggestions include verifying an applicant’s intent to enroll through someone independent of the sales agent, using rapid disenrollment data to identify agents whose enrollees have unusually high rates, and basing commissions and bonuses on sustained enrollment. HCFA staff said that some plans have implemented sales oversight like that suggested by HCFA, but others have not. Regional staff noted that plans are more likely to implement HCFA suggestions if they are trying to get approval for a contract application or service area expansion. Some HCFA regions have succeeded more than others in getting HMOs to improve their oversight of marketing agents.

Publishing disenrollment data could encourage problem HMOs to reform their sales practices and more closely monitor their agents. Agents’ compensation often includes incentives such as commissions for each beneficiary they enroll. HMOs could structure their compensation to give agents a greater incentive to adequately inform beneficiaries about managed care in general and their plan in particular. For example, some HMOs pay commissions on the basis of a beneficiary’s remaining enrolled for a certain number of months. Several HMOs expressed concern that they did not know how their disenrollment rates compared with those of their competitors. Plan managers have told HCFA staff and us that comparative disenrollment information is useful performance feedback.

Medicare HMOs do not compete on the basis of retention rates (low disenrollment rates) because these rates are not publicized. Publishing the rates would likely boost enrollment of plans with high retention rates and encourage plans with low retention rates to improve their performance.

Conclusions and Recommendations

Conclusions

Millions of Medicare beneficiaries face increasingly complex managed care choices with little or no comparative information to help them. HCFA has not used its authority to provide comparative HMO information to help consumers, even though it requires standardized information for its internal use. As a result, information available to beneficiaries is difficult or impossible to obtain and compare. In contrast, other large purchasers—including the federal government for its employees—ease their beneficiaries’ decision-making by providing summary charts comparing plans.

In addition, by not providing consumers with comparative information, Medicare fails to capitalize on market forces and complement HCFA’s regulatory approach to seeking good HMO performance. In an ideal market, informed consumers prod competitors to offer the best value. Without good comparative information, however, consumers are less able to determine the best value. HMOs have less incentive to compete on service to beneficiaries when satisfaction or other indicators of performance are not published. Wide distribution of HMO-specific disenrollment and other data could make Medicare’s HMO markets more like an ideal market and better ensure that consumers’ interests are served.

HCFA could also make better use of indicators to improve its oversight of HMOs. By establishing benchmarks and measuring HMOs’ performance against them, HCFA could focus on plans whose statistics indicate potential problems—for example, on HMOs with high disenrollment rates.

Recommendations

In August 1995, we recommended that the Secretary of HHS direct the HCFA Administrator to develop a new, more consumer-oriented strategy for administering Medicare’s HMO program. One specific recommendation called for HCFA to routinely publish (1) the comparative data it collects on HMOs and (2) the results of its investigations or any findings of noncompliance by HMOs. Although HCFA has announced plans to gather new data, it has no plans to analyze and distribute to beneficiaries the data on HMOs it currently collects. Therefore, we are both renewing our previous recommendations and recommending specific steps that the Secretary of HHS should take to help Medicare beneficiaries make informed health care decisions.

The Secretary should direct the HCFA Administrator to require standard formats and terminology for important aspects of HMOs’ informational materials for beneficiaries, including benefits descriptions; require that all literature distributed by Medicare HMOs follow these produce benefit and cost comparison charts with all Medicare options available for each market area; and widely publicize the availability of the charts to all beneficiaries in markets served by Medicare HMOs and ensure that beneficiaries considering an HMO are notified of the charts’ availability.

The Secretary should also direct the HCFA Administrator to annually analyze, compare, and distribute widely HMOs’ voluntary disenrollment rates, including cancellations, disenrollment within 3 months, disenrollment after 12 months, total disenrollment, retroactive disenrollment, and rate of return to fee for service; rate of inquiries and complaints per thousand enrollees; and summary results of HCFA’s monitoring visits.

Agency Comments and Our Response

HHS agreed that “Medicare beneficiaries need more information and that informed beneficiaries can hold plans accountable for the quality of care.” HHS noted several HCFA initiatives that will eventually yield information to help beneficiaries choose plans right for their needs. We believe that these initiatives move in the right direction but that HCFA could do more for beneficiaries with information the agency already collects. The full text of HHS’ comments appears in appendix III.

HHS outlined HCFA’s efforts to produce HMO comparison charts that will initially contain HMO costs and benefits and later may also include other plan-specific information—such as the results of HMOs’ satisfaction surveys. HCFA expects advocates and insurance counselors, not beneficiaries, to be the primary users of this information. HCFA plans to make the charts “available to any individual or organization with electronic access.” Information in an electronic form can easily be updated—a distinct advantage in a market that is evolving as quickly as Medicare HMOs. Providing the information in an electronic format, however, rather than in print, may make it less accessible to the very individuals who would find it useful.

HHS noted that HCFA is developing the “National Managed Care Marketing Guideline,” partly in response to beneficiary complaints of confusion and misunderstanding caused by Medicare HMOs’ marketing practices. The guideline, to be implemented beginning in January 1997, will detail specific content areas to be covered in all Medicare HMO marketing materials. The guideline, as currently drafted, however, will not require standard formats or terminology and thus may not alleviate many of the difficulties beneficiaries now face when comparing HMOs’ marketing materials.

Regarding our recommendation that disenrollment data be made available to beneficiaries, HHS stated that HCFA is evaluating different ways to express and present disenrollment rates. HHS cautioned that a careful analysis of disenrollment is necessary before meaningful conclusions can be drawn. We did not find such an analysis to be difficult or overly time consuming. Our recommendation is to publish disenrollment rates and let beneficiaries decide if, as we found in Los Angeles, a 42-percent annual disenrollment rate is meaningful in a market where competing HMOs have disenrollment rates of 4 percent.

In short, HHS stated that HMO-specific information currently collected by HCFA could not be made publicly available until additional evaluation, data analysis, or development of data systems are complete. Even after this work is completed, however, the agency has no plans to distribute HMO-specific information directly to beneficiaries or ensure that they know such information is available. Thus, although HHS stated that one of HCFA’s highest priorities is that beneficiaries “receive timely, accurate, and useful information about Medicare,” HCFA has no plans to ensure that beneficiaries interested in HMOs receive any comparative information.