oversight

Medicare HMO Enrollment: Area Differences Affected by Factors Other Than Payment Rates

Published by the Government Accountability Office on 1997-05-02.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                 United States General Accounting Office

GAO              Report to the Honorable
                 John F. Kerry, U.S. Senate



May 1997
                 MEDICARE HMO
                 ENROLLMENT
                 Area Differences
                 Affected by Factors
                 Other Than Payment
                 Rates




GAO/HEHS-97-37
          United States
GAO       General Accounting Office
          Washington, D.C. 20548

          Health, Education, and
          Human Services Division

          B-276654

          May 2, 1997

          The Honorable John F. Kerry
          United States Senate

          Dear Senator Kerry:

          Enrollment nationwide in the Medicare managed care program has more
          than tripled in the last decade—growing from about 1 million enrollees in
          1987 to about 3.8 million in 1996—but differences in enrollment by state
          and by market area are striking. In some metropolitan areas like Portland,
          Oregon, and Tucson, Arizona, the dominant form of Medicare managed
          care—the health maintenance organization (HMO)—has enrolled more than
          40 percent of the Medicare beneficiaries. By contrast, HMO enrollment in
          most rural areas, and even in some metropolitan markets, is negligible.

          Although such large disparities are sometimes attributed to areas’
          Medicare payment rates for HMOs, studies have identified this as only one
          of several influences at work. In a recent report prepared at your request,
          we identified a number of areas where Medicare HMO enrollment was
          higher despite lower payment rates and others where higher payments had
          failed to generate enrollment.1 To explore this issue further, you asked us
          to

      •   identify patterns in HMO enrollment and Medicare payment rates, and
      •   examine selected geographical areas—in particular, some with higher
          enrollment/lower payment rates and some with lower enrollment/higher
          payment rates—and describe how the presence or absence of certain
          factors could affect enrollment.

          To identify where beneficiaries were enrolled in HMOs and the rates that
          Medicare paid to HMOs, we used data obtained from the Health Care
          Financing Administration’s (HCFA) Office of Managed Care.2 For each of
          3,141 counties in 1995, the latest data available at the time of our review,
          these data showed (1) the number of eligible Medicare beneficiaries,
          (2) the number enrolled in managed care plans with Medicare risk



          1
           Medicare HMOs: Rapid Enrollment Growth Concentrated in Selected States (GAO/HEHS-96-63,
          Jan. 18, 1996).
          2
           HCFA, part of the Department of Health and Human Services, administers Medicare’s fee-for-service
          and managed care programs. The Office of Managed Care within HCFA provides national direction and
          leadership for Medicare managed care operations.



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                   contracts,3 and (3) the per enrollee amount that Medicare paid plans (that
                   is, the adjusted average per capita cost (AAPCC) rate for the county).4 We
                   categorized county enrollment as lower, intermediate, or higher, and in a
                   similar manner categorized counties by payment rates. We then placed
                   each county in one of nine categories based on its combination of risk HMO
                   enrollment and payment rate. We focused our work primarily on counties
                   in three of the categories: lower enrollment/lower payment, lower
                   enrollment/higher payment, and higher enrollment/lower payment.

                   To identify factors that are likely to affect risk HMO enrollment, we
                   interviewed officials at HMO plans in three markets that had different
                   patterns of AAPCC payments and risk HMO enrollment—Boston, Detroit, and
                   Portland. To obtain more information on factors related to enrollment, we
                   interviewed officials at HCFA’s regional offices, six national HMO chains,
                   four additional regional HMOs, five management consulting firms, and five
                   employers. Appendix I presents a more detailed discussion of our
                   methodology.


                   Medicare payment rates to HMOs are often considered to be the primary
Results in Brief   influence on Medicare HMO enrollment. However, our analysis suggests
                   that several other factors also play a key, and sometimes, dominant role.
                   These factors include HMO presence, number of Medicare beneficiaries,
                   and employers’ policies toward retiree health benefits. Their relative
                   importance varies across the country. Moreover, in markets such as
                   Detroit and Portland, the influence of Medicare payment rates is not
                   decisive.

                   Enrollment in risk HMOs was virtually nonexistent in most counties with
                   lower Medicare payment rates, but these lower rates were one of a
                   constellation of factors that make such counties unattractive business
                   propositions for Medicare HMOs. Our analysis showed that these counties
                   typically had few or no HMOs in their health care markets. Lower
                   enrollment counties were primarily rural—only 16 percent fell within a

                   3
                    Both HMOs and competitive medical plans enter into risk contracts with HCFA to provide
                   Medicare-covered services to beneficiaries who enroll. Although competitive medical plans are subject
                   to regulatory requirements similar to those for HMOs, they have greater flexibility in setting
                   commercial premium rates and in the services they offer to their commercial members. In this report,
                   our use of the term HMO includes competitive medical plans. HMOs entering into risk contracts
                   assume all the financial risk associated with providing Medicare-covered services to enrolled
                   beneficiaries. They receive a monthly per capita premium—the adjusted average per capita cost
                   payment—from HCFA for each Medicare beneficiary enrolled. These amounts vary by county.
                   4
                    HCFA pays some HMOs on a cost-reimbursement basis. This approach is similar to reimbursement on
                   a fee-for-service basis in that the provider assumes no risk that fees will be insufficient to cover costs
                   and therefore does not have the same incentive to reduce costs. We did not include
                   cost-reimbursement HMOs in our analysis.


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metropolitan statistical area (MSA)—and had fewer people overall and, in
particular, averaged a small number of Medicare beneficiaries.

Lower enrollment in risk HMOs did not occur in every county with lower
payment rates. Risk HMOs enrolled large numbers of beneficiaries in 92
lower payment counties in which factors other than payment rates were
more favorable. These counties were mostly in the West, where HMOs are
prevalent and many consumers have embraced this form of health care
delivery. A prime example is Portland, where about 41 percent of the
Medicare beneficiaries are enrolled in risk HMOs. HMOs have a long history
in the Portland area, and the share of the population enrolled in them is
high. Moreover, the risk HMO option has been available to Medicare
beneficiaries there for more than a decade. Finally, Portland illustrates a
pattern found in some other areas: higher enrollment in risk HMOs has
spread beyond the counties within the Portland MSA to the counties that
border Portland and three other Oregon MSAs.

In contrast, higher payment rates were no guarantee that risk HMO
enrollment would also be high. About one-third of the 100 counties with
the highest Medicare HMO payment rates in 1995 had risk HMO enrollments
that were slight or nonexistent. Most of these higher payment/lower
enrollment counties were in the South, where the presence of HMOs was
limited. However, several of these counties were in three Michigan urban
areas: Detroit, Ann Arbor, and Flint. Although the presence of HMOs in the
health care market was generally greater in the Michigan MSAs than in the
South, employers’ provision of richer retiree health benefits made the risk
HMO option less attractive to Medicare beneficiaries in Michigan.


In addition to population density and other factors external to HMOs, HMOs’
individual business strategies for the Medicare market are likely to affect
the future direction of risk HMO enrollment. The officials of multistate HMOs
we interviewed said they are seeking to expand their Medicare business.
Some HMOs emphasize expanding into contiguous service areas. Some
enter into new risk contracts for HMOs they already own, while others
focus on acquiring new HMOs with risk contracts. All these strategies are
likely to boost risk enrollment and, sometimes, to change the market
dynamics in certain areas. In Boston, for example, risk HMO enrollment
grew by 158 percent during a 2-year period after a new player entered the
market and offered a no-cost option to Medicare beneficiaries, causing
existing HMOs to change their offerings to remain competitive.




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             Medicare helps the elderly and certain disabled people meet the costs of
Background   health care services. Medicare is primarily a federally financed and
             administered health insurance program, which reimburses fee-for-service
             providers for each covered service rendered. However, Medicare also
             offers beneficiaries the option of enrolling in managed care plans—mostly
             risk contract HMOs. While nearly two-thirds of beneficiaries have access to
             at least one Medicare HMO that provides service in their zip code areas,
             only about 10 percent of beneficiaries belong to a Medicare HMO. Most
             beneficiaries are still enrolled in the traditional fee-for-service program.

             Under Medicare’s initial authority for paying HMOs that provided care to
             beneficiaries, few HMOs contracted with Medicare. As enacted in 1972, the
             legislation limited a participating HMO’s profit potential while losses had to
             be fully absorbed. Consequently, most Medicare HMOs chose to be paid on
             a cost basis. Facing neither profit nor loss from serving Medicare
             beneficiaries, cost contract HMOs lacked a strong incentive to reduce
             unnecessary care and deliver care efficiently.

             Legislation changed Medicare’s payment mechanism in 1982.5 Since then,
             HMOs have been able to enter into more attractive risk contracts with HCFA.
             The HMO receives a fixed monthly capitation payment—the AAPCC rate—for
             each beneficiary enrolled6 in exchange for providing all Medicare part A
             and part B services.7 The risk to the HMO is that for any particular
             beneficiary, the cost of care may exceed the prepaid amount.8

             Each year, a risk HMO must estimate what it would charge Medicare
             beneficiaries for Medicare-covered services if they were commercial
             enrollees. The estimate of the premiums it would charge to provide such
             services to non-Medicare enrollees is adjusted to reflect the differences in

             5
              The change was made through the Tax Equity and Fiscal Responsibility Act of 1982 (sec. 114,
             P.L. 97-248).
             6
              AAPCC rates are set at 95 percent of the average amount that HCFA estimates it would spend
             reimbursing fee-for-service providers who deliver medical care to a typical beneficiary in a county.
             HCFA adjusts payments for different categories of beneficiaries on the basis of age, sex, Medicaid
             eligibility, institutional status, and working status. The AAPCC rates change every calendar year.
             7
              Medicare part A—Hospital Insurance—covers services provided by hospitals, skilled nursing
             facilities, hospices, and home health agencies. Medicare part B—Supplemental Medical
             Insurance—covers physician and outpatient hospital services as well as other services and supplies
             received on an outpatient basis, such as laboratory services and medical supplies.
             8
              Cost contracts are still an option. (An HMO that is losing money under a risk contract may switch to a
             cost contract.) In August 1996, 34 plans had cost contracts and had 182,494 beneficiaries enrolled.
             Also, a plan can contract with HCFA as a health care prepayment plan (HCPP). As an HCPP, a plan is
             paid on a cost basis for Medicare part B services. Part A services are not covered by HCPPs and
             remain under the fee-for-service program. There were 50 HCPPs with 300,108 enrollees in August 1996.



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(1) the benefits provided to Medicare enrollees and (2) the use of services
by Medicare beneficiaries. This estimate (which includes the normal profit
of a for-profit HMO) is used to identify any excess profits the HMO will
derive from the Medicare business. The HMO is permitted to retain all
profits up to the level earned on its non-Medicare business. If the expected
Medicare profit exceeds the estimated profit on its non-Medicare business,
the HMO must either return the excess to Medicare or provide additional
supplemental benefits or reduced copayments or deductibles to
beneficiaries. Virtually all HMOs faced with this choice have opted to
provide increased benefits, which Medicare beneficiaries can find very
attractive.

Before an HMO can enter into a risk contract, the law requires it to have at
least 5,000 commercial enrollees. An HMO serving primarily rural areas
must have at least 1,500 members. In addition, the Medicare law’s “50-50
rule” states that no more than 50 percent of an HMO’s enrollment may be
Medicare beneficiaries and Medicaid recipients.

Medicare beneficiaries enrolled in a risk HMO face a “lock-in” requirement.
Once they enroll, they must receive virtually all their health care services
through the HMO.9 If a beneficiary goes outside the HMO for any health care
services, neither the HMO nor Medicare is required to pay the cost.
Exceptions are made for emergency and similar type care, which can be
obtained anywhere in the country, and for which the HMO should pay. A
few risk HMOs now offer a “point of service” option through which
beneficiaries can receive certain services outside the plan’s network of
providers but must pay more than for “within-plan” services.

Beneficiaries consider a number of factors when deciding whether to
enroll in a Medicare risk HMO, including (1) their familiarity with managed
care, (2) their attachment to current health care providers, (3) whether
they travel out of the area or live part of the year in another state, and
(4) likely out-of-pocket costs in a risk HMO versus the fee-for-service
program (plus the cost of a Medigap policy10). In a risk HMO, the
beneficiary may be charged a fixed monthly premium and a copayment


9
 Medicare beneficiaries may choose to disenroll from a risk HMO at any time.
10
  Medigap insurance provides benefits that help fill the gaps in Medicare coverage. Federal law
requires Medigap plans to offer 1 of 10 standard benefit packages—labeled plan A through plan J.
These private, supplemental plans cover various combinations of Medicare cost-sharing requirements.
Some plans also include services not covered by Medicare—for example, outpatient prescription
drugs. Plan A is the most basic while plan J is the most comprehensive. Insurance companies are not
allowed to change the letter designations or the combination of benefits offered. Although the benefits
are the same for all Medigap plans, premiums may vary greatly across companies.



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each time a service is used.11 Depending on the additional benefits a
Medicare HMO provides, enrolling may be an alternative to buying Medigap
insurance, often at a lower cost to the beneficiary.

Many employers provide health benefits to retired employees who receive
Medicare. Some employers, faced with rising retiree health care costs and
new accounting rules,12 believe they can reduce costs when their
Medicare-eligible retirees enroll in risk HMOs. As a result, some employers
are providing retirees with incentives to join risk HMOs. They may limit
their contribution to just cover the cost of a Medicare risk HMO, thereby
causing retirees who do not join an HMO to face increased health care
costs. To remain in Medicare’s fee-for-service plan these beneficiaries may
have to buy a Medigap policy and pay the difference between the premium
and the employer’s contribution.

About 3.8 million Medicare beneficiaries were enrolled in risk HMOs in
August 1996, but enrollment was concentrated primarily in urban areas in
the West and in Florida. Only a handful of counties in the East, South, and
Midwest had more than 5 percent of their Medicare population enrolled in
risk HMOs. (See fig. 1.) In total, 242 of 3,141 counties had more than
5 percent enrollment in the Medicare risk HMO program—a level that for
this study we classify as “higher enrollment.” In contrast, however, 2,663
of the counties—about 85 percent—had either no beneficiaries or fewer
than 1 percent enrolled in risk HMOs. (We classify these areas as “lower
enrollment.”)




11
 This is in addition to the premium that all beneficiaries must pay to receive physician services under
Medicare part B.
12
 Starting in 1993, Financial Accounting Standards Board rule 106 required that private-sector
employers with 500 or more plan participants treat health benefit obligations for present and future
years on an accrual instead of a pay-as-you-go basis.



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Figure 1: Counties With Higher Risk HMO Enrollment, December 1995




                Risk HMO Enrollment Greater Than 5 Percent




                                        Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                        Office of Managed Care, HCFA.




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                      Our analysis of counties grouped by their AAPCC rates and risk HMO
Risk HMO Enrollment   enrollment levels suggests that while AAPCC rates play a role, other factors
Linked to Payment     also affect enrollment. (See table 1.) In addition to HMO presence in the
and Other Factors     health care market, such factors as population density, the number of
                      Medicare beneficiaries, and employers’ policies on retiree health benefits
                      can influence risk enrollment. The studies we reviewed all found that
                      several factors—usually including AAPCC rates and HMO presence—help
                      account for the differences in risk HMO enrollment from county to county.13
                      Moreover, a study using recent data found that the factor with the
                      strongest influence was HMO presence.14 Greater HMO presence establishes
                      more familiarity in an area for managed care in general and for a particular
                      plan. HMOs can draw on that when trying to attract Medicare beneficiaries.




                      13
                       See Physician Payment Review Commission, Annual Report to Congress, Physician Payment Review
                      Commission, 1995 (Washington, D.C.: 1995), pp. 92-94; Physician Payment Review Commission,
                      Annual Report to Congress, Physician Payment Review Commission, 1996 (Washington, D.C.: 1996),
                      pp. 80-81; and Carl Serrato, Randall S. Brown, and Jeanette Bergeron, “Why Do So Few HMOs Offer
                      Medicare Risk Plans in Rural Areas?” Health Care Financing Review, Vol. 17, No. 1 (Fall 1995),
                      pp. 85-97.
                      14
                         W. Pete Welch, “Growth in HMO Share of the Medicare Market, 1989-94,” Health Affairs, Fall 1996,
                      pp. 201-214.



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Table 1: Number of Counties With
Lower, Intermediate, and Higher     Monthly AAPCC
                                    payment rates (per                                Enrollment in Medicare risk HMOs
Enrollment in Risk HMOs by Lower,
Intermediate, and Higher AAPCC      person)a                               Lower  b
                                                                                             Intermediatec          Higherd            Total
Rates, December 1995                Lower (under $375)       e
                                                                             2,257    f
                                                                                                       125                  92         2,474
                                    Intermediate ($375 to
                                    $464)g                                     373                       93                101          567
                                    Higher (top 100
                                    payments—$464 to
                                    $679)h                                       33                      18                 49          100
                                    Total                                    2,663                     236                 242         3,141
                                    Note: Payment rates are rounded to the nearest dollar.
                                    a
                                      The lower, intermediate, and higher AAPCC rate and enrollment designations were chosen for
                                    analytic purposes. The designations are relative and do not imply that such levels are appropriate
                                    or not appropriate.
                                    b
                                        Counties had 1 percent or less of their beneficiaries enrolled or none enrolled.
                                    c
                                        Counties had more than 1 percent but no more than 5 percent of their beneficiaries enrolled.
                                    d
                                        Counties had more than 5 percent of their beneficiaries enrolled.
                                    e
                                        The average AAPCC rate was $306; the median, $310.
                                    f
                                     Of the 2,257 counties, 552 had no risk HMO enrollment. According to HCFA data, an additional
                                    1,604 counties had fewer than 25 enrollees.
                                    g
                                        The average AAPCC rate was $408; the median, $403.
                                    h
                                        The average AAPCC rate was $512; the median, $496.

                                    Sources: Medicare Market Penetration Report File and AAPCC Rate File, Office of Managed Care,
                                    HCFA.




                                    Medicare risk HMO enrollment in 2,257 counties that had lower AAPCC rates
Most Counties With                  was minimal or nonexistent, but the principal barrier to risk HMO
Lower Payment Rates                 enrollment was not the payment level. On average, the 2,257 counties with
Are Less Urban and                  lower AAPCC rates and lower enrollment had fewer people per square mile,
                                    and only about 16 percent of these counties were urban in that they were
Lack Strong HMO                     included in an MSA. For the most part, the 2,257 counties were mainly rural
Presence                            or sparsely populated and consequently, most had few or no HMOs serving
                                    non-Medicare residents.

                                    Generally, HMOs thrive and exert a stronger presence in counties that are
                                    part of metropolitan areas. In the 10 states with the highest percentage of
                                    people enrolled in HMOs in 1994, about 92 percent of the population lived in
                                    an MSA. Markets need to be of sufficient size to generate an HMO presence



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                                        in general and a risk HMO program in particular. According to one study,
                                        the most remote counties with the smallest populations are not likely to be
                                        included in HMO markets.15 Table 2 compares characteristics of the 10
                                        states with the lowest level of total HMO market share (that is, commercial,
                                        Medicaid, and Medicare enrollment) and the 10 states with the highest
                                        total HMO market share.16 The 10 states with the lowest total HMO market
                                        shares averaged less than two HMOs each.

Table 2: Selected Characteristics of
the 10 States With Lowest and Highest                                                          Data for 10 states         Data for 10 states
Total HMO Market Share                  Characteristic                                         with lowest sharea        with highest shareb
                                        Total HMO market sharec                                                   1.9%                      32.9%
                                        Average number of HMOsc                                                   1.6                       16.6
                                        Percentage of Medicare beneficiaries
                                        enrolled in risk HMOsd                                                    0.1%                      17.2%
                                        Percentage of counties in an MSA                                          9.7%                      41.4%
                                        Percentage of population living in an MSA                                38.0%                      92.0%
                                        a
                                         The 10 states with the lowest total HMO market share at the end of 1994 were Alaska, West
                                        Virginia, Wyoming, Mississippi, North Dakota, Idaho, Montana, South Dakota, Arkansas, and
                                        Iowa.
                                        b
                                         The 10 states with the highest total HMO market share at the end of 1994 were California,
                                        Oregon, Maryland, Arizona, Massachusetts, Rhode Island, Connecticut, Minnesota, Colorado,
                                        and New York. We did not include the District of Columbia, which had the ninth highest total HMO
                                        market share in 1994.
                                        c
                                            As of year-end 1994.
                                        d
                                            As of December 1995.

                                        Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                        Office of Managed Care, HCFA; Group Health Association of America, Patterns in HMO
                                        Enrollment, June 1995; and HCFA, 1995 Data Compendium.



                                        Even if the counties that had lower payment rates and lower enrollments
                                        had an HMO present, most lacked a Medicare population of sufficient size
                                        to attract an HMO into the risk contract program. Table 3 shows these
                                        counties had an average of about 5,600 Medicare beneficiaries. According
                                        to officials at several multistate HMO chains we interviewed, one of the
                                        factors they consider most when selecting areas of the country in which to
                                        pursue the Medicare business is the size of the Medicare population. An
                                        official at one company estimated that no more than 20 to 30 percent of
                                        the beneficiaries in a new market will join a risk HMO, which suggests that

                                        15
                                         See Thomas C. Ricketts, Rebecca T. Slifkin, and Karen D. Johnson-Webb, “Patterns of Health
                                        Maintenance Organization Service Areas in Rural Counties,” Health Care Financing Review, Vol. 17,
                                        No. 1 (Fall 1995), p. 110.
                                        16
                                            We used state data on total HMO enrollment because reliable data for all counties were not available.


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                                       only about 1,100 to 1,700 beneficiaries in each of these counties may join.
                                       In addition, officials at multistate HMOs said that they need to enroll at least
                                       10,000 beneficiaries within a few years to spread the risk. In another study,
                                       HMO officials said that they do not enroll Medicare beneficiaries in rural
                                       areas because the Medicare population is not large enough to cover the
                                       fixed costs associated with this coverage.17

Table 3: Selected Characteristics of
Counties With Lower AAPCC Rates        Characteristic
and Lower Enrollment in Risk HMOs      Lower payment/lower enrollment counties                                                     2,257
                                       Counties in an MSA                                                                               16%
                                       Rural counties                                                                                   84%
                                       Median population per square mile                                                                31
                                       Average Medicare beneficiaries                                                              5,603
                                       Counties with 10,000 or more Medicare beneficiaries                                              13%
                                       Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                       Office of Managed Care, HCFA; U.S. Bureau of the Census, County and City Data Book: 1994
                                       (Washington, D.C.: U.S. Government Printing Office, 1994); and U.S. Bureau of the Census data.




                                       In a number of counties where AAPCC payments were relatively low, the
Certain Factors                        rate of Medicare risk HMO enrollment was relatively high, our analysis
Foster Risk HMO                        showed. Risk HMO enrollment flourished because of other factors,
Enrollment in Some                     including urban settings and stronger HMO presence. Most of these
                                       primarily urban counties were in the West, where HMOs have a longer
Areas Despite Lower                    history than in many other parts of the country. The counties in and
Payment Rates                          around the Portland MSA and three other MSAs in Oregon illustrate how
                                       factors other than payment rates serve to raise risk HMO enrollment.

                                       A large number of Medicare beneficiaries were enrolled in risk HMOs that
                                       serve more urban, lower payment counties. About 400,000
                                       beneficiaries—nearly 18 percent of those eligible—were enrolled in risk
                                       HMOs in 92 counties that had lower payment rates (less than $375) and
                                       higher enrollment (greater than 5 percent). Most of these 92 counties were
                                       urban—or closer to urban areas—rather than rural; about 62 percent were
                                       part of the 35 MSAs shown in figure 2. Another 33 percent bordered these
                                       or other MSAs. Some of the 35 MSAs were scattered throughout the country,
                                       but most were in the West.




                                       17
                                         See Serrato, Brown, and Bergeron, p. 93.



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Figure 2: 35 MSAs With One or More Counties With Lower AAPCC Rates and Higher Enrollment in Risk HMOs,
December 1995




                                        a
                                          One county in the Boston metropolitan area—Bristol County—had a lower AAPCC payment and
                                        higher enrollment. The county is on the Rhode Island border near the Providence MSA. Generally,
                                        the counties in the Boston MSA had relatively high AAPCC rates. We discuss the Boston MSA
                                        later in this report.
                                        b
                                         One county in the Washington MSA—Loudoun County, Virginia—had a lower AAPCC payment
                                        and higher enrollment. The county is on the West Virginia border and is primarily rural with the
                                        exception of the Leesburg and Sterling Park areas, which are within commuting distance of
                                        Washington, D.C.


                                        Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files, Office
                                        of Managed Care, HCFA.




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                                      In many of the 35 MSAs, HMO presence was high, which is favorable to
                                      enrollment in risk HMOs. Table 4 illustrates the total HMO enrollment for 10
                                      of the 35 MSAs. Every county included in 8 of these 10 MSAs had lower AAPCC
                                      payments and higher enrollment in risk HMOs—the two exceptions were
                                      the Santa Fe MSA (where one of two counties did not have lower AAPCC
                                      payments and higher enrollment) and the Denver MSA (where three of five
                                      counties did not have lower AAPCC payments and higher enrollment). While
                                      most of the 10 MSAs had a relatively high percentage of their total
                                      populations enrolled in HMOs, enrollment was particularly high in four
                                      Oregon MSAs. In the Oregon MSAs, total HMO enrollment ranged from about
                                      42 percent in Portland-Vancouver to about 56 percent in Medford-Ashland.

Table 4: Risk HMO Enrollment, Total
HMO Enrollment, and Number of HMOs                                           Percentage of
in 10 MSAs, 1995                                                         eligible Medicare           Percentage
                                                                              beneficiaries      estimated total
                                                                           enrolled in risk     HMO enrollment       Number of HMOs
                                      MSA/state                                     HMOsa               in MSAb        serving MSAc
                                      Portland-Vancouver,
                                      OR-WA                                            41.3                   41.8                   10
                                      Albuquerque, NM                                  33.6                   33.2                    5
                                      Denver, CO                                       30.3                   27.4                    9
                                      Salem, OR                                        19.5                   41.9                    6
                                      Boulder-Longmont, CO                             18.6                   49.2                    4
                                      Pueblo, CO                                       17.3                   26.0                    4
                                      Santa Fe, NM                                     16.6                    8.2                    4
                                      Medford-Ashland, OR                              12.8                   55.9                    5
                                      Colorado Springs, CO                             11.7                   19.1                    4
                                      Eugene-Springfield, OR                           10.8                   52.0                    5
                                      a
                                          As of December.
                                      b
                                          As of January, includes estimated commercial, Medicare, and Medicaid enrollment.
                                      c
                                          The same HMO can serve more than one MSA. Data were as of January.

                                      Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                      Office of Managed Care, HCFA; and InterStudy, Competitive Edge, 5.2 ed. (Minneapolis, Minn.:
                                      1995).




Portland Area’s Experience            We took a closer look at Portland, an area where higher enrollment in risk
Illustrates Role of Greater           HMOs coexisted with an equally strong total HMO presence and lower AAPCC

HMO Presence                          payment rates. Portland’s risk HMO enrollment rate of about 41.3 percent




                                      Page 13                                         GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                      B-276654




                                      was among the highest in the country, even though its payment rates were
                                      relatively low.18

                                      As table 5 shows, Portland and the three other Oregon MSAs have had an
                                      active risk program. Four of the counties in the Portland market rank
                                      among the top seven counties nationwide in terms of the percentage of
                                      their Medicare beneficiaries enrolled in risk HMOs.

Table 5: Risk HMO Enrollment for 13
Oregon Counties, December 1995                                                                                             Percentage of
                                                                                                                                  eligible
                                                                                                                                Medicare
                                                                                                                            beneficiaries
                                                                                                                          enrolled in risk
                                                                                          County                                   HMOs
                                      MSA
                                      Portland-Vancouvera                                 Columbia                                     45.2
                                                                                          Washington                                   44.8
                                                                                          Multnomah                                    44.7
                                                                                          Clackamas                                    44.1
                                                                                          Yamhill                                      21.8
                                      Salem                                               Marion                                       20.4
                                                                                          Polk                                         15.0
                                      Medford-Ashland                                     Jackson                                      12.8
                                      Eugene-Springfield                                  Lane                                         10.8
                                      Non-MSA
                                      Borders Salem and Eugene-Springfield                Benton                                       35.8
                                      Borders Portland-Vancouver                          Clatsop                                      16.2
                                      Borders Salem and Eugene-Springfield                Linn                                         15.2
                                      Borders Eugene-Springfield and                      Douglas                                       6.0
                                      Medford-Ashland
                                      a
                                        Clark County, Washington, is also a part of the Portland-Vancouver MSA. It had risk enrollment of
                                      30.2 percent.

                                      Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                      Office of Managed Care, HCFA; and U.S. Bureau of the Census, County and City Data Book:
                                      1994 (Washington, D.C.: U.S. Government Printing Office, 1994).



                                      Portland and Oregon’s three other MSAs are clustered along the Interstate 5
                                      corridor in the western part of the state where risk HMO enrollment has
                                      concentrated. Figure 3 shows that the nine counties in the four Oregon

                                      18
                                        Like Portland, and the surrounding MSAs in Oregon, several MSAs in other western states had
                                      relatively low AAPCC rates and higher enrollment in risk HMOs. Appendix II provides additional
                                      information on these and similar areas.



                                      Page 14                                        GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                        B-276654




                                        MSAs—Portland-Vancouver,    Salem, Eugene-Springfield, and
                                        Medford-Ashland—all had higher enrollment in risk HMOs. Where higher
                                        enrollment has occurred outside the MSAs, in every case it has been in a
                                        county bordering one of Oregon’s MSAs. A substantial share of the
                                        populations in the bordering counties has access to HMO providers in the
                                        neighboring MSAs.


Figure 3: 13 Oregon Counties With Lower AAPCC Rates and Higher Enrollments in Risk HMOs, December 1995




                                        Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                        Office of Managed Care, HCFA; and U.S. Bureau of the Census, County and City Data Book:
                                        1994 (Washington, D.C.: U.S. Government Printing Office, 1994).




                                        About 75 percent of Oregon’s Medicare beneficiaries live in the 13
                                        counties. HMOs have thus far expressed no interest in expanding into the




                                        Page 15                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
B-276654




eastern parts of the state because the numbers of beneficiaries needed to
induce an HMO to enter into a risk contract with HCFA appear to be absent.

In the Portland area, enrollment of Medicare beneficiaries in risk HMOs
seems to have been facilitated by consumer acceptance of HMOs. The
Portland community’s familiarity with HMOs—Kaiser introduced the
concept in Portland in the 1940s—is believed to have increased the
willingness of beneficiaries to participate in the risk program. Officials of
two Oregon risk HMOs with whom we spoke both cited beneficiaries’
familiarity with the HMO concept as the primary reason for the high
enrollment rate. Consistent with consumers’ apparently favorable attitude
toward HMOs, beneficiaries were willing to enroll in risk HMOs even though
most charge a premium.19

Because Portland’s HMOs were well-established for many years, they could
participate in the risk program when it began. This early participation has
increased beneficiary acceptance of HMOs and allowed more time for
enrollment to develop and grow, according to HMO officials we spoke with.
Kaiser participated in a Medicare risk demonstration project in 1980 and
has been enrolling beneficiaries ever since. Even before 1980, Kaiser
enrolled beneficiaries through a cost contract with HCFA. Two other HMOs
in the Portland area began to participate in the risk program in the
mid-1980s.

Employers have played a role in fostering Portland’s risk enrollment.
About half of Kaiser’s risk HMO enrollees come from employer groups. As
employees retire and age into Medicare, they are able to remain covered
by Kaiser, the plan through which they may have been receiving their
health care coverage for many years. In contrast, PacifiCare, which has
about as many risk enrollees as Kaiser, receives only about 5 percent of its
enrollment from employer groups. Its enrollment grew more than Kaiser’s
between 1993 and 1995, however, primarily because of its marketing to the
beneficiaries not enrolled through employers.




19
 HMOs that project Medicare profit rates near or below those for commercial enrollees are unlikely to
offer the richer level of benefits that HMOs offer where the AAPCC rate and profit levels are
considerably higher.



Page 16                                        GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                      B-276654




                      Higher payment rates were no guarantee that risk HMO enrollment would
Lack of HMO           also be higher. Our analysis showed that a third of the counties ranked
Presence Can Impede   among the highest AAPCC payment areas in the country had no, or virtually
Risk HMO Enrollment   no, Medicare beneficiaries enrolled in risk HMOs. About 82 percent of these
                      counties were in the South, where HMOs generally have not achieved the
Where Payments Are    high levels of enrollment attained by those in the West. The lack of a
Higher                strong HMO presence contributed to the lower enrollment in risk HMOs that
                      occurred in these counties.

                      Few Medicare beneficiaries were enrolled in risk HMOs in one-third of the
                      counties that were among the highest payment areas. Our analysis showed
                      that 1 percent or less of the eligible beneficiaries were enrolled in risk
                      HMOs in 33 counties that numbered among the top 100 AAPCC payment areas
                      in 1995. (See table 1 for our payment/enrollment analysis.) Twenty-seven
                      of these counties were in the South; of these, 12 were located in 8
                      MSAs—Atlanta, Biloxi-Gulfport-Pascagoula, Birmingham, Chattanooga,
                      Lubbock, Nashville, Savannah, and Stubenville-Weirton—and 9 bordered
                      these or other MSAs.

                      HMO   presence, a factor facilitating risk HMO enrollment, was relatively low
                      in most of the eight southern MSAs. Even larger southern metropolitan
                      areas like Atlanta and Birmingham, with about 15 percent total HMO
                      enrollment, had lower Medicare risk HMO enrollment in most of their areas.
                      Atlanta, where 3 of the 20 counties in the MSA had higher payment rates,
                      still had risk HMO enrollment below 1 percent. Only one of the four
                      counties in the Birmingham MSA had a higher payment rate, but risk HMO
                      enrollment in this county and two others was minimal.20


                      In southeastern Michigan, higher payment rates in the Detroit, Flint, and
Employer Policies     Ann Arbor MSAs have not been enough to stimulate risk HMO enrollment.
Can Hinder Risk HMO   However, this modest enrollment performance cannot be ascribed to weak
Enrollment When       HMO presence. Compared with HMOs in some southern MSAs, HMOs in
                      Michigan have generated stronger total enrollment—as high as about
Other Factors Are     26 percent in Flint and Ann Arbor. While the combination of attractive
Favorable             payment rates, a large potential market, and an active HMO industry are all
                      present, the Medicare risk program has been slow to take root. In these
                      Michigan MSAs, the retiree benefits provided by the automobile industry
                      reduces the attractiveness of risk HMOs and contributes to lower
                      enrollment by Medicare beneficiaries.

                      20
                       Jefferson County, the primary county in the Birmingham MSA, had an intermediate payment rate
                      (between $375 and $464) and risk HMO enrollment of 7.3 percent. The remaining three counties in the
                      Birmingham MSA had risk enrollment of less than 1 percent.



                      Page 17                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                      B-276654




                      Six of the 33 counties that had lower enrollment in risk HMOs, despite being
                      among the 100 highest payment areas, were in Michigan. All six of these
                      counties were in three MSAs—Ann Arbor, Detroit, and Flint. In addition to
                      being higher payment, urban areas, these three MSAs had a fairly strong
                      HMO presence. Both Ann Arbor and Flint had total HMO enrollment of about
                      26 percent; in Detroit, enrollment approached 21 percent. While low
                      compared with some areas in the West, this level of total HMO enrollment
                      was considerably higher than in most of the eight southern MSAs that also
                      had higher payment rates and lower enrollment in risk HMOs. Despite the
                      presence of these factors, only about 0.5 percent of the eligible Medicare
                      beneficiaries in the three Michigan MSAs were enrolled in risk HMOs.

                      A key factor in the Michigan MSAs, according to HMO officials, is the benefit
                      package available to retired autoworkers and retirees from other firms
                      that patterned their benefit packages on the auto industry’s. These benefit
                      packages provide employer-sponsored comprehensive coverage of health
                      benefits with little or no out-of-pocket payments for the retiree. As
                      officials at the HMOs we interviewed in Detroit confirmed, beneficiaries
                      receiving these benefits have little incentive to switch to risk HMOs.

                      Excluding beneficiaries covered by rich benefit packages, the Medicare
                      population in the Michigan MSAs is still relatively large and hence attractive
                      to risk HMOs. Two plans whose officials we spoke with had left the risk
                      program in the late 1980s because they were losing money but now have
                      risk contract applications pending with HCFA and hope to begin enrolling
                      beneficiaries in 1997. The HMOs plan to target Medicare beneficiaries not
                      covered by rich retiree health benefits. One HMO suggested that by the end
                      of 1998 it expects about 30,000 Medicare beneficiaries to be enrolled.
                      However, if the HMO could contract with one of the “big three” automakers,
                      it expects that number to double.


                      Several multistate HMOs have been pursuing the Medicare risk market. As
HMO Business          the market for employer-sponsored health coverage has become more
Strategy May Affect   saturated, HMOs have realized that the Medicare market is large and
Risk Enrollment       potentially lucrative, that the demand for a Medicare risk product is
                      increasing, and that competitors are ready to move into the market. In
                      addition, HMOs have been encouraged by increases in the AAPCC payment
                      rates in some areas. Finally, publicly traded HMO companies, which are
                      especially concerned with short-term profits, are seeking new ways in
                      which to expand and grow.




                      Page 18                             GAO/HEHS-97-37 Medicare Risk HMO Enrollment
B-276654




Companies’ business strategies for expanding their involvement with the
risk HMO program include enlarging existing risk HMO contracts through
service area expansions, applying for new risk contracts, and acquiring
other HMOs. Officials of one large multistate HMO articulated a strategy of
expanding from existing service areas into contiguous areas and
contiguous states. While acquisitions were for the most part made to
obtain a share of the commercial managed care market, with the decision
to start a risk program coming later, some acquisitions were made
specifically with the Medicare risk market in mind. For example,
PacifiCare Health Systems announced in August 1996 that it would buy
FHP International in part to ensure its dominance in the Medicare risk
market.

According to the officials we interviewed at multistate HMOs, their risk HMO
expansion efforts targeted markets with certain characteristics. Markets
were more attractive if they had a concentrated number of beneficiaries
and limited competition for them. To spread the risk, most said that an
HMO must have the opportunity to enroll at least 10,000 beneficiaries in a
few years. Also, officials at the HMOs said that the payment rate in a market
must be high enough for a risk plan to be financially viable. Furthermore,
markets must have a concentration of non-Medicare beneficiaries to be
attractive because HMOs must have at least 5,000 commercial enrollees to
apply for a risk contract. And the more people who are enrolled in the
commercial sector of a local market, the easier it is to enroll beneficiaries
because of the familiarity with managed care.

Officials at multistate HMOs had different views of the role that payment
rates play in their decisions to move into or out of a market. Officials at
one multistate company said that while they consider the AAPCC payment
rate when making a decision, a low payment would not automatically
disqualify a market. For example, they said they were considering
expanding into a low-payment market because an employer group had
specifically expressed interest in the risk program in that area. Another
company indicated that the payment rate needs to be high enough to
adequately pay health care providers. Officials at a third multistate
company believed that there were no parts of the country where the
payment rate would be too low for them to enter if the large numbers of
Medicare beneficiaries needed for the program to be successful were
present. Officials at two multistate HMOs held divergent views on the AAPCC
rate reduction that would induce their companies to leave the risk HMO
program. While officials at one company, citing “slim margins,” thought a
moderate rate reduction would induce them to switch to a Medicare cost



Page 19                             GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                             B-276654




                             contract, officials at another company stated that they would consider
                             leaving the risk contract program only if the rate reduction was “drastic.”

                             Expansion by dominant Medicare HMO companies can help fuel the growth
                             of risk enrollment in locations where it has been slow. In Boston, for
                             example, HMO and HCFA officials credit the entrance of a PacifiCare risk
                             product with sparking the growth of Boston’s risk market. As the
                             PacifiCare product began obtaining market share, local HMOs realized they
                             needed to target the Medicare market more aggressively if they wanted to
                             stay competitive. Their pursuit of the Boston market resulted in greatly
                             increased risk enrollment.


Boston’s Risk Program        The Boston risk market is an attractive market because of the large base
Stimulated When              of Medicare beneficiaries, some of the highest AAPCC rates in the country,
Beneficiaries Could Enroll   and a strong HMO presence. However, the number of risk HMOs pursuing the
                             Boston market peaked during 1987 through 1988, then declined until 1993,
at No Cost                   when only three HMOs were left serving the market. According to HCFA
                             officials, a number of HMOs dropped out of the risk program because they
                             did not understand how to manage the senior population and did not
                             control enrollee costs.

                             The market started to turn around in Boston in 1994. According to HCFA
                             and HMO officials, HMOs were returning to the risk market or entering for
                             the first time because the industry was learning how to manage the
                             Medicare business. However, it took a new entrant to the risk market,
                             challenging the market share of the established HMOs, for risk enrollment
                             in Boston to take off.

                             Tufts Associated reentered Boston’s risk market in 1994,21 with a franchise
                             of SecureHorizons, the Medicare HMO product of California-based
                             PacifiCare. To attract beneficiaries, Tufts began offering a zero-premium
                             risk product—Medicare beneficiaries could enroll without having to pay
                             any additional premiums to the HMO. The introduction of a zero-premium
                             product transformed the Boston market, according to HCFA and HMO
                             officials. Tufts’ action created competition among HMOs for Medicare

                             21
                              Tufts Associated HMO began operations in the Boston area in 1981 and started a risk program in
                             1985. However, it dropped out of the risk program in 1988. According to Tufts officials, the HMO was
                             unsuccessful in the risk program because it did not develop a specifically tailored program to manage
                             seniors as a distinctly different population from the non-elderly and failed to manage them effectively.
                             As a result, Tufts had lost money. Like other HMOs, Tufts began reconsidering the risk market in 1992
                             as it became apparent that some HMOs were able to manage their risk programs profitably. Tufts
                             negotiated a franchise of PacifiCare’s SecureHorizons product as a way of gaining the expertise
                             necessary to run a successful Medicare risk program.



                             Page 20                                          GAO/HEHS-97-37 Medicare Risk HMO Enrollment
              B-276654




              beneficiaries and spurred stronger beneficiary demand for risk products.
              As a result, enrollment in the MSA grew 158 percent between 1993 and
              1995. Prior to the introduction of the zero-premium product, HMO risk
              premiums had ranged from $90 to $120 per month, and according to HCFA
              officials, were hardly distinguishable from premiums for Medigap
              insurance.


              Despite the considerable momentum of risk HMO enrollment growth, its
Conclusions   uneven pattern across the country focuses attention on understanding why
              such disparities occur. Although the linkage of Medicare payment rates to
              risk HMO enrollment may be important in some areas, dramatic differences
              in enrollment are often associated with other factors. The presence of
              HMOs, the density of population, and the number of Medicare beneficiaries,
              especially those familiar with managed health care, all facilitate growth in
              enrollment—and their absence hinders it. In addition, the health care
              benefits provided by employers in a market area can affect beneficiaries’
              willingness to enroll in risk HMOs. The rapid growth in risk HMO enrollment
              during the past several years, which has occurred without any major
              federal policy changes, is likely to continue as employers encourage
              retirees to join HMOs and as HMOs pursue varied strategies for expanding
              their Medicare business.


              We provided a draft of this report to officials in HCFA’s Office of Managed
              Care. These officials agreed with the information presented. We are
              sending copies of this report to the Secretary of Health and Human
              Services and other interested parties, and we will make copies available to
              others on request. If you or your staff have any questions, please call me at
              (202) 512-7114 or Michael F. Gutowski, Assistant Director, at
              (202) 512-7128. Other major contributors to this report include Howard
              Cott, Aleta Hancock, Joseph Petko, Wayne Turowski, and Joan Vogel.

              Sincerely yours,




              Jonathan Ratner
              Associate Director, Health Financing and
                Systems Issues



              Page 21                             GAO/HEHS-97-37 Medicare Risk HMO Enrollment
Contents



Letter                                                                                            1


Appendix I                                                                                       24

Methodology
Appendix II                                                                                      27

Risk HMO Enrollment
Substantial in Several
Western Markets With
Stronger HMO
Presence
Tables                   Table 1: Number of Counties With Lower, Intermediate, and                9
                           Higher Enrollment in Risk HMOs by Lower, Intermediate, and
                           Higher AAPCC Rates, December 1995
                         Table 2: Selected Characteristics of the 10 States With Lowest          10
                           and Highest Total HMO Market Share
                         Table 3: Selected Characteristics of Counties With Lower AAPCC          11
                           Rates and Lower Enrollment in Risk HMOs
                         Table 4: Risk HMO Enrollment, Total HMO Enrollment, and                 13
                           Number of HMOs in 10 MSAs, 1995
                         Table 5: Risk HMO Enrollment for 13 Oregon Counties,                    14
                           December 1995
                         Table I.1: National HMO Chains, Regional HMOs, Employers, and           26
                           Management Consultants Contacted
                         Table II.1: Risk HMO Enrollment for Six New Mexico and Eight            30
                           Colorado Counties, December 1995
                         Table II.2: Risk HMO Enrollment, Total HMO Enrollment, and              31
                           Number of HMOs in New Mexico and Colorado MSAs, 1995
                         Table II.3: Risk HMO Enrollment, Total HMO Enrollment, and              33
                           Number of HMOs in Six Washington MSAs, 1995
                         Table II.4: Risk HMO Enrollment and Total HMO Enrollment for            35
                           Nine Arizona Counties, 1995
                         Table II.5: Risk HMO Enrollment for All Counties in the                 36
                           Minneapolis-St. Paul MSA, December 1995
                         Table II.6: 17 MSAs With One or More Counties That Received             37
                           Lower or Intermediate AAPCC Rates and Had Higher Risk HMO
                           Enrollment, 1995




                         Page 22                         GAO/HEHS-97-37 Medicare Risk HMO Enrollment
          Contents




Figures   Figure 1: Counties With Higher Risk HMO Enrollment,                        7
            December 1995
          Figure 2: 35 MSAs With One or More Counties With Lower                    12
            AAPCC Rates and Higher Enrollment in Risk HMOs,
            December 1995
          Figure 3: 13 Oregon Counties With Lower AAPCC Rates and                   15
            Higher Enrollments in Risk HMOs, December 1995
          Figure II.1: Six New Mexico Counties With Higher Enrollment in            28
            Risk HMOs and Lower AAPCC Rates, December 1995
          Figure II.2: 13 Colorado Counties With Higher Enrollment in Risk          29
            HMOs and Lower and Intermediate AAPCC Rates,
            December 1995
          Figure II.3: 19 Washington Counties With Higher Enrollment in             32
            Risk HMOs and Lower and Intermediate AAPCC Rates,
            December 1995
          Figure II.4: Nine Arizona Counties With Higher Enrollment in              34
            Risk HMOs and Lower and Intermediate AAPCC Rates,
            December 1995




          Abbreviations

          AAPCC      adjusted average per capita cost
          HCFA       Health Care Financing Administration
          HCPP       health care prepayment plan
          HMO        health maintenance organization
          MSA        metropolitan statistical area


          Page 23                           GAO/HEHS-97-37 Medicare Risk HMO Enrollment
Appendix I

Methodology


              Health maintenance organizations (HMO) enter into risk contracts with the
              Health Care Financing Administration (HCFA) to provide Medicare-covered
              services to beneficiaries who enroll.22 Risk plans assume all the financial
              risk associated with providing Medicare-covered services to enrolled
              beneficiaries in return for a monthly per capita premium—the adjusted
              average per capita cost (AAPCC) payment—from HCFA for each Medicare
              beneficiary enrolled. The amount of these AAPCC-based payments varies by
              county. HCFA pays some HMOs on a cost-reimbursement basis, with these
              HMOs assuming no risk that fees will be insufficient to cover costs; our
              work focused only on managed care plans that had entered into risk
              contracts with HCFA.

              We first obtained data from the Office of Managed Care at HCFA
              headquarters. For each of 3,141 counties in the nation, these data showed
              the (1) number of eligible Medicare beneficiaries, (2) number of
              beneficiaries enrolled in managed care plans with a risk contract with
              HCFA, and (3) AAPCC rate paid by HCFA for each Medicare beneficiary
              enrolled in a risk plan. These data were as of December for 1993, 1994, and
              1995, the latest data available at the time of our review. Data did not
              include Guam, Puerto Rico, or the Virgin Islands.

              To identify counties with similar risk enrollment and AAPCC rates, we
              determined the percentage of Medicare beneficiaries enrolled in Medicare
              risk plans in December 1995 and the AAPCC rates paid by HCFA in 1995 for
              each of the 3,141 counties. Using these data, we placed each county into
              one of nine categories based on whether it had a higher, intermediate, or
              lower AAPCC rate and higher, intermediate, or lower Medicare risk
              enrollment.

              We placed counties with the top 100 AAPCC rates in 1995 in the higher
              category. These rates ranged from $463.89 to $678.90. There were 2,474
              counties with AAPCC rates under $375.00 that we considered as having
              lower payments (their rates ranged from $177.32 to $374.8623). We defined
              the remaining 567 counties as having intermediate AAPCC rates. Again using
              December 1995 data, we placed the 2,663 counties with no Medicare risk
              enrollment or enrollment of 1 percent or less in the lower enrollment
              category. Of these 2,663 counties, 618 had no Medicare risk enrollment at


              22
                Managed care plans that enter into risk contracts include both HMOs and competitive medical plans.
              Although competitive medical plans are subject to regulatory requirements similar to those for HMOs,
              they have greater flexibility in setting commercial premium rates and the services offered to their
              commercial members. In this report, our use of the term HMO includes competitive medical plans.
              23
                HCFA data showed that 13 areas, most of which were in Alaska, had AAPCC rates of zero.



              Page 24                                        GAO/HEHS-97-37 Medicare Risk HMO Enrollment
Appendix I
Methodology




all, and 2,045 had enrollments of 1 percent or less. For the purposes of our
study, we placed the 242 counties that had enrollments of more than
5 percent in the higher enrollment category. Although 5 percent would not
be considered high for private sector managed care enrollment, it is high
for the Medicare risk program—only about 8 percent of the counties had
Medicare risk enrollments of more than 5 percent. We placed the
remaining 236 counties in the intermediate category (enrollments greater
than 1 percent and less than or equal to 5 percent). For the distribution of
the 3,141 counties in the nine categories, see table 1.

We focused our study on the following three categories: counties that had
(1) lower AAPCC rates and lower risk enrollment (2,257 counties), (2) lower
AAPCC rates and higher risk enrollment (92 counties), and (3) higher AAPCC
rates and lower risk enrollment (33 counties). Using HCFA data, we
converted the county data into metropolitan statistical area (MSA) data for
the three study categories.

In addition to analyzing data for the three study categories, we selected
three markets in which to perform more detailed work: (1) Portland,
Oregon—a market in the lower AAPCC rate and higher enrollment category;
(2) Detroit—a market in the higher AAPCC rate and lower enrollment
category; and (3) Boston—a market in which risk enrollment grew
considerably in a relatively short time. In these markets, we interviewed
officials at the applicable HCFA regional offices and at selected HMOs that
had entered into or were planning to enter into Medicare risk contracts.

Finally, we interviewed officials at all 10 HCFA regional offices, 6 national
HMO chains, and 12 regional HMOs to obtain more information and get
opinions on (1) the Medicare risk program in general, (2) enrollment
trends in particular, (3) reasons managed care plans and beneficiaries
participate in Medicare risk programs, (4) factors that made the risk
market attractive, and (5) factors affecting risk program enrollment. All of
the 18 HMOs had risk contracts or were planning to enter into contracts
with HCFA. Also, we interviewed representatives from five management
consulting firms involved in bringing employers and Medicare risk plans
together to cover Medicare-eligible retirees and five employers regarding
their efforts to enroll a portion of their retirees in Medicare risk plans.
Table I.1 shows the HMOs, employers, and management consultants we
interviewed.




Page 25                             GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                   Appendix I
                                   Methodology




Table I.1: National HMO Chains,
Regional HMOs, Employers, and      Group contacted                                    Location
Management Consultants Contacted   National HMO chains
                                   FHP, Inc.                                          Fountain Valley, CA
                                   Health Systems International                       Woodland Hills, CA
                                   Kaiser Foundation Health Plan, Inc.                Oakland, CA
                                   PacifiCare Health Systems                          Cypress, CA
                                   Prudential Health Care Senior Care                 Roseland, NJ
                                   United HealthCare Corporation                      Minnetonka, MN
                                   Regional HMOs
                                   Blue Care Network of Southeast Michigan            Southfield, MI
                                   FHP of Utah                                        Salt Lake City, UT
                                   Harvard Pilgrim Health Care                        Dedham, MA
                                   Health Alliance Plan                               Detroit, MI
                                   Intermountain Health Care of Utah                  Salt Lake City, UT
                                   Kaiser Foundation Health Plan, Northern California Oakland, CA
                                   Region
                                   Kaiser Foundation Health Plan of the Northwest     Portland, OR
                                   Mercy Health Plan                                  Farmington Hills, MI
                                   PacifiCare of Oregon                               Lake Oswego, OR
                                   Tufts/SecureHorizons                               Waltham, MA
                                   United HealthCare of Utah                          Salt Lake City, UT
                                   U.S. Healthcare, New England Region                Burlington, MA
                                   Employers
                                   Chevron Corporation                                San Francisco, CA
                                   General Motors Corporation                         Detroit, MI
                                   McKesson Corporation                               San Francisco, CA
                                   Sears, Roebuck and Company                         Hoffman Estates, IL
                                   University of California                           Oakland, CA
                                   Management consultants
                                   Foster Higgins and Company, Inc.                   Los Angeles, CA
                                   KPMG Peat Marwick                                  San Francisco, CA
                                   Price Waterhouse                                   San Francisco, CA
                                   Towers Perrin                                      San Francisco, CA; New York City,
                                                                                      NY
                                   William Mercer, Inc.                               Richmond, VA

                                   We performed our work between February 1996 and February 1997 in
                                   accordance with generally accepted government auditing standards.




                                   Page 26                                   GAO/HEHS-97-37 Medicare Risk HMO Enrollment
Appendix II

Risk HMO Enrollment Substantial in Several
Western Markets With Stronger HMO
Presence
                        Counties in Oregon were not the only counties where risk HMOs had
                        enrolled substantial numbers of Medicare beneficiaries despite having
                        lower payment rates. Other counties in or bordering several western MSAs
                        also followed this pattern. As in Oregon, these more urban counties were
                        located in or bordered MSAs that usually had a strong total HMO
                        presence—an important factor that can affect risk enrollment. The
                        Albuquerque and Santa Fe MSAs in New Mexico and the Denver,
                        Boulder-Longmont, Colorado Springs, and Pueblo MSAs in Colorado most
                        closely followed the pattern exhibited in Oregon. Clearly, factors other
                        than payment rates affected risk HMO enrollment in these MSAs.

                        Risk HMO enrollment patterns for lower payment/higher enrollment
                        counties in Washington and Arizona were not nearly as clear as for those
                        in Oregon. In Washington, where HMOs generally had a strong presence,
                        counties exhibited the lower payment/higher risk enrollment mix, but that
                        enrollment was not as clearly concentrated. Higher risk enrollment
                        extended beyond the counties located in MSAs and bordering MSAs with
                        higher enrollment in risk HMOs to counties not directly adjacent to these
                        MSAs. Counties in two Arizona MSAs—Tucson and Phoenix-Mesa—had
                        higher risk HMO enrollment and, in Tucson in particular, had a strong HMO
                        presence. Their payment rates were in the intermediate category. Counties
                        bordering the MSAs, however, had the higher enrollment/lower payment
                        pattern. The higher enrollment/lower payment pattern also appeared in
                        counties located in MSAs in seven other states in different parts of the
                        country.


                        Counties in both New Mexico and Colorado exhibited the pattern
New Mexico and          described previously for Oregon. HMO presence was generally strong and
Colorado: Higher Risk   higher levels of risk HMO enrollment were coupled with lower payment
HMO Enrollment          rates in several of the more urban counties in MSAs with a few adjoining
                        counties also having higher enrollments in risk HMOs. Elsewhere in the two
Clustered in and        states, enrollment rates were considerably lower.
Around MSAs
                        In New Mexico, the counties with higher enrollments in Medicare risk
                        HMOs were in and around the Albuquerque and Santa Fe MSAs and had
                        lower AAPCC rates. (See fig. II.1.) About 48 percent of New Mexico’s
                        Medicare beneficiaries lived in the six counties in and around the two
                        MSAs, but about 98 percent of the risk HMO enrollees in the state lived there.
                        Risk HMO enrollment was particularly high in the Albuquerque MSA—about
                        34 percent of the Medicare beneficiaries in the MSA’s three counties were
                        enrolled.



                        Page 27                             GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                       Appendix II
                                       Risk HMO Enrollment Substantial in Several
                                       Western Markets With Stronger HMO
                                       Presence




Figure II.1: Six New Mexico Counties
With Higher Enrollment in Risk HMOs
and Lower AAPCC Rates,
December 1995




                                       Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                       Office of Managed Care, HCFA; and U.S. Bureau of the Census, County and City Data Book:
                                       1994 (Washington, D.C.: U.S. Government Printing Office, 1994).




                                       In Colorado, about two-thirds of the Medicare beneficiaries and about
                                       99 percent of the Medicare risk HMO enrollees lived in and around four
                                       MSAs—Boulder-Longmont, Colorado Springs, Denver, and Pueblo. (See fig.
                                       II.2.) Risk enrollment was highest in the Denver MSA—about 30 percent of
                                       the Medicare beneficiaries were enrolled in December 1995. Table II.1
                                       shows risk HMO enrollment figures for counties in and around selected
                                       New Mexico and Colorado MSAs.




                                       Page 28                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                         Appendix II
                                         Risk HMO Enrollment Substantial in Several
                                         Western Markets With Stronger HMO
                                         Presence




Figure II.2: 13 Colorado Counties With Higher Enrollment in Risk HMOs and Lower and Intermediate AAPCC Rates,
December 1995




                                         Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                         Office of Managed Care, HCFA; and U.S. Bureau of the Census, County and City Data Book:
                                         1994 (Washington, D.C.: U.S. Government Printing Office, 1994).




                                         Page 29                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                          Appendix II
                                          Risk HMO Enrollment Substantial in Several
                                          Western Markets With Stronger HMO
                                          Presence




Table II.1: Risk HMO Enrollment for Six
New Mexico and Eight Colorado                                                                                                Percentage of
Counties, December 1995                                                                                                  eligible Medicare
                                                                                                                              beneficiaries
                                                                                                                           enrolled in risk
                                                                                                County                               HMOs
                                          New Mexico
                                          Albuquerque                                           Sandoval                                 37.6
                                                                                                Valencia                                 35.8
                                                                                                Bernalillo                               32.8
                                          Santa Fe                                              Santa Fea                                18.4
                                          Borders Albuquerque and Santa Fe                      Torrance                                 17.6
                                          Borders Albuquerque and Santa Fe                      Rio Arriba                                9.4
                                          Colorado
                                          Denver                                                Jefferson                                31.2
                                                                                                          b
                                                                                                Douglas                                  22.8
                                          Boulder-Longmont                                      Boulder                                  18.6
                                          Pueblo                                                Pueblo                                   17.3
                                          Colorado Springs                                      El Paso                                  11.7
                                          Borders Denver and Colorado Springs                   Elbert                                   10.0
                                          Borders Denver                                        Park                                      9.7
                                          Borders Denver and Colorado Springs                   Teller                                    6.7
                                          a
                                              The other county in the Santa Fe MSA—Los Alamos—had 4.2 percent risk HMO enrollment.
                                          b
                                           The three other counties in the Denver MSA had intermediate AAPCC rates and higher
                                          enrollments in risk HMOs: Adams County, 34.4 percent enrollment; Arapahoe County,
                                          29.9 percent; and Denver County, 28.3 percent. Two counties bordering the Denver MSA also
                                          had intermediate AAPCC rates and higher enrollments in risk HMOs: Gilpin County, 15 percent
                                          enrollment, and Clear Creek County, 11 percent.

                                          Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                          Office of Managed Care, HCFA; and U.S. Bureau of the Census, County and City Data Book:
                                          1994 (Washington, D.C.: U.S. Government Printing Office, 1994).



                                          Of the six New Mexico and Colorado MSAs shown in table II.2, the two with
                                          the highest enrollment in risk HMOs—Albuquerque and Denver—also had a
                                          strong HMO presence.




                                          Page 30                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                         Appendix II
                                         Risk HMO Enrollment Substantial in Several
                                         Western Markets With Stronger HMO
                                         Presence




Table II.2: Risk HMO Enrollment, Total
HMO Enrollment, and Number of HMOs                                                 Percentage of
in New Mexico and Colorado MSAs,                                               eligible Medicare             Percentage
1995                                                                                beneficiaries        estimated total          Number of
                                                                                 enrolled in risk       HMO enrollment          HMOs serving
                                         MSA/state                                        HMOsa                 in MSAb                MSAc
                                         Albuquerque, NM                                       33.6                     33.2                    5
                                         Denver, CO                                            30.3                     27.4                    9
                                         Boulder-Longmont, CO                                  18.6                     49.2                    4
                                         Pueblo, CO                                            17.3                     26.0                    4
                                         Santa Fe, NM                                          16.6                      8.2                    4
                                         Colorado Springs, CO                                  11.7                     19.1                    4
                                         a
                                             Data as of December.
                                         b
                                             Includes estimated commercial, Medicare, and Medicaid enrollment; data as of January.
                                         c
                                             The same HMO can serve more than one MSA; data as of January.

                                         Sources: Medicare Market Penetration Report File and other selected files, Office of Managed
                                         Care, HCFA; and InterStudy, Competitive Edge, 5.2 ed. (Minneapolis, Minn.: 1995).




                                         As in Oregon, New Mexico, and Colorado, higher enrollment in risk HMOs
Washington: Risk                         in Washington was primarily concentrated in counties with lower AAPCC
HMO Enrollment                           rates that were also in and around MSAs—Seattle-Bellevue-Everett,24
Extends Beyond                           Tacoma, Olympia, and Bremerton in the western part of the state and
                                         Spokane in the eastern part.25 But as figure II.3 shows, in Washington
MSAs                                     higher enrollment in risk HMOs also exists in counties that are neither in
                                         nor adjacent to MSAs with higher enrollment.




                                         24
                                            One county, King, had higher enrollment in risk HMOs and intermediate AAPCC rates. King is part of the
                                         Seattle-Bellevue-Everett MSA.
                                         25
                                             Clark County, Washington, is part of the Portland-Vancouver MSA.



                                         Page 31                                          GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                         Appendix II
                                         Risk HMO Enrollment Substantial in Several
                                         Western Markets With Stronger HMO
                                         Presence




Figure II.3: 19 Washington Counties With Higher Enrollment in Risk HMOs and Lower and Intermediate AAPCC Rates,
December 1995




                                         Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                         Office of Managed Care, HCFA; and U.S. Bureau of the Census, County and City Data Book:
                                         1994 (Washington, D.C.: U.S. Government Printing Office, 1994).




                                         Table II.3 shows that HMO presence was relatively strong in several of the
                                         six Washington MSAs. Overall, total HMO enrollment ranged from about
                                         50 percent in Olympia to about 11 percent in Tacoma.




                                         Page 32                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                         Appendix II
                                         Risk HMO Enrollment Substantial in Several
                                         Western Markets With Stronger HMO
                                         Presence




Table II.3: Risk HMO Enrollment, Total
HMO Enrollment, and Number of HMOs                                                 Percentage of
in Six Washington MSAs, 1995                                                   eligible Medicare           Percentage
                                                                                    beneficiaries      estimated total        Number of
                                                                                 enrolled in risk     HMO enrollment        HMOs serving
                                         MSA/state                                        HMOsa               in MSAb              MSAc
                                         Portland-Vancouver, OR-WAd                           41.3                  41.8                  10
                                         Seattle-Bellevue-Everett, WA                         24.7                  17.3                   8
                                         Olympia, WA                                          20.3                  50.3                   6
                                         Tacoma, WA                                           12.4                  11.1                   4
                                         Bremerton, WA                                         8.8                  18.5                   3
                                         Spokane, WA                                           6.8                  36.0                   7
                                         a
                                             Data as of December.
                                         b
                                             Includes estimated commercial, Medicare, and Medicaid enrollment; data as of January.
                                         c
                                             The same HMO can serve more than one MSA; data as of January.
                                         d
                                          Only one Washington county—Clark—is in this MSA. The remaining counties in this MSA are in
                                         Oregon.

                                         Sources: InterStudy, Competitive Edge, 5.2 ed. (Minneapolis, Minn.: 1995); and Medicare Market
                                         Penetration Report File and other selected files, Office of Managed Care, HCFA.




                                         In Arizona, higher enrollment in risk HMOs was primarily concentrated in
Arizona: Risk HMO                        two MSAs—Tucson and Phoenix-Mesa. The counties in the MSAs all had
Enrollment                               higher AAPCC rates than those in such MSAs as Albuquerque and Portland.
Concentrated in MSAs                     The payment rates in Tucson and Phoenix-Mesa fell in the intermediate
                                         category. But for the counties outside Arizona’s MSAs where enrollment
With Higher Payment                      was higher for risk HMOs, the payment rates were usually lower. Figure II.4
Rates                                    shows the Arizona counties with higher enrollments in risk HMOs.




                                         Page 33                                         GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                          Appendix II
                                          Risk HMO Enrollment Substantial in Several
                                          Western Markets With Stronger HMO
                                          Presence




Figure II.4: Nine Arizona Counties With
Higher Enrollment in Risk HMOs and
Lower and Intermediate AAPCC Rates,
December 1995




                                          Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                          Office of Managed Care, HCFA; and U.S. Bureau of the Census, County and City Data Book:
                                          1994 (Washington, D.C.: U.S. Government Printing Office, 1994).




                                          Tucson, which had an especially high enrollment for risk HMOs—nearly
                                          42 percent—also had a strong HMO presence as table II.4 shows.




                                          Page 34                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                        Appendix II
                                        Risk HMO Enrollment Substantial in Several
                                        Western Markets With Stronger HMO
                                        Presence




Table II.4: Risk HMO Enrollment and
Total HMO Enrollment for Nine Arizona                                                                   Percentage of
Counties, 1995                                                                                      eligible Medicare         Percentage
                                                                                                         beneficiaries    estimated total
                                                                                                      enrolled in risk   HMO enrollment
                                                                            County                             HMOsa             in MSAb
                                        Tucson                              Pimac                                41.7                42.0
                                                                                         c
                                        Phoenix-Mesa                        Maricopa                             34.7                25.3
                                                                            Pinalc                               33.7
                                                                                                                                           d
                                        Borders Tucson and                  Graham                               28.5
                                        Phoenix-Mesa
                                                                                                                                           d
                                        Borders Tucson                      Santa Cruz                           26.0
                                                                                                                                           d
                                        Borders neither Tucson nor          Greenlee                             24.4
                                        Phoenix-Mesa
                                                                                                                                           d
                                        Borders Tucson                      Cochise                              21.8
                                        Borders Phoenix-Mesa                Gilac                                21.9                      d

                                                                                     c
                                        Las Vegas                           Mohave                               10.0                20.5
                                        a
                                            Data as of December.
                                        b
                                            Includes estimated commercial, Medicare, and Medicaid enrollment; data as of January.
                                        c
                                            This county had an intermediate AAPCC rate—between $375 and $464.
                                        d
                                            Not applicable.

                                        Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                        Office of Managed Care, HCFA; U.S. Bureau of the Census, County and City Data Book: 1994
                                        (Washington, D.C.: U.S. Government Printing Office, 1994); and InterStudy, Competitive Edge, 5.2
                                        ed. (Minneapolis, Minn.: 1995).




                                        Counties in MSAs in California, Florida, Hawaii, Minnesota, Oklahoma,
Higher Enrollment in                    Pennsylvania, and Texas had lower AAPCC rates but higher percentages of
Risk HMOs in Other                      beneficiaries enrolled in risk HMOs. Minneapolis-St. Paul had a large
MSAs With Lower                         number of Medicare beneficiaries enrolled in risk HMOs. Risk enrollment in
                                        several southern California and Florida MSAs was also higher despite lower
Payment Rates                           AAPCC payment rates. Even parts of several MSAs in Pennsylvania had
                                        higher enrollments in risk HMOs despite lower payment rates.

                                        Table II.5 shows the risk HMO enrollment rates for the counties in the
                                        Minneapolis-St. Paul MSA. Risk enrollment was higher—about
                                        19 percent—compared with many areas of the country but not nearly as
                                        high as in several western MSAs even though total HMO enrollment in the
                                        Minneapolis-St. Paul MSA was close to 40 percent.




                                        Page 35                                              GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                          Appendix II
                                          Risk HMO Enrollment Substantial in Several
                                          Western Markets With Stronger HMO
                                          Presence




Table II.5: Risk HMO Enrollment for All
Counties in the Minneapolis-St. Paul                                                                              Percentage of eligible
MSA, December 1995                                                                                                Medicare beneficiaries
                                          County/state                                                             enrolled in risk HMOs
                                          Anoka, MN                                                                                      26.1
                                                           a
                                          Ramsey, MN                                                                                     22.8
                                          Hennepin, MN                                                                                   20.0
                                          Washington, MN                                                                                 19.2
                                          Dakota, MN                                                                                     17.0
                                          Scott, MN                                                                                       9.3
                                          Carver, MN                                                                                      8.4
                                          Sherburne, MN                                                                                   6.9
                                          Chisago, MN                                                                                     6.4
                                          Isanti, MN                                                                                      3.6b
                                          Wright, MN                                                                                      3.2b
                                          St. Croix, WI                                                                                   1.1b
                                          Pierce, WI                                                                                      0.6c
                                          a
                                              This county had an intermediate AAPCC rate—between $375 and $464.
                                          b
                                              Intermediate risk enrollment.
                                          c
                                              Lower risk enrollment.

                                          Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
                                          Office of Managed Care, HCFA.



                                          Risk enrollment patterns were less clear in the remaining six states. Table
                                          II.6 compares the total HMO enrollment and risk HMO enrollment where at
                                          least one county in an MSA had more than 5 percent of its Medicare
                                          beneficiaries enrolled in a risk HMO and where the AAPCC rate was in the
                                          lower payment category. These MSAs had varying degrees of risk
                                          enrollment ranging from being higher in Florida to lower in Pennsylvania.




                                          Page 36                                       GAO/HEHS-97-37 Medicare Risk HMO Enrollment
                                       Appendix II
                                       Risk HMO Enrollment Substantial in Several
                                       Western Markets With Stronger HMO
                                       Presence




Table II.6: 17 MSAs With One or More
Counties That Received Lower or                                        Percentage of
Intermediate AAPCC Rates and Had                                   eligible Medicare                Percentage
Higher Risk HMO Enrollment, 1995                                        beneficiaries           estimated total
                                                                     enrolled in risk          HMO enrollment      Number of HMOs
                                       MSA/state                              HMOsa                    in MSAb       serving MSAc
                                       Daytona Beach, FL                            31.8                  14.7                      3
                                       Santa Barbara-Santa
                                       Maria-Lompoc, CA                             31.2                  23.1                      6
                                       San Luis
                                       Obispo-Atascadero-Paso
                                       Robles, CA                                   28.6                    2.9                     2
                                       San Antonio, TX                              27.1d                 12.5                      7
                                                                                        e
                                       Fort Worth-Arlington, TX                     14.7                  14.1                      8
                                       Gainesville, FL                              11.9                  13.9                      1
                                                                                           f
                                       Tulsa, OK                                    11.2                  13.4                      5
                                       Williamsport, PA                             11.2                    7.9                     2
                                       Fresno, CA                                    9.9                  22.0                      8
                                       State College, PA                             9.4                  11.3                      3
                                       Honolulu, HI                                  9.1                  23.3                      7
                                                                                                               g                     g
                                       Ocala, FL                                     9.0
                                       Yuba City, CA                                 7.5h                   5.5                     3
                                       Scranton-Wilkes
                                       Barre-Hazleton, PA                            5.9i                 10.3                      2
                                       Oklahoma City, OK                             5.1                  11.4                      5
                                                                                           j
                                       Austin-San Marcos, TX                         4.8                  26.3                      4
                                       Harrisburg-Lebanon-
                                       Carlisle, PA                                  3.1k                 14.1                      2

                                                                                                            (Table notes on next page)




                                       Page 37                                 GAO/HEHS-97-37 Medicare Risk HMO Enrollment
           Appendix II
           Risk HMO Enrollment Substantial in Several
           Western Markets With Stronger HMO
           Presence




           a
               Data as of December.
           b
               Includes estimated commercial, Medicare, and Medicaid enrollment; data as of January.
           c
               The same HMO can serve more than one MSA; data as of January.
           d
               Includes Bexar County, which has higher risk HMO enrollment and an intermediate AAPCC rate.
           e
             Includes Tarrant County, which has higher risk HMO enrollment and an intermediate AAPCC
           rate.
           f
            Includes Tulsa and Wagoner counties, which have higher risk HMO enrollment and intermediate
           AAPCC rates.
           g
               Data not available.
           h
               Includes Yuba County, which had an intermediate AAPCC rate.
           i
           Includes Lackawanna, Luzerne, and Wyoming counties, which all have higher risk HMO
           enrollment and intermediate AAPCC rates.
           j
               Includes Travis County, which had a risk HMO enrollment rate of 6.7 percent.
           k
            Lebanon County had a risk HMO enrollment rate of 5.2 percent. The three remaining counties in
           the MSA had the following risk enrollment and AAPCC rate combinations: Cumberland County,
           intermediate enrollment/lower AAPCC; Dauphin County, intermediate enrollment and AAPCC; and
           Perry County, lower enrollment/intermediate AAPCC.

           Sources: Medicare Market Penetration Report File, AAPCC Rate File, and other selected files,
           Office of Managed Care, HCFA; U.S. Bureau of the Census, County and City Data Book: 1994
           (Washington, D.C.: U.S. Government Printing Office, 1994); and InterStudy, Competitive Edge, 5.2
           ed. (Minneapolis, Minn.: 1995).




(101400)   Page 38                                           GAO/HEHS-97-37 Medicare Risk HMO Enrollment
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