Medicare HMOs: Potential Effects of a Limited Enrollment Period Policy

Published by the Government Accountability Office on 1997-02-28.

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

                 United States General Accounting Office

GAO              Report to the Chairman, Committee on
                 Finance, U.S. Senate

February 1997
                 MEDICARE HMOS
                 Potential Effects of a
                 Limited Enrollment
                 Period Policy

      United States
GAO   General Accounting Office
      Washington, D.C. 20548

      Health, Education, and
      Human Services Division


      February 28, 1997

      The Honorable William V. Roth, Jr.
      Chairman, Committee on Finance
      United States Senate

      Dear Mr. Chairman:

      Medicare, unlike most employer-sponsored health insurance coverage,
      allows beneficiaries the flexibility to change managed care plans or switch
      to fee-for-service arrangements monthly. This flexibility can cause
      problems for the Medicare program. For example, under this policy
      beneficiaries may decide to use managed care or other private plans while
      in relatively good health but may disenroll to fee for service when their
      health care needs increase. The result can be a disproportionate number
      of less healthy beneficiaries in fee for service, excess payments to health
      maintenance organizations (HMO), and unnecessary Medicare spending.

      Recently, the Congress has considered making Medicare’s policies more
      consistent with those of other large health care purchasing organizations
      by establishing a limited time each year during which Medicare
      beneficiaries could enroll in a particular plan and by restricting
      disenrollment outside that period. To help the Congress in its
      consideration of the effects of such a policy change, you asked us to
      assess how a limited enrollment period would affect the Medicare
      program, private health plans, beneficiaries, and employers who provide
      Medicare supplemental benefits to retirees. To do this, we examined the
      potential effects of policy changes on (1) the growth of Medicare’s
      managed care program, (2) employers’ attempts to administer their
      respective benefits seasons, (3) taxpayer savings measured against
      beneficiary protections, and (4) the resources needed by the federal
      agency that runs Medicare’s day-to-day operations. Because a specific
      annual enrollment period could be established without also limiting
      beneficiaries’ opportunities to change to fee for service, we have discussed
      the effects of the two policy changes (limiting the enrollment period and
      limiting disenrollment opportunities) separately.

      We assumed that a new Medicare enrollment policy might be similar, but
      not necessarily identical, to the provisions contained in the proposed
      Balanced Budget Act of 1995 (BBA), H.R. 2491, as discussed in the act’s

      Page 1                      GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                       accompanying conference report.1 Therefore, we developed and analyzed
                       a limited enrollment period policy modeled on the BBA. Although the BBA
                       would have provided for an expanded range of health care delivery and
                       insurance options, we focused our attention on risk HMOs because they
                       currently serve most beneficiaries not in Medicare fee for service.2 To
                       assess the likely effects of such a policy, we interviewed representatives of
                       10 Medicare risk HMOs, the Health Care Financing Administration (HCFA),
                       employers who offer managed care options to retirees, and Medicare
                       beneficiary advocacy organizations. We surveyed HMOs with Medicare risk
                       contracts regarding their employer group business. To develop
                       information on the potential financial effect on Medicare of limiting
                       disenrollment, we analyzed HMO disenrollment data and fee-for-service
                       claims in California. For more detailed information on our methodology,
                       see appendix III. We did our work from March through November 1996 in
                       accordance with generally accepted government auditing standards.

                       Changing Medicare’s current policy that allows beneficiaries to switch
Results in Brief       among HMOs or between an HMO and fee for service monthly would have
                       far-reaching consequences for the Medicare program, beneficiaries, HMOs,
                       employers, and HCFA. The specific effects would depend on the limits
                       placed on switching plans. Medicare could, for example, emulate private
                       insurance and establish a limited enrollment period—that is, a set time
                       each year when beneficiaries would choose their health plan (a specific
                       HMO or fee for service) for the coming year—but not restrict opportunities
                       for beneficiaries to change to fee for service during the year. Alternatively,
                       Medicare could combine a limited enrollment period with restrictions on
                       changing to fee for service. Although both alternatives have advantages,
                       any change that restricts beneficiary opportunities to enroll or disenroll
                       would likely slow the growth of Medicare managed care.

                       A limited enrollment period for Medicare could have two principal

                   •   To improve the quality and distribution of managed care information to
                       beneficiaries: A focused enrollment period would create a natural
                       opportunity for HCFA to provide objective, comparative information about
                       health plans—information that beneficiaries now lack.

                        House Conference Report 104-350, pp. 1093-1102. The act was vetoed by the President; thus, these
                       provisions did not become law.
                        The scope of our study reflects the fee-for-service alternatives currently available to most
                       beneficiaries, but many of the issues discussed in our report pertain to analysis of other types of
                       insurance and delivery options under consideration.

                       Page 2                                  GAO/HEHS-97-50 Limited Enrollment Period for Medicare

•   To make impractical the current practice of in-home sales of HMOs, a
    source of marketing abuses: Although HCFA is alert to instances of HMO
    sales personnel misrepresenting HMO benefits and obtaining enrollment
    signatures under false pretenses, these abuses are difficult for HCFA to

    A limited enrollment period could also have several of the following
    disadvantages, the combined effect of which could slow Medicare
    managed care enrollment growth.

•   Lessen the effectiveness of marketing of Medicare HMOs: HMOs would likely
    focus more of their marketing dollars on mass media campaigns
    concentrated around Medicare’s enrollment season, but beneficiaries
    unfamiliar with managed care might not receive enough specifics through
    mass marketing to appreciate any advantages offered by an HMO over
    traditional fee-for-service Medicare. The Florida and New York Medicaid
    programs saw their managed care enrollment decline significantly after
    banning direct marketing by HMOs. Third-party contractors, if given
    exclusive responsibility for informing and enrolling beneficiaries under a
    limited enrollment period policy, might not be effective substitutes for
    health plans’ sales agents.
•   Lessen the attractiveness of HMOs to beneficiaries: Under a policy
    precluding the beneficiary’s option to switch plans during a 12-month
    period, the only choice available to dissatisfied HMO enrollees might be to
    change to fee for service and pay either Medicare’s deductibles and
    coinsurance or, if available, premiums for a supplemental Medigap policy.
    The new policy could also make Medicare HMOs impractical for
    beneficiaries who live in more than one part of the country during the
•   Pose considerable administrative obstacles for employers: Regardless of
    the particular time of year selected for Medicare enrollment activities,
    some employers currently offering their retirees a managed care health
    insurance option could find that their health benefits seasons did not
    coincide with Medicare’s. Accommodating Medicare’s schedule could be
    so administratively difficult that some employers might simply stop
    offering a managed care option to their retirees.

    Limiting beneficiaries’ option to change to fee-for-service Medicare except
    during the officially appointed open season could also produce the
    following mixed effects:

    Page 3                      GAO/HEHS-97-50 Limited Enrollment Period for Medicare

             •   Medicare might achieve modest savings on money now spent on services
                 for HMO members who change to fee for service. Medicare HMO members
                 who disenroll and change to fee for service tend to use more services and
                 more costly procedures than the average beneficiary under fee for service.
                 Consequently, Medicare spends more money to serve an HMO member who
                 changes to fee for service than it would have paid to the HMO to care for
                 that beneficiary. For example, we found that, for beneficiaries who
                 switched from managed care to fee for service in California during 1994,
                 Medicare paid almost $30 million more than it would have paid had these
                 beneficiaries not been permitted to switch to fee for service mid-year.
                 However, these savings may appear modest when measured against total
                 1994 California Medicare HMO outlays of $4.2 billion.
             •   Beneficiaries would lose an important consumer protection and might be
                 less willing to enroll in managed care. HMO members who are dissatisfied
                 with their HMO may now change plans or switch to fee for service at the
                 end of each month. HMO representatives, HCFA officials, and beneficiary
                 advocates believe that eliminating this option would deter some
                 beneficiaries from joining a managed care plan. HCFA and HMO officials
                 predict that, because dissatisfied HMO members could not disenroll until
                 the next open season, the number of managed care complaints,
                 grievances, and appeals would rise dramatically.

                 Ultimately, changing Medicare’s HMO enrollment and disenrollment
                 policies could have unintended effects. Although Medicare might achieve
                 modest savings, these savings could be offset if policy changes also led to
                 slowing or reducing the enrollment of Medicare beneficiaries in HMOs.

                 Consistent with the national trend toward managed care, the number of
Background       Medicare beneficiaries enrolled in HMOs has grown significantly—from
                 about 1 million in 1987 to about 4 million in 1996. This growth represents
                 an increase from about 3 percent of all Medicare beneficiaries to about
                 10 percent. About 90 percent of Medicare beneficiaries enrolled in
                 managed care are in risk-contract HMOs.3 The largest growth in Medicare
                 managed care enrollment has occurred in the risk program. (See fig. 1.)

                  HCFA, which administers the Medicare program, pays risk HMOs a per capita premium to provide a
                 full Medicare package of benefits, regardless of the amount the HMO spends for each member’s health
                 care. Except for emergency and out-of-area urgent care, members must receive all their medical care
                 through the HMO’s network of providers. The remaining 10 percent of beneficiaries enrolled in
                 managed care are in plans that Medicare reimburses on a cost basis (cost HMOs) or in plans that only
                 cover Medicare part B services and may have restrictive enrollment policies (health care prepayment

                 Page 4                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Figure 1: Medicare Risk HMO
Enrollment, 1987-96           4.5   Beneficiaries (in Millions)










                                1987       1988        1989       1990    1991     1992      1993      1994      1995        1996


                              Note: Enrollment is as of December of each year except for 1996, for which November data are

                              Source: Monthly reports, Office of Managed Care, HCFA.

                              The number of HMOs in the risk program fluctuated somewhat in the
                              program’s first 5 years, but since 1992 the number of risk HMOs has grown
                              steadily. (See fig. 2.) As of November 1996, HCFA had entered into 238 risk
                              contracts. Most beneficiaries have at least one risk HMO available in their
                              area, and, in some markets, beneficiaries can choose from as many as 14
                              different HMOs.

                              Page 5                                 GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Figure 2: Number of Risk HMO
Contracts, 1987-96                 240   Risk Contracts




                                   160                                                                            154
                                   140             133     133

                                   120                                                                   109
                                   100                              95
                                                                              85       83





                                            1987    1988     1989     1990     1991     1992     1993     1994     1995     1996

                                   Note: Enrollment is as of December of each year except for 1996, for which November data are

                                   Source: Medicare Managed Care Program Update, HCFA, 1995.

                                   Risk HMOs are required to offer at least one 30-day enrollment period each
                                   year, but, in practice, most accept enrollment continuously. Although HCFA
                                   provides beneficiaries some general information about HMOs when
                                   beneficiaries first become eligible for Medicare, they typically learn about
                                   their options from the HMOs. Unlike leading private and public health care
                                   purchasing organizations, Medicare does not provide its beneficiaries with
                                   comparative information about available HMOs. HMOs provide beneficiaries
                                   with enrollment forms, collect the forms, and notify HCFA of enrollments.
                                   Beneficiaries may disenroll from a plan as often as once each month.

                                   As discussed in the BBA conference report, the BBA included provisions that
                                   would have amended Medicare’s enrollment policy in the following ways:

                               •   Each October, Medicare would have an annual, coordinated election
                                   period, or “open season,” during which beneficiaries could change their
                                   Medicare election. Elections of coverage would become effective the
                                   following January 1. However, newly eligible Medicare beneficiaries could
                                   elect coverage and have their choice become effective when they first
                                   became eligible for benefits.

                                   Page 6                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                          •   The Secretary of the Department of Health and Human Services (HHS)
                              would conduct a nationally coordinated educational and publicity
                              campaign during October. At least 15 days before the election period, the
                              Secretary would mail all Medicare beneficiaries and prospective
                              beneficiaries general election information and information comparing
                              benefits, premiums, and measures of quality at available health plans.
                          •   Disenrollment could occur only within 90 days of the time elected
                              coverage began. Beneficiaries who disenrolled could elect a different HMO
                              for the remainder of the year. This disenrollment option would only apply
                              the first time a beneficiary enrolled in a particular managed care plan and
                              would not apply more than twice for any beneficiary in a calendar year.
                              Exceptions would include disenrollment for beneficiaries who moved out
                              of a service area.

                              Establishing a limited enrollment period could slow managed care growth
A Limited Enrollment          for two reasons. First, marketing practices possible under a limited
Period Policy Could           enrollment policy might be less effective in attracting beneficiaries to
Slow Managed Care             managed care. These changes could have a positive by-product, however,
                              as the incidence of in-home sales and associated abusive sales practices
Growth Despite                would likely diminish. Second, restrictions on health plan switches outside
Better Consumer               the established enrollment period—even if no restrictions existed on
                              changing to traditional fee-for-service Medicare—could deter some
Information                   beneficiaries from enrolling in HMOs. In particular, a limited enrollment
                              period policy would have three main disadvantages for beneficiaries:
                              (1) dissatisfied beneficiaries and those encountering problems gaining
                              access to desired treatments could be exposed to higher health care
                              expenses, (2) beneficiaries who spend part of each year in a different
                              location (“snowbirds”) could find they had no choice other than fee for
                              service, and (3) all beneficiaries enrolled in HMOs could face delays in
                              obtaining physician appointments at the start of each benefit year because
                              of a large volume of new beneficiaries seeking services.

HMO Marketing Abuses          One-on-one sales presentations, often conducted in the privacy of
Associated With In-Home       beneficiaries’ homes, leave beneficiaries vulnerable to abusive sales
Sales Would Probably Be       tactics and serious marketing problems. Reported abuses include HMO
                              representatives’ lying to prospective enrollees about the benefits of HMO
Reduced                       enrollment, pressuring beneficiaries to join HMOs, enrolling beneficiaries
                              who could not make informed enrollment decisions, and obtaining
                              enrollment signatures under false pretenses. Although HCFA cannot

                              Page 7                      GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                            determine the frequency of these problems, agency officials are concerned
                            about the potential for in-home sales marketing abuses.

                            According to our HMO survey results, about half of the beneficiaries who
                            enrolled in a Medicare HMO as individuals (not as members of an employer
                            group) in 1995 participated in a one-on-one sales presentation. However,
                            the likelihood of a beneficiary’s participating in a one-on-one sales
                            presentation varied greatly by HMO.4

                            A limited enrollment period lasting just 1 or 2 months each year could
                            make it impractical for HMOs to conduct as many in-home sales
                            presentations. Each one-on-one meeting can last from 1/2 hour to 2 hours
                            and is conducted by an HMO sales agent who sells only to Medicare
                            beneficiaries. HMO representatives told us that sales agents who sell
                            Medicare plans sell them exclusively. Agents are trained not only in the
                            details of their HMO’s offering, but also in traditional Medicare and the
                            rules governing Medicare managed care. Some HMO representatives
                            implied that maintaining a large, dedicated Medicare sales force
                            year-round would be impractical if most sales would take place during a 1-
                            or 2-month limited enrollment period.5 Furthermore, HMO representatives
                            said it would be unrealistic to expect non-Medicare agents to be able to
                            sell Medicare products. Because beneficiaries are particularly susceptible
                            to abusive sales practices in their homes, reducing or eliminating in-home
                            sales presentations would better protect beneficiaries from the possibility
                            of sales abuses. This protection, however, would be a by-product of the
                            enrollment policy change and could be achieved by more direct methods.

Comparative Information     Under the BBA, before the start of a limited enrollment period, the
Distributed During a        Secretary of HHS would have been responsible for producing and
Limited Enrollment Period   distributing (1) a list of plans available in a given area and (2) comparative
                            information about those plans, including benefits, premiums, and
Would Aid Beneficiary       measures of quality. The Secretary would also have been responsible for
Decision-Making             maintaining a toll-free number that beneficiaries could call to receive
                            specific information.

                             For example, about one-fourth of the HMOs responding to our survey reported that 90 percent or
                            more of the beneficiaries who joined their plan had participated in a one-on-one sales presentation. In
                            contrast, one-fifth of HMOs reported that less than 10 percent of their enrollees had participated in
                            such presentations.
                             Some sales would occur outside the limited enrollment period. Depending upon how such a policy
                            would be implemented, such sales would probably include sales to newly entitled Medicare
                            beneficiaries and beneficiaries who had moved outside of their previous HMO’s service area.

                            Page 8                                 GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                          Beneficiaries’ ability to make informed health care choices would be
                          enhanced by the availability of objective, comparative information and
                          access to a hot line. We recently reported that beneficiaries who wish to
                          compare plans face difficult, if not daunting, steps.6 First, they must call a
                          toll-free telephone number to obtain a list of HMOs available in their area.
                          Next, they must contact those HMOs and request marketing brochures.
                          Finally, they must compare plans’ benefit packages and cost information
                          described in the brochures. The last step can be difficult because HMOs are
                          not required to use standard formats or terminology in describing their

                          A limited enrollment period would facilitate an annual HMO marketing
                          campaign and create a natural opportunity for HCFA to distribute
                          comparative plan information to beneficiaries. Some experts believe that
                          HMOs’ concentrated advertising during the open season would help inform
                          beneficiaries of alternative Medicare options. Another potential advantage
                          is that any comparative information produced by HCFA would be up to date
                          at the time most beneficiaries were making health care choices.7

Mass Marketing Campaign   HMO representatives told us that if Medicare established a limited
Might Not Adequately      enrollment period, plans would turn to a marketing approach more
Inform Beneficiaries      conducive to a limited enrollment time frame. HMOs would focus more of
                          their marketing dollars on mass media campaigns—including print, radio,
Unfamiliar With Managed   and television advertising—concentrated around Medicare’s enrollment
Care                      season.

                          Some experts believe that a concentrated mass marketing campaign could
                          increase beneficiary awareness of Medicare options, including managed
                          care. These experts suggest that the Medicare advertising blitz could be
                          similar to the advertising campaigns that occur in the Washington, D.C.,
                          area during the Federal Employees’ Health Benefits Program (FEHBP) open
                          season each fall. Whether Medicare HMOs’ advertising campaigns would be
                          as intense as FEHBP plans’ is uncertain. FEHBP subscribers represent about
                          9 percent of the Washington, D.C., metropolitan area’s total population.8

                           Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO Performance
                          (GAO/HEHS-97-23, Oct. 22, 1996).
                           HCFA cites the changing health care marketplace as one reason the agency has no plans to distribute
                          printed comparison charts directly to beneficiaries. However, HCFA is planning to make some basic
                          HMO comparative information available on the Internet. The agency will periodically update the
                           This percentage does not include dependents of active workers or retirees.

                          Page 9                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Nationwide, Medicare beneficiaries represent about 14 percent of the total
population. However, only about 1 in 10 Medicare beneficiaries currently
enrolls in managed care. If advertising intensity is driven by the proportion
of potential customers, the intensity of a campaign for Medicare
beneficiaries would depend upon whether HMOs believe the potential
market is all Medicare beneficiaries or only 1 in 10.

Representatives of HMOs, however, believe that an advertising campaign
without the benefit of one-on-one sales would be less effective at
convincing Medicare beneficiaries to try managed care. Representatives of
most HMOs we contacted stated that limiting Medicare’s enrollment period
would slow the growth of managed care because plans would not (1) have
time to educate beneficiaries about Medicare’s managed care option and
(2) be able to hire enough trained sales staff on a seasonal basis to answer
beneficiary questions during the limited enrollment period. Although
abuses have been reported in conjunction with one-on-one sales, HMOs
believe this sales approach is both necessary and effective, in part because
many beneficiaries have had no experience with managed care.

The effectiveness of an FEHBP-like mass marketing campaign for Medicare
may depend on whether HCFA develops ancillary mechanisms to inform
beneficiaries. Participants in FEHBP do not rely exclusively on mass
marketing to obtain information. All active and retired FEHBP enrollees are
given comparative information on available plans and can obtain detailed,
plan-specific information brochures that follow a standard format. Active
federal workers can also discuss their health care options with colleagues
or their agency’s benefits administrator. Furthermore, most workers can
easily attend health fairs sponsored by their agency, where health plan
representatives distribute literature and answer questions. The 20 percent
of FEHBP members who are retired also have some advantages over
individuals in Medicare. As former federal workers, FEHBP participants are
familiar with the program’s enrollment and disenrollment rules. In
addition, federal retirees receive guidance from the National Association
of Retired Federal Employees. This organization, with over 1,700 chapters
nationwide, works closely with FEHBP in answering questions and resolving
problems. Finally, some members of the Congress sponsor annual FEHBP
health fairs attended by retirees.

Page 10                      GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Third-Party Enrollment      Requiring third-party contractors, or brokers, to conduct all enrollment
Brokers Are Objective but   activities would better protect beneficiaries from abusive sales practices,
May Be Less Effective       minimize the opportunity for HMOs to favorably select only the healthiest
                            beneficiaries, and provide beneficiaries a convenient source of objective
Promoting HMOs              information. Beneficiaries might welcome such a change in enrollment
                            practices partly because they would have the convenience of “one-stop
                            shopping” and also appreciate a source of objective, comparative
                            information. A recent focus group conducted for HCFA found that most
                            beneficiaries did not view insurance plan representatives as trustworthy
                            sources of impartial information. Nonetheless, HMO representatives
                            maintain that personal contact with an HMO sales agent can be reassuring
                            to beneficiaries and that industry sales abuses are few.

                            HCFA  plans to test the effect of third-party enrollment contractors in a
                            future Medicare demonstration project. Scheduled to begin sometime in
                            1997,9 this project will use a third-party contractor to conduct marketing,
                            education, counseling, and enrollment activities. HCFA’s design—as of
                            August 1996—will permit HMOs to provide information to beneficiaries
                            directly and even help beneficiaries fill out enrollment forms. The
                            third-party contractor will provide comparative information about the
                            plans, counsel beneficiaries who want to consult with a neutral party, and
                            perform all enrollment transactions. The potential effect of this approach
                            on enrollment is not clear, and the demonstration’s effects may not be
                            fully evaluated for years.

                            If the Medicare program relies solely on enrollment brokers and prohibits
                            HMOs from marketing to individual beneficiaries, however, growth of
                            Medicare managed care might slow. HMO representatives with whom we
                            discussed this issue were concerned that brokers would be less
                            knowledgeable about the advantages of specific plans and thus not as
                            effective as sales agents in selling managed care to Medicare beneficiaries.
                            Recent experience in the Medicaid program suggests that prohibiting
                            direct marketing by HMOs could slow enrollment growth.10 Because of
                            abuses, Florida and New York prohibited HMOs from marketing to
                            beneficiaries directly. Both states experienced significant declines in

                             HCFA’s Medicare Competitive Pricing Demonstration Project is designed to test both the feasibility
                            and effects of (1) setting Medicare payments for HMOs using competitive market forces, (2) providing
                            beneficiaries with comparative information, and (3) using third-party contractors to enroll
                            beneficiaries in HMOs. The demonstration also includes plans for a coordinated enrollment period.
                            Currently, the demonstration is behind schedule, and HCFA has encountered difficulties selecting a
                               Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed Care (GAO/HEHS-96-184,
                            Sept. 17, 1996).

                            Page 11                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                        Medicaid HMO enrollment. Florida reported that, in a recent 3-month period
                        since banning direct marketing, enrollment levels fell by an average of
                        10,000 enrollees per month. New York temporarily suspended its ban on
                        direct marketing to help increase HMO enrollment but implemented other
                        steps to prevent HMO marketing abuses. In fact, in many Medicaid
                        programs in which beneficiary participation in managed care is voluntary,
                        states rely on HMOs to inform beneficiaries about managed care and
                        encourage them to enroll.

Potential Costs If      Although a limited enrollment period could add some consumer
Dissatisfied Could      protections for beneficiaries, it could expose dissatisfied beneficiaries to
Dissuade Some           additional out-of-pocket costs. Under the limited enrollment period policy
                        discussed here, beneficiaries dissatisfied with their HMOs would have three
Beneficiaries From      choices: (1) remain in the HMO, (2) switch to traditional Medicare fee for
Enrolling in Medicare   service and pay the deductible and coinsurance for submitted claims, or
HMOs                    (3) switch to traditional Medicare fee for service and purchase a Medigap
                        policy if one was available to them. Beneficiaries dissatisfied with access
                        to desired treatments could remain in their HMO and purchase those
                        services privately. However, going outside the HMO for treatment or
                        changing to fee for service would cost most beneficiaries more money
                        than they would have spent had they been able to enroll in another HMO.11

                        Changing to traditional fee for service could be an expensive option for
                        many dissatisfied Medicare HMO members. HMOs are cheaper than fee for
                        service for many Medicare beneficiaries because 65 percent of HMOs do not
                        charge a monthly premium (so-called “zero premium HMOs”).12 In addition,
                        HMOs frequently offer benefits, such as outpatient prescription drugs, that
                        are not provided by traditional Medicare. Beneficiaries in HMOs are
                        responsible for copayments for certain services but often fewer services
                        than in a fee-for-service arrangement. Beneficiaries in fee for service who

                         Although switching HMOs during a 12-month period is not typical beneficiary behavior, neither is it
                        uncommon. Of the 161,792 beneficiaries who enrolled in HMOs at the start of 1995, 9,727 switched to
                        another HMO or left and returned to their original HMO in less than 1 year—a choice that would not be
                        permitted under the limited enrollment scenario discussed here.
                         Monthly premiums for the remaining HMOs are often lower than premiums for Medigap policies. As
                        of September 1996, less than 6 percent of risk HMOs had monthly premiums that exceeded $60. In
                        addition to any premium charged by the HMO, beneficiaries must continue to pay their Medicare part
                        B premium ($42.50 per month in 1996).

                        Page 12                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                           need services covered under Medicare part B must fulfill a deductible and
                           pay a portion of additional expenses.13

                           Dissatisfied HMO members who change to fee for service may want to
                           purchase supplemental health insurance, known as Medigap, to help cover
                           out-of-pocket costs.14 However, Medigap policies can cost over $1,000 per
                           year—more than most beneficiaries would pay to an HMO. Furthermore,
                           beneficiaries have no guarantee that a Medigap policy will be available
                           upon disenrolling from an HMO. During the 6 months after a person turns
                           age 65 and enrolls in Medicare part B, federal law guarantees beneficiaries
                           the opportunity to purchase a Medigap policy. After that, Medigap insurers
                           are permitted to refuse to sell policies because of an applicant’s health
                           history or status. We recently reported that, although some insurers do
                           exercise their option to refuse coverage, all beneficiaries currently have at
                           least one Medigap policy available to them after the 6-month guarantee
                           period, regardless of their health history or status.15 Nevertheless, no
                           federal requirement exists to ensure that beneficiaries will always have
                           such alternatives.

Fee for Service Could Be   Beneficiaries who temporarily relocate for the winter, commonly known
Only Option for Medicare   as “snowbirds,” might find joining a Medicare HMO impractical and would
“Snowbirds”                probably choose the fee-for-service option instead. HMOs are required to
                           provide emergency, but not routine, care to members outside the HMO
                           service area. Furthermore, HMOs are required to disenroll any member who
                           leaves his or her HMO’s service area for more than 90 days. Currently,
                           snowbirds can disenroll from an HMO and switch to fee for service or
                           another HMO each time they relocate. If a limited enrollment period policy
                           prohibited such plan switching, snowbirds would be left with only one
                           realistic option—enrolling in Medicare’s fee-for-service program. Although
                           data are not available on the number of Medicare snowbirds, their
                           existence is widely recognized.

                             Beneficiaries’ payments under Medicare part A (hospital insurance) vary depending on factors such
                           as their length of hospital stay or whether they receive care in a skilled nursing facility. For Medicare
                           part B (medical insurance), beneficiaries must pay a $100 annual deductible, after which they are
                           responsible for 20 percent of the Medicare-approved amount for most services. For outpatient hospital
                           services, beneficiaries are responsible for 20 percent of the charges, regardless of the Medicare-
                           approved amount. Beneficiaries are responsible for 50 percent of the Medicare-approved amount of
                           outpatient mental health services.
                            The 10 standard Medigap policies cover Medicare coinsurance. Some policies also cover Medicare
                           deductibles and benefits not covered by Medicare such as prescription drugs.
                            Medigap Insurance: Alternatives for Medicare Beneficiaries to Avoid Medical Underwriting
                           (GAO/HEHS-96-180, Sept. 10, 1996).

                           Page 13                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                             HMOs might respond to a limited enrollment period policy by offering
                             flexible service arrangements not commonly available today, such as
                             reciprocal agreements and point-of-service options, partly to attract
                             snowbirds. Reciprocal agreements among health plans—which permit HMO
                             members traveling outside their plan service area to receive routine care
                             and nonemergency services from another HMO—would make temporary
                             relocations less problematic for beneficiaries who wished to enroll in
                             managed care. Several HMOs now offer reciprocity but only within their
                             own companies or affiliates. For example, a member of the Kaiser
                             Foundation Health Plan in Los Angeles may receive services from Kaiser
                             HMOs in other parts of the country. A representative of the American
                             Association of Retired Persons said her organization is interested in
                             encouraging the development of reciprocal agreements among plans,
                             although no such agreements currently exist. Similarly, if many HMOs offer
                             the point-of-service option—a hybrid of HMOs and fee-for-service plans—a
                             Medicare policy limiting plan switching would be less of a deterrent to
                             snowbirds who wished to enroll in HMOs.16

HMO Enrollees Could Face     Most of the HMOs we contacted believe that a limited enrollment period
Delays Obtaining Physician   would cause beneficiaries to face delays in receiving health care services
Appointments at Start of     at the beginning of each health benefit year. HMO representatives said a
                             heavy demand for services would be caused by new Medicare members’
Health Benefits Year         “trying out” their new physicians soon after enrolling. One HMO told us that
                             a large percentage of that HMO’s new members see their primary care
                             physician within 60 days of enrolling to receive health care or renew a
                             prescription. In fact, some plans strongly suggest that new members
                             undergo initial health assessments within 30 days of joining. Although
                             demand for provider services also increases after the start of a commercial
                             contract, the effect of an influx of new Medicare members is greater
                             because Medicare beneficiaries tend to use physician services more
                             frequently than younger HMO members.

                             Beneficiaries who would likely face delays in scheduling physician office
                             visits might be those who join HMOs that employ providers directly (“staff
                             model” HMOs) or have exclusive contracts with providers (“captive group
                             model” HMOs) or those who join HMOs with relatively small provider
                             networks. Beneficiaries who join HMOs with exclusive provider
                             arrangements will, by definition, change providers when changing plans.
                             New members in HMOs with small provider networks are more likely to

                              With a point-of-service plan, beneficiaries have the option of receiving services within their HMO’s
                             provider network or, for an additional cost, receiving some services from nonparticipating providers.

                             Page 14                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                                   need to select a new provider than beneficiaries joining plans with large
                                   networks. However, for some beneficiaries, joining an HMO or switching
                                   among plans will not require switching physicians and an introductory
                                   visit because physicians often contract with multiple HMOs.

                                   Obtaining appointments at the start of each health benefit year might be
                                   difficult for beneficiaries in some HMOs because a limited enrollment
                                   period policy would probably result in dramatic, once-a-year membership
                                   spikes. From December 1994 to December 1995, 24 plans enrolled more
                                   than 10,000 new members, including 1 that enrolled close to 55,000
                                   members. (Table 1 shows the distribution of new members among plans.)
                                   These membership increases, however, were absorbed by the plans over
                                   12 months, not during a single month, as might occur under a limited
                                   enrollment period policy.

Table 1: Medicare Risk HMO
Membership Growth, December 1994                                                                                Number of
to December 1995                   HMO membership growth                                                           HMOs
                                   10,000 new members or more                                                           24
                                   5,000-9,999 new members                                                              22
                                   1,000-4,999 new members                                                              54
                                   Less than 1,000 new members                                                          22
                                   Membership decline                                                                   14
                                   Note: Based on 136 risk HMOs that had members in 1994 and 1995.

                                   Source:HCFA Medicare Market Penetration Report File.

                                   The annual enrollment change resulting from a limited enrollment period
                                   could be difficult for HMOs to predict accurately; any unanticipated HMO
                                   enrollment growth could contribute to provider access problems.
                                   Representatives of one large HMO described what happened when they
                                   grossly underestimated the response to their Medicare product in a new
                                   market area. Although the plan had contracted with a large number of
                                   physicians, it underestimated the need for primary care physicians and
                                   certain specialists. Demands on plan physicians’ time and the level of
                                   beneficiary complaints were so high that some physicians quit. The plan
                                   contracted with new physicians (a process that took about 6 months) and
                                   cut back its marketing efforts to hold down additional enrollment, but
                                   1-1/2 years passed before the plan’s provider network could comfortably
                                   meet members’ demand for services.

                                   Page 15                            GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                       A January start date for the Medicare benefits year, as specified in the BBA,
                       could cause longer delays in receiving health services than if another time
                       of year was selected. January is already a particularly busy month for
                       providers because so many members of employer-based health plans begin
                       their benefits years on January 1. Furthermore, according to HMO
                       representatives, demand for physician office visits is already high in
                       January because of winter respiratory illnesses. However, choosing a
                       month other than January could increase the number of employers that
                       are inconvenienced, as discussed in the next section.

                       Limiting Medicare’s enrollment period would create varying degrees of
A Limited Enrollment   administrative problems for employers and could, as a result, discourage
Period Policy Could    some employers from offering managed care to their retirees. Our survey
Discourage Some        results indicated that in January 1996 about 21 percent of all beneficiaries
                       in Medicare risk HMOs enrolled through employer groups. Moreover,
Employers From         between January 1995 and January 1996, the number of Medicare
Offering Managed       beneficiaries in HMOs sponsored by employer groups grew by 17.5 percent.
                       The number of Medicare beneficiaries individually enrolled in HMOs grew
Care to Retirees       even more—by 36.2 percent. (See fig. 3.)

                       Page 16                      GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Figure 3: Number of Medicare
Beneficiaries Enrolled in Risk HMOs    2.5   Beneficiaries (in Millions)
Responding to Our Survey, by Type of





                                               1/1/95                1/1/96

                                                         Group Enrollment

                                                         Individual Enrollment

                                       Source: GAO survey.

Start Dates of Many                    Almost all employer groups offering coverage through the risk HMOs we
Employers’ Health Benefits             surveyed limit the period during which members can enroll, but not all
Years Would Not Coincide               these groups choose the same times of year to enroll members and to
                                       begin benefits. Under a limited enrollment policy, unless exempted from
With Medicare’s Dates                  complying with Medicare’s specific enrollment period and effective date,
                                       some proportion of employers would need to shift their health benefits
                                       calendar. The BBA proposed an October enrollment period with Medicare
                                       beneficiaries’ choices effective January 1. This timing would have
                                       coincided with the dates used by 62 percent of the employers offering
                                       managed care to retirees in 1995. (See fig. 4.)

                                       Page 17                                   GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Figure 4: Distribution of Employee Groups’ Enrollment Dates and Membership in These Groups




























     Month of Effective Date



                                             Source: GAO survey.

                                             If legislation mandates a specific health benefits open season for all
                                             Medicare beneficiaries, it is unlikely that employers with different benefit
                                             seasons would all respond in the same manner. Rather, these employers
                                             could take one of three courses: (1) shift all employees’ and retirees’
                                             benefits seasons and run a single season that would coincide with
                                             Medicare’s season, (2) shift seasons for Medicare retirees only and run one
                                             season for retirees and another for active employees, or (3) choose not to
                                             offer the Medicare risk program to retirees.

January Start Date Would                     Some employers could face problems shifting their benefits season to
Inconvenience Some                           coincide with Medicare’s. Employers and benefit consulting firms we
Employers                                    contacted discussed two major reasons why nearly 4 of 10 employers have

                                             Page 18                     GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                            their group coverage begin in a month other than January. First, employers
                            often select a benefits year that coincides with the start of their fiscal year,
                            which may not be January. Second, employers with seasonal businesses
                            often choose slow business months to conduct an enrollment process. For
                            example, representatives of a major benefits consulting firm and several
                            national retailers told us that because the winter holiday season is the
                            busiest and most demanding time of year for retailers, these employers try
                            to avoid other activity at that time. One of the health benefits consultants
                            we contacted said that his firm had tried unsuccessfully to get some of its
                            clients to begin their coverage in a month other than January to ease the
                            firm’s administrative burden.

Running Separate Benefits   To comply with a mandated health benefits season for Medicare, some
Season for Retirees May     employers might choose to run two seasons—one for retirees and one for
Present Problems for Some   active workers. One business group told us that some employers already
                            run two separate seasons because retirees tend to take more time and ask
Employers                   more questions of health benefits personnel than do active employees.
                            However, executives of one national health benefits consulting firm also
                            said that running two separate seasons costs employers more money than
                            running a single season.

                            Executives of one large national retailer anticipated that running two
                            health seasons would create serious administrative problems. The retailer
                            would have to (1) untangle its contracts with HMOs so that coverage for
                            Medicare-eligible retirees could be separated from coverage for active
                            employees, retirees, and retirees’ dependents under age 65; (2) renegotiate
                            contracts with plans; and (3) revise internal policies and communications.
                            Executives said untangling contracts could take 2 to 3 years to complete.
                            They further noted that if they ran two seasons, members of the same
                            family could find themselves with different health benefit years. Because
                            of all these problems, the executives said they probably would not offer
                            Medicare risk plans if they had to change benefit years. They further
                            predicted that other employers whose benefits seasons would not coincide
                            with Medicare’s would do the same.

Employers Would Need        Employers who were willing to switch their health benefits season would
Time to Transition to New   probably need 9 months to 1 year of planning time to make the transition,
Health Benefits Cycle       according to representatives of employers and benefit consulting firms.
                            For example, one retailer we contacted had been operating a single season
                            for employees and retirees with a benefits year beginning at the start of its

                            Page 19                       GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                         fiscal year on February 1. This company recently shifted the start of its
                         benefits year for its active employees because the February health benefits
                         year required a November or December enrollment period, which
                         interfered with holiday business. The retailer started actively planning 1
                         year before the change. It encountered some administrative difficulties but
                         found that making the change was relatively inexpensive.

                         The California Public Employees’ Retirement System (CalPERS) also
                         recently shifted its health benefits season for both employees and retirees.
                         Before this change, benefits became effective on August 1; now benefits
                         are effective January 1.17 CalPERS changed its season to coordinate with
                         preferred provider organizations and other state benefit programs that
                         operate on a calendar year. CalPERS found the process of shifting its health
                         benefits cycle manageable and not very costly but did need about 15
                         months to prepare for the change.

                         If a new enrollment policy also limited HMO members’ opportunities to
Limiting                 disenroll and change to fee for service, the Medicare program might save
Disenrollment Might      some money; however, the policy could also result in reduced beneficiary
Save Medicare Money      protections, increased beneficiary dissatisfaction, and slower HMO growth.

but Cause Problems
for Beneficiaries and
Limiting Disenrollment   Limiting opportunities for beneficiaries to disenroll from HMOs mid-year
Might Generate Some      might generate some cost savings for Medicare. These savings would
Medicare Savings         occur because payments to HMOs are based on our assumption that HMO
                         enrollees’ health and medical requirements are the same as those of the
                         average beneficiary in fee for service. However, beneficiaries who leave
                         managed care plans and switch to a fee-for-service arrangement are not
                         average—they tend to use more services and incur higher costs than the
                         average fee-for-service beneficiary.

                         Nonetheless, our analysis indicates that Medicare’s maximum potential
                         savings from limiting disenrollment might be small, relative to overall
                         program expenditures, because few managed care enrollees change to fee
                         for service. To quantify potential savings, we studied the behavior of all
                         738,000 California Medicare beneficiaries who were enrolled in a risk HMO

                           To accomplish this shift, CalPERS established an interim benefit “year” 17 months long.

                         Page 20                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                                                   at the start of 1994. Of the beneficiaries who did not change residences,
                                                   only 15,772 switched from managed care to fee for service during 1994.18
                                                   Medicare paid fee-for-service claims for 11,382 of these beneficiaries,
                                                   amounting to almost $73 million. If these beneficiaries had not been
                                                   allowed to disenroll from their plans, the Medicare program would have
                                                   paid $42 million in capitated payments to HMOs to cover these same
                                                   beneficiaries. Thus, the potential savings of limiting disenrollment would
                                                   have been, at most, $31 million in California during 1994—compared with
                                                   total Medicare risk HMO expenditures in California of $4.2 billion.

Table 2: Medicare’s Potential Savings Had Disenrollment Opportunities Been Limited for Beneficiaries in California, 1994
                                                                           Medicare expenditures              Potential savings
                                                       Actual Medicare    had beneficiaries stayed           from limiting HMO
                                               expenditures, HMO and           in HMO entire year                disenrollment
                                            fee for service (in millions)             (in millions)                 (in millions)
15,772 beneficiaries in HMOs in January 1994
who switched to fee for service for at least 1
month that yeara                                                                $72.6                             41.6                              31.0
11,684 beneficiaries in HMOs in January 1994
who switched to fee for service April 1 or later
for at least 1 montha                                                            48.4                             26.1                              22.3
                                                       Excludes beneficiaries who changed county of residence.

                                                   Source: GAO analysis of Medicare Claims Database and HCFA Group Health Plan Master File.

                                                   Potential savings, as a percentage of payments to HMOs, may be slightly
                                                   higher in states other than California. Beneficiaries in California have
                                                   many HMOs from which to choose and can readily join a competing HMO if
                                                   dissatisfied with their own. In other states, however, beneficiaries have
                                                   fewer choices, and the rate of changing to fee for service among
                                                   dissatisfied beneficiaries may be higher than in California. Since limiting
                                                   the opportunity to change to fee for service during the year produces cost
                                                   savings, the potential savings, as a percentage of payments to HMOs, may
                                                   be higher in states with few HMOs. However, national Medicare savings
                                                   would still likely be small because California represents about 44 percent
                                                   of all Medicare risk-contract HMO expenditures.

                                                   The less restrictive the disenrollment policy is—in other words, the more
                                                   opportunities beneficiaries have to change to fee for service—the smaller

                                                    We did not include in our analysis the 25,918 beneficiaries who moved out of their county, or service
                                                   area, during 1994. These beneficiaries could have left their HMOs’ service areas and would presumably
                                                   have been able to change coverage mid-year, even under a limited enrollment and disenrollment

                                                   Page 21                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                           the potential savings. For example, if beneficiaries were permitted to
                           disenroll and switch to fee for service during the first 90 days of
                           membership, Medicare would realize some savings but fewer than under a
                           more restrictive disenrollment policy. Our analysis of 1994 California data
                           indicates that Medicare would have saved, at most, $22 million if
                           beneficiaries had been permitted to disenroll to fee for service only within
                           the first 90 days.

                           These estimated savings probably represent the upper limit of what
                           Medicare could have saved in California in 1994. Our estimates assume
                           that beneficiary behavior and enrollment patterns would not change as the
                           result of a limited disenrollment policy. However, as the following section
                           discusses, beneficiary behavior will likely be affected by such a policy.
                           (See app. III for further information regarding our analyses of potential
                           Medicare savings.)

Limiting Disenrollment     According to HCFA officials and beneficiary advocates, limiting
Would Reduce Beneficiary   beneficiaries’ ability to disenroll from plans would remove a valuable
Protections and Could      beneficiary protection. Medicare’s current policy allows any beneficiary
                           who is dissatisfied to disenroll and join a new plan or change to fee for
Increase Beneficiary       service at the end of each month. Changing the disenrollment policy could
Dissatisfaction            also weaken plans’ incentive to maintain the quality of the services and
                           care they provide. Finally, without the ability to disenroll, HCFA and HMOs
                           believe that beneficiaries are likely to file more grievances and appeals.

                           Although most beneficiaries do not change plans frequently,19 some HMOs
                           have high member disenrollment rates, which can signal member
                           dissatisfaction. We recently reported that one HMO in Miami and one in Los
                           Angeles had 1995 disenrollment rates of 37 percent and 42 percent,
                           respectively.20 One Miami HMO with high disenrollment rates had a 7-year
                           history of Medicare deficiencies, including those involving beneficiary
                           appeal rights and quality assurance. Thus, although most members appear
                           to be satisfied with their HMO, problems do exist, and the freedom to
                           disenroll provides a course of action for dissatisfied plan members.

                           Some beneficiary advocates believe that to ensure continuity of care,
                           beneficiaries should be able to disenroll from an HMO if their physician

                            Of the beneficiaries who enrolled in a risk HMO in January 1995, about 82 percent were still in their
                           same plan in May 1996. Of the 18 percent of beneficiaries no longer in their original plan, some had
                           moved out of their HMO’s service area or had died.
                             GAO/HEHS-97-23, Oct. 22, 1996.

                           Page 22                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare

leaves the plan. In fact, this may be a common reason for switching HMOs
or changing to fee for service. A 1992 study reported that 26 percent of
beneficiaries who disenrolled from an HMO cited their doctor’s leaving the
HMO as a reason for disenrolling.21 One large HMO told us that after
terminating a contract with one of its physician groups, nearly all 1,668
members assigned to those physicians disenrolled from the HMO.
Representatives of the plan believe that these members followed their
physicians to a competing HMO that also contracted with the physician
group. The Physician Payment Review Commission recently
recommended that if a limited disenrollment policy is established,
beneficiaries have the right to disenroll before year-end or to purchase
services on a special point-of-service basis for the rest of the year if a plan
makes a major change in its network of providers during the year.22
However, the Commission acknowledged that defining the precise
circumstances for permitting disenrollment could be difficult.

HMO representatives believe that beneficiaries’ current ability to disenroll
at the end of any month is good for competition and, thus, good for
consumers. The need to retain members who can disenroll motivates plans
to maintain quality, work for member satisfaction, and improve benefits
continuously throughout the year. For example, officials at one large HMO
told us that it increased benefits three times in 1995 to remain competitive.
The HMO increased its pharmaceutical benefit, reduced beneficiary
copayments for office visits, and improved its dental coverage.

Representatives of several HMOs told us that an enrollment policy that
includes a 90-day disenrollment option would be better for beneficiaries
than no disenrollment option at all but that the current practice of
permitting monthly disenrollment is far better for industry competition
and for beneficiaries. Many beneficiaries who disenroll from their risk HMO
do so within the first 90 days. For example, of about 326,000 beneficiaries
who joined a risk HMO during the first 3 months of 1995, 14.4 percent
disenrolled within 1 year or less, but a disproportionate amount—
5.6 percent—disenrolled in less than 90 days.

On the other hand, representatives of one HMO speculated that if
beneficiaries were permitted just 90 days to disenroll, short-term
disenrollment rates would soar. Beneficiaries who are less than

 Frank W. Porell and others, Factors Associated With Disenrollment From Medicare HMOs: Findings
From a Survey of Disenrollees (Boston: Health Policy Research Consortium of Brandeis University,
 Physician Payment Review Commission, 1996 Annual Report to Congress (Washington, D.C.:
Physician Payment Review Commission, 1996).

Page 23                             GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                        completely satisfied with their HMO might quickly disenroll, rather than
                        give their plan a chance to address their complaints.

                        HCFA  officials predict that without the option of disenrolling,
                        dissatisfaction among HMO members would manifest itself in other ways,
                        such as an increase in grievances to HMOs and appeals to HCFA—a
                        prediction that was echoed throughout our visits to HMOs. This prediction
                        is supported by data we obtained from one HMO. In 1995, over 90 percent of
                        this plan’s Medicare group membership was “locked into” the HMO for the
                        year. Because of conditions set by the beneficiaries’ former employers,
                        these members could change plans only during annual enrollment
                        periods.23 Group members filed grievances at a rate 100 times greater than
                        that of individual members who could disenroll monthly. Group members
                        filed 60 times more appeals than individual members. HMO representatives
                        speculated that individual members who were dissatisfied simply
                        disenrolled, rather than file grievances or appeals.

Limited Disenrollment   HCFA  officials and nearly all the HMOs we contacted shared a strong belief
Could Further Slow      that limiting disenrollment opportunities would deter some beneficiaries
Managed Care Growth     from joining managed care, although none of the representatives could
                        quantify the extent to which this would occur. Managed care is a relatively
                        new concept to some Medicare beneficiaries, and a 1-year lock-in
                        requirement could discourage beneficiaries from trying managed care.
                        Some beneficiaries might not join HMOs because, even if dissatisfied with
                        the care they received or denied a procedure they believed was critical,
                        they would have little recourse available. Medicare has an appeals process
                        in place, but, of course, beneficiaries have no guarantee that the appeal
                        will be resolved in their favor. Some beneficiaries might not enroll in a
                        plan if they knew they would not be able to follow their physicians, should
                        the physicians leave the plan mid-year.

                        Implementation of a limited enrollment period could strain HCFA’s
HCFA Would Face         resources by creating a peak load and by increasing HCFA’s responsibilities.
Peak Load Problems      HCFA’s enrollment and disenrollment activities would be concentrated in a

and Additional          short period of time, rather than spread out during the year. Also, HCFA
                        would need to provide beneficiaries access to a consumer hot line and
Responsibilities        comparative plan information, both of which would likely be required
                        under a limited enrollment period policy.

                         These beneficiaries could have disenrolled at any time and joined another HMO as individuals but
                        would have lost the additional health coverage benefits offered by their previous employer.

                        Page 24                              GAO/HEHS-97-50 Limited Enrollment Period for Medicare

HCFA Would Need to       HCFA  could face problems in completing tasks such as processing
Adapt to Peak Workload   enrollments. Currently, HCFA processes about 100,000 transactions a
                         month, or 1.2 million transactions a year, which include enrollments,
                         disenrollments, and status changes. Plans electronically submit these data,
                         which are processed by computers at HCFA—generally within a few days.
                         However, problems could arise, such as incomplete data or discrepancies
                         in data, which could require follow-up work by HCFA. Some HCFA officials
                         told us that the agency could manage the peak workload associated with a
                         limited enrollment period. However, representatives of HMOs, other
                         organizations, and even some HCFA officials said the agency sometimes had
                         difficulty managing its current workload and meeting deadlines; they were
                         skeptical of HCFA’s ability to handle a peak workload with current

                         CalPERS24and FEHBP25 both operate a single annual enrollment period and
                         face a peak load each year. CalPERS hires temporary workers and allows the
                         permanent staff to work overtime hours. FEHBP contracts with a private
                         firm to handle enrollment changes for federal retirees. (Each federal
                         agency handles enrollment changes for its current employees.) HMOs that
                         experience a peak load from their commercial business often hire
                         temporary workers or shift employees from other departments within the

                         HCFA  might need to change other activities to accommodate the timing of a
                         limited enrollment period. For example, every year HCFA announces risk
                         HMO capitation payment rates in September.26 This allows HMOs time to
                         decide whether they will renew their contract and to adjust premiums and
                         benefits before the new contract cycle begins in January. Depending on
                         the timing of the enrollment period, the announcement of the payment
                         rates might need to occur earlier in the year so that HMOs could set
                         premiums and benefits before Medicare’s open season. Sufficient time
                         would also be needed for HCFA to produce and publish comparison charts
                         as well as to review HMOs’ marketing materials. (See fig. 5.)

                          CalPERS manages health benefits for about 1 million public employees and retirees. It operates one
                         open season, during which employees and retirees make about 120,000 enrollment changes annually.
                         See app. II for additional information on CalPERS.
                           FEHBP manages health benefits for about 9 million employees, retirees, and dependents. See app. I
                         for additional information on FEHBP.
                           The capitation payment is based on the adjusted average per capita cost (AAPCC), an actuarial
                         projection of what Medicare expenses will be for a given category of Medicare beneficiaries in
                         traditional fee-for-service Medicare. The rates change each calendar year.

                         Page 25                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Figure 5: Timing of HCFA and HMO Activities

                                         Source: GAO analysis.

HCFA Would Have                          Under a limited enrollment period policy, HCFA would likely be responsible
Additional Responsibilities              for additional tasks. Some tasks would be new for HCFA; for example, the
                                         BBA envisioned that the agency would prepare and distribute comparative
Under Limited Enrollment
                                         information. Other tasks would represent expansions of HCFA’s current
Period Policy                            role—for example, operating an information hot line for beneficiaries and
                                         resolving an increased volume of beneficiary complaints. The amount and
                                         extent of these tasks would, of course, depend on the specifics of the
                                         limited enrollment period policy enacted.

                                         HCFA has efforts under way to produce comparative health plan
                                         information but would need to take additional steps to distribute that
                                         information to beneficiaries. Two of HCFA’s regional offices have developed
                                         charts that compare local HMOs’ premiums and benefits, but these charts—
                                         although available upon request—are not widely distributed.27 The agency
                                         is working to make some HMO comparative information available on the
                                         Internet but has no plans to distribute printed information directly to

                                          HCFA’s regional offices in San Francisco and Philadelphia have developed charts comparing the
                                         benefits and premiums of local HMOs. The charts are distributed to news organizations and insurance
                                         counselors primarily. (See GAO/HEHS-97-23, Oct. 22, 1996, for additional information.)

                                         Page 26                              GAO/HEHS-97-50 Limited Enrollment Period for Medicare

beneficiaries. Currently, HCFA intends to leave information distribution to
beneficiary advocates and federally supported insurance counselors.28

Although HCFA has an information hot line for Medicare beneficiaries with
questions about Medicare, the system would likely be inadequate to handle
the volume of calls generated under a limited enrollment period policy.29
Representatives of HMOs, beneficiary advocacy groups, and benefit
consulting firms cautioned us that older people need time to understand
their options. Older people also seek considerable information before
deciding to join an HMO. Some large national brokers operate hot lines for
their client companies. These hot lines, staffed by trained counselors who
are familiar with Medicare and the company’s specific plan, answer
questions posed by the company’s retirees. Officials told us that these hot
lines need to be able to handle a large volume of calls. For example, the
hot line for one company (with 57,000 retirees) received about 1,000 calls
a day from the retirees during the 1995 enrollment season—even though
retirees not changing plans did not have to re-enroll.30 Some retirees called
repeatedly with questions about each step of the application and
enrollment process.

HCFA plans to test the distribution of special handbooks and detailed
comparison charts as part of its Medicare Competitive Pricing
Demonstration Project.31 These documents would contain information on
managed care plans and fee for service with Medigap that would help
beneficiaries make enrollment choices. HCFA also intends to make a
telephone counseling center and educational seminars available to
beneficiaries with questions. However, the demonstration project has
already been postponed once. According to HCFA officials, it is now
scheduled to begin during 1997.

In addition to preparing comparative information and operating a hot line,
HCFA would need both guidelines and procedures under which it would
allow beneficiaries to change plans outside the open season. With a
limited enrollment period, beneficiaries would be expected to change

  These counselors, many of whom are volunteers, are available through the federally supported, but
state-managed, Information, Counseling, and Assistance program. Counselors can provide
beneficiaries with general information about Medicare, Medicaid, managed care plans, and various
types of health insurance to supplement Medicare.
 Currently, the hot line receives about 50,000 calls a month from beneficiaries with questions on
various issues—including managed care.
  Officials explained that this type of enrollment system, so-called “passive enrollment,” tends to
reduce the number of beneficiary hot line calls.
  See footnote 9 for information on the Competitive Pricing Demonstration Project.

Page 27                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare

              plans only during the designated open season. However, as in other
              programs with limited enrollment periods, exceptions would likely be
              allowed.32 The BBA specified several conditions under which beneficiaries
              could change plans outside the enrollment period. Some conditions—for
              example, a beneficiary’s moving out of a plan’s service area—would be
              easy for HCFA to evaluate and determine whether a plan switch would be
              allowed. However, other conditions specified in the BBA would require
              HCFA to investigate the specific case before making a determination. For
              example, the BBA would have allowed beneficiaries to disenroll if they
              could demonstrate that the health plan had materially misrepresented the
              plan’s provisions in its marketing.

              Encouraging enrollment in a managed care plan can help the government’s
Conclusions   efforts to reduce high service utilization in the Medicare program without
              unduly diminishing beneficiary access to services. To the extent that
              enrollment and disenrollment policy revisions force health plans to retain
              and serve Medicare’s more costly beneficiaries, the government can battle
              the effects of the high utilization tendency inherent in unmanaged
              fee-for-service reimbursement. However, these same policy revisions
              could produce disincentives and obstacles to greater managed care
              enrollment—for beneficiaries, health plans, employers, and HCFA—thereby
              undermining the government’s very effort to lower utilization.

              In fact, an annual limited enrollment period, along with restricted
              disenrollment options, could have little impact on overall Medicare
              spending. Although such a policy would reinforce the concept of managed
              care and reduce the opportunities for less healthy HMO enrollees to change
              to Medicare fee for service, our analysis suggests that the savings might be
              relatively small. For example, if enrollment and disenrollment had been
              limited for California beneficiaries in 1994, Medicare savings would have
              been—at most—$20 million to $30 million. In contrast, Medicare spent
              $4.2 billion on payments to California HMOs during that year.

              Moreover, an enrollment policy change would likely have several
              unintended consequences, including the loss of important beneficiary
              protections and complications for many employers who offer managed
              care to their retirees. The result could well be substantially slower growth

                For example, the 1995 criteria FEHBP used to allow enrollment changes outside open season
              included 27 events, such as changes in marital or family status, changes in employment status,
              relocation to another part of the country or to another country, the member becoming eligible for
              Medicare, the member’s or a family member’s losing Medicaid coverage, and changes in the member’s
              health plan.

              Page 28                              GAO/HEHS-97-50 Limited Enrollment Period for Medicare

                  in Medicare managed care and increased beneficiary dissatisfaction. The
                  magnitude of these impacts would depend, however, on the details of the
                  adopted policy, beneficiary and employer reaction to those details, and the
                  effects of any other policy changes made at the same time.

                  We provided copies of this report to officials of HCFA’s Office of Managed
Agency Comments   Care. HCFA agreed that the monthly disenrollment option is an important
                  consumer protection. Our report indicates that changing Medicare’s
                  current policy of allowing beneficiaries to switch among HMOs or between
                  an HMO and fee for service could have far-reaching consequences. We
                  reported that this view is shared by beneficiary advocates and HMO
                  officials, who also believe that eliminating this option would deter some
                  beneficiaries from joining a managed care plan.

                  HCFA also stated that any analysis of beneficiary choice issues should
                  examine Medigap policy. Our report notes that under current law,
                  beneficiaries have no guarantee that a Medigap policy will always be
                  available to them when they disenroll from an HMO. As a result, they may
                  be reluctant to join an HMO. HCFA commented that it supports changes to
                  the Medigap statute so that beneficiaries dissatisfied with their managed
                  care plan would be able to return to fee for service and to the Medigap
                  policy of their choice. In a 1996 report, we made a similar
                  recommendation.33 HCFA’s comments appear in appendix IV.

                  As arranged with your office, unless you announce its contents earlier, we
                  plan no further distribution of this report until 5 days after the date of this
                  letter. At that time, we will send copies to the Secretary of Health and
                  Human Services. We will make copies available to others on request.

                   Medigap Insurance: Alternatives for Medicare Beneficiaries to Avoid Medical Underwriting
                  (GAO/HEHS-96-180, Sept. 10, 1996).

                  Page 29                              GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Please contact me at (202) 512-7114 if you or your staff have any questions.
Major contributors to this report are listed in appendix V.

Sincerely yours,

William J. Scanlon
Director, Health Financing and
  Systems Issues

Page 30                     GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Page 31   GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Letter                                                                                                 1

Appendix I                                                                                            34
                        Overview                                                                      34
The Federal
Employees’ Health
Benefits Program
Appendix II                                                                                           38
                        Overview                                                                      38
The California Public   Enrollment                                                                    38
Retirement System
Appendix III                                                                                          41
                        Estimate of Potential Savings From Limiting Disenrollment                     42
Methodology             Survey of Medicare Risk HMOs                                                  43

Appendix IV                                                                                           44

Comments From the
Health Care Financing
Appendix V                                                                                            45

Major Contributors to
This Report
Related GAO Products                                                                                  48

Tables                  Table 1: Medicare Risk HMO Membership Growth,                                 15
                          December 1994 to December 1995
                        Table 2: Medicare’s Potential Savings Had Disenrollment                       21
                          Opportunities Been Limited for Beneficiaries in California, 1994

Figures                 Figure 1: Medicare Risk HMO Enrollment, 1987-96                                5
                        Figure 2: Number of Risk HMO Contracts, 1987-96                                6

                        Page 32                     GAO/HEHS-97-50 Limited Enrollment Period for Medicare

Figure 3: Number of Medicare Beneficiaries Enrolled in Risk                  17
  HMOs Responding to Our Survey, by Type of Enrollment
Figure 4: Distribution of Employee Groups’ Enrollment Dates and              18
  Membership in These Groups
Figure 5: Timing of HCFA and HMO Activities                                  26


AAPCC      adjusted average per capita cost
BBA        Balanced Budget Act of 1995
CalPERS    California Public Employees’ Retirement System
FEHBP      Federal Employees’ Health Benefits Program
HCFA       Health Care Financing Administration
HHS        Department of Health and Human Services
HMO        health maintenance organization
NCS        National Computer System
OPM        Office of Personnel Management

Page 33                    GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix I

The Federal Employees’ Health Benefits

              To help us analyze the impact of a limited enrollment period, with limited
Overview      disenrollment, we looked at the Federal Employees’ Health Benefits
              Program (FEHBP). We selected FEHBP because it is a large employer-
              sponsored health insurance program that conducts an annual enrollment
              period (called an “open season”) and, like Medicare, offers members a
              choice of health plans.

              FEHBP  is the largest employer-sponsored health insurance program in the
              world. The Office of Personnel Management (OPM) administers the
              program, which went into effect on July 1, 1960. FEHBP currently provides
              voluntary health insurance coverage for about 9 million people, including
              2.3 million active employees, 1.8 million retirees, and 5 million dependents.
              In fiscal year 1995, FEHBP spent about $17.7 billion to cover its members.
              FEHBP outperforms Medicare—and probably private plans—in controlling
              health care costs.

              The federal government and FEHBP members share program costs. The
              government contribution is readjusted annually. For 1997, the federal
              government’s maximum annual contribution is $1,630 for individuals and
              $3,510 for families.34 The beneficiary’s contribution for individual coverage
              ranges from about $400 to $2,000 or more, and family coverage ranges
              from $800 to almost $5,000.

              In 1994, 59 percent of FEHBP retirees aged 65 or older also enrolled in
              Medicare, although enrollment is not mandatory.35 When a retiree enrolls
              in Medicare, FEHBP serves as a supplemental insurance policy. FEHBP plans
              must waive deductibles, copayments, and coinsurance for services
              covered by both programs. Retirees pay the same premiums as current

              FEHBP  offers a selection of several types of health plans, including many
              managed care plans. As in Medicare, the number of plans offered to
              members varies by location. Most of the fee-for-service plans (12 of
              15) offer a preferred provider organization option. Under FEHBP, individual
              health plans establish their own relationships with providers, process
              individual claims, develop benefits, and devise marketing strategies.

                The federal government cannot pay more than 75 percent of a plan’s total premium.
               A 1983 amendment to the FEHBP legislation extended Medicare coverage to FEHBP members aged
              65 or older. Before 1983, such members were prohibited from participating in the Medicare program.

              Page 34                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare
                          Appendix I
                          The Federal Employees’ Health Benefits

                          Since 1980, the number of HMOs has increased significantly. By 1995, about
                          29 percent of FEHBP members were enrolled in HMOs.36 Like the Medicare
                          population, however, a much lower proportion of older retirees were
                          enrolled in HMOs; by 1996, only about 12 percent of FEHBP members aged 65
                          and older and 10 percent of Medicare beneficiaries were enrolled in HMOs.
                          Studies have shown that FEHBP members who choose an HMO are generally
                          younger and healthier than members who select fee-for-service plans.

Role of OPM and           OPM administers FEHBP, although each federal agency collects information
Employing Agencies        and premiums from employees. OPM also interprets the health insurance
                          laws, writes regulations, and resolves disputed claims. OPM approves
                          qualified plans for participation in the program and negotiates with plans
                          nationwide to determine benefits and premiums for the following year.
                          OPM also publishes enrollment and health plan information, including
                          charts that compare benefits and premiums. OPM requires that the same
                          premium be offered to employees and retirees, regardless of their age,
                          gender, or health status. It also requires that national plans offer the same
                          premium nationwide. Local plans may offer local rates.

Enrollment                FEHBP  holds one annual open season, during which employees and retirees
                          may voluntarily enroll in a plan, change plans or options within a plan, or
                          change from individual to family coverage. Most changes by retirees occur
                          during the first 2 weeks of the enrollment season. In 1996, open season
                          occurred between November 11 and December 9; changes made during
                          open season became effective on January 5, 1997—the first day of the next
                          insurance year. Each year, about 5 to 10 percent of beneficiaries change

Enrollment for Retirees   Most federal employees remain members of FEHBP when they retire; they
                          are familiar with how the open season works and with how to obtain their
                          health plan information. However, retirees who choose to disenroll from
                          the program cannot return unless they had joined a Medicare risk HMO.
                          They are required to sign a form to show they understand that they cannot
                          subsequently rejoin.

                          Retirees can receive health plan information from health fairs; from FEHBP
                          directly; and from the National Computer System (NCS), an Iowa City,

                            Enrollment by Medicare beneficiaries in HMOs has increased from 1 million in 1987 to about
                          4 million in 1996.

                          Page 35                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix I
The Federal Employees’ Health Benefits

Iowa, contractor that conducts retiree enrollment activities. Each year,
some members of the Congress sponsor local health fairs for federal
employees and retirees. Most of the people who attend such fairs are
retirees, in part because current employees attend employer-sponsored
health fairs. Retirees can also call FEHBP directly to request information or
to discuss their options. The Retirement Information Office receives about
6,000 calls a month, with about 25 percent of the calls focusing on health
plans. During open season, the Health Benefits Branch receives about 500
calls a day requesting information. NCS, however, does not deal directly
with retirees. Occasionally, it receives calls from retirees but refers them
to OPM.

For the past 10 years, OPM has had a contract with NCS to handle printing,
distribution, processing, and brochure requests. OPM sought a contractor
because it wanted to use technology, such as scanning and other
automated equipment, that OPM did not have. Also, NCS can hire temporary
workers during busy times of the year; OPM does not have the staff to
handle retiree enrollment. OPM believes that the third-party contract with
NCS is more efficient and less expensive than if OPM was to do the work in

About June of each year, OPM designs a health benefits application form
and sends it and a computer tape of the retiree rolls to NCS. NCS waits until
approximately the first week in September, when the OPM Policy and
Information Office produces the final list of plans and premiums. Then,
NCS prints a final list of available plans. In addition, it prints the
comparative information with a rate sheet and envelopes with addresses.
At the end of October, NCS mails to retirees an E-Z application form, an
instruction form with the rates, and a return envelope. Retirees who want
to change plans return their forms to NCS, which enters the change on its
computer and sends the information to OPM weekly during open season.37
OPM notifies plans of any changes.

When retirees receive the information from NCS, they can request an
enrollment change or request additional information on specific plans.
Unless they request information from NCS, they will only receive it from
their current plans. Those who do not return their forms automatically
remain in the plan to which they belonged the previous year.

  Currently, OPM also allows retirees to make enrollment changes by telephone.

Page 36                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare
               Appendix I
               The Federal Employees’ Health Benefits

Role of HMOs   HMOs  supply plan information to FEHBP, which distributes it to retirees
               through NCS. HMOs can also market to retirees through advertisements in
               newspapers, radio, and on television. However, they generally do not
               contact retirees directly unless a retiree is already a member of the HMO. In
               contrast, Medicare risk HMOs are responsible for marketing to prospective
               members; HCFA does little to provide plan information directly to
               beneficiaries. In addition to doing the same kind of mass media advertising
               as FEHBP HMOs, Medicare risk HMOs are permitted to conduct one-on-one
               and group meetings. Medicare HMOs rely heavily on these techniques to
               attract new members.

               Page 37                          GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix II

The California Public Employees’
Retirement System

               To help us understand the impact of a limited enrollment period, we
Overview       examined the California Public Employees’ Retirement System (CalPERS).
               As with FEHBP, CalPERS is a large organization that conducts an open season
               each year and offers members a choice of health plans. For about 35 years,
               CalPERS has offered health insurance to employees of public agencies. In
               1995, CalPERS had about 1 million members and paid $1.5 billion in health
               care premiums.

               The organization has two divisions. The Health Plan Administration
               Division negotiates contracts and rates with the HMOs. The Health Benefit
               Services Division handles enrollments or changes in plans and conducts
               educational activities for members.38 Each year, the Health Benefit
               Services Division processes about 120,000 enrollment documents.

               CalPERS offers members a choice of 22 plans. During the open season, plans
               must accept enrollees regardless of health status, age, or previous medical
               condition. CalPERS encourages its members to join an HMO by allowing
               members to choose from among 16 HMOs, including 9 Medicare risk HMOs.
               Currently, about 76 percent of CalPERS members are enrolled in HMOs. For
               people who are eligible for Medicare, the advantage of enrolling in an HMO
               through CalPERS is that CalPERS will reimburse them for the Medicare part B
               premium. If retirees were not enrolled in a CalPERS health plan at the time
               they retired, they are not eligible to enroll during their retirement. Also,
               CalPERS offers HMO benefits, such as prescription drugs, that are better than
               the benefits people could obtain individually.

               To make comparisons easier for members, CalPERS requires HMOs to offer
               similar coverage. In addition, plans cannot charge more than the standard
               premium, which is the same for anyone enrolling in the specific plan. The
               amount an employer contributes to a premium varies among the public
               agencies participating in CalPERS.

               CalPERS has one annual open season. During 1996, the dates were changed
Enrollment     from an open season beginning May 1 with an effective date of August 1 to
               an open season beginning September 1 with an effective date of January 1,
               1997. CalPERS changed its season to coordinate its deductibles with its
               preferred provider organizations and with other state benefits such as the
               vision and dental care programs. The preferred provider organizations
               with which CalPERS contracts and the other state programs operate on a
               calendar year. CalPERS officials told us that they found the process of

                 In 1995, about 4 percent of CalPERS members changed plans.

               Page 38                              GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix II
The California Public Employees’
Retirement System

shifting the health benefits cycle manageable and not very costly but that
the organization needed about 15 months to prepare for the change.

Retirees who want to change plans visit the CalPERS office in person or
submit a written request. Medicare beneficiaries must notify CalPERS in
writing of a change in enrollment. CalPERS instructs Medicare beneficiaries
to mail their enrollment information directly to the HMO of their choice
during open season. The plan sends the new enrollment information to

CalPERS officials characterized the peak load associated with open season
as a time when the staff members are “basically busier.” To handle the
peak load, the organization hires temporary workers and allows its
permanent staff to work overtime hours.39

Educating members is an important task for CalPERS, especially educating
older people who fear signing over their Medicare cards to an HMO. CalPERS
sponsors retirement seminars for active employees who are within 5 years
of retirement. It also offers 4-hour individual sessions for people who will
retire soon. During the open season, CalPERS provides generic educational
information to its members. For example, CalPERS publishes a booklet
annually that describes the features of each plan. It also publishes a
companion booklet that contains comparisons of the quality and
performance of plans. In 1995, CalPERS sent the books directly to all
members. In past years, CalPERS held quarterly informational seminars for
retirees; however, the seminars were discontinued because of poor

CalPERS mails an exit survey to members who leave a plan to determine
why they left. Last year, it mailed 15,227 surveys to members with basic
coverage and 1,535 to members with supplemental and managed care
plans. In 1995, CalPERS also sent members a survey that measured member
satisfaction. This survey was sent to a random sample of members of
various plans. Findings from the exit survey allow CalPERS staff to evaluate
the medical care and services the members receive as well as discuss
areas of dissatisfaction with HMO representatives during contract
negotiations. CalPERS officials believe that the two surveys provide
members with a balanced perspective of member experience with their
health plan.

  Officials could not provide us with data on the amount of overtime worked.

Page 39                               GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix II
The California Public Employees’
Retirement System

CalPERS, like FEHBP, restricts HMOs’ ability to market directly to members,
although general marketing takes place statewide. Plans are not allowed to
use gifts as incentives and are prohibited from directly soliciting people
who are not members of their plan.

CalPERSofficials have no data on the number of members who travel
seasonally (“snowbirds”). However, they estimate that between 8 and
10 percent of their Medicare enrollees might be snowbirds. To assist such
members in receiving health services, CalPERS has encouraged HMOs to
develop reciprocal agreements with other plans.

Page 40                            GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix III


                   We assumed that a new Medicare enrollment policy might be similar, but
                   not necessarily identical, to the provisions contained in the conference
                   report that accompanied the Balanced Budget Act of 1995 (BBA), H.R.
                   2491.40 Therefore, we developed and analyzed a limited enrollment period
                   policy modeled on the BBA. Although other alternatives are available to
                   Medicare beneficiaries, we focused our attention on enrollment in risk
                   HMOs because they currently serve most beneficiaries not in Medicare fee
                   for service. The hypothetical policy we used to guide our analysis had
                   three basic characteristics:

               •   One enrollment period and one date when benefits became effective
                   would be specified. However, beneficiaries could elect coverage when
                   they first became eligible for Medicare benefits regardless of the time of
                   year this occurred.
               •   The Secretary of HHS would be responsible for producing and distributing
                   comparative plan information to beneficiaries as well as making a hot line
                   available to them.
               •   Beneficiaries could disenroll from an HMO during the year, but they would
                   automatically be enrolled in fee for service. Beneficiaries could switch to
                   another HMO during the year only under limited circumstances, including
                   moving out of their HMO’s service area.

                   We also analyzed the effect of limiting beneficiaries’ disenrollment options
                   under two alternative scenarios:

               •   no disenrollment would be allowed, except under specified circumstances,
                   such as moving out of the health plan’s service area; and
               •   disenrollment would be allowed for any reason during the first 90 days
                   after coverage was effective, but no disenrollment would be allowed after
                   90 days except under specified circumstances.

                   To gather information on the likely effects of a limited enrollment period
                   and limited disenrollment opportunities, we interviewed representatives of
                   10 Medicare risk HMOs, the American Association of Health Plans, HCFA,
                   national benefits consulting firms, selected large employers who offer
                   managed care options to retirees, Medicare beneficiary advocacy
                   organizations, FEHBP, and CalPERS. In addition, we surveyed HMOs with
                   Medicare risk contracts regarding their employer group business.

                    House Conference Report 104-350, pp. 1093-1102. Because the act was vetoed by the President, these
                   provisions did not become law.

                   Page 41                              GAO/HEHS-97-50 Limited Enrollment Period for Medicare
                        Appendix III

                        We analyzed HMO disenrollment data and fee-for-service claims in
                        California to estimate potential Medicare savings from limiting

                        To estimate the potential Medicare savings that a policy limiting
Estimate of Potential   disenrollment opportunities might generate, we compared 1994 Medicare
Savings From Limiting   expenditures for California beneficiaries who changed from an HMO to fee
Disenrollment           for service with the expenditures that Medicare would have incurred had
                        these beneficiaries been required to remain in their HMO throughout the
                        year. We limited our analysis to California beneficiaries to reduce the
                        computational burden. Nonetheless, because Medicare HMO enrollment is
                        concentrated in a relatively small number of states—including
                        California—our analysis covers about 36 percent of all Medicare
                        beneficiaries enrolled in a risk HMO in 1994.

                        We selected our sample population using 1994 data from HCFA’s
                        Enrollment Database. We identified 738,000 Medicare beneficiaries who
                        met the following criteria: in January 1994 they belonged to a risk HMO,
                        they were eligible for Medicare parts A and B, and they reported living in
                        the same county 1 year later (in January 1995).41 We then identified a
                        subset of 15,772 beneficiaries who changed to fee for service for 1 or more
                        months during 1994.

                        We computed the amount that Medicare would have paid for each of the
                        15,772 beneficiaries if they had remained in their HMO for the entire year.
                        This amount varies by beneficiaries’ county of residence and demographic
                        and other factors.42 We then calculated the amount Medicare actually
                        spent on these beneficiaries in 1994—that is, the capitation payments for
                        the period they were enrolled in an HMO plus their claims payments43 for
                        the period they were in fee for service.

                        Finally, we estimated potential savings by subtracting the amount
                        Medicare would have paid if the 15,772 beneficiaries had remained in HMOs
                        from the amount Medicare actually paid during the year. To estimate

                          Because the BBA would have allowed beneficiaries who moved out of their HMOs’ service areas to
                        return to fee for service, we excluded 25,918 beneficiaries who reported living in a county in 1995 that
                        was different from the county they reported in January 1994.
                          The demographic characteristics that affected HMO capitation payments in 1994 were age, sex,
                        institutional status, and Medicaid status. Capitation rates also depend on whether a beneficiary is
                        disabled or has end-stage renal disease.
                         The claims payments covered inpatient services, outpatient services, physician/supplier services,
                        care in a skilled nursing facility, care in a hospice, home health care, and durable medical equipment.

                        Page 42                                GAO/HEHS-97-50 Limited Enrollment Period for Medicare
                     Appendix III

                     potential savings of a policy that would allow beneficiaries to return to fee
                     for service during the first 90 days, we followed the same steps, but
                     included only those 11,684 beneficiaries who changed to fee for service on
                     April 1, 1994, or later. (These estimates are reported in table 2.)

                     Our estimates are probably upper bounds on potential savings in
                     California. If a limited disenrollment policy discouraged some
                     beneficiaries from initially enrolling in an HMO, potential savings could be
                     lower. Whether potential national savings can be extrapolated using our
                     estimates for California depends on whether beneficiaries switch to fee for
                     service at the same rate in other states as they do in California.
                     Nonetheless, the behavior of Californians would heavily influence
                     estimates of national savings because that state accounted for 44 percent
                     of all payments to Medicare risk HMOs in 1994.

                     To collect information on contracts between Medicare HMOs and employer
Survey of Medicare   groups, we mailed a survey to all 118 HMOs that had risk contracts in effect
Risk HMOs            on January 1, 1995. Eighty-three percent of the HMOs responded to our
                     survey and provided us with summary data on retiree group contracts,
                     including whether the contracts had a limited enrollment period and a
                     lock-in requirement.

                     Page 43                      GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix IV

Comments From the Health Care Financing

              Page 44   GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix V

Major Contributors to This Report

               James C. Cosgrove, Assistant Director, (202) 512-7029
               Maryanne Keenan, Senior Social Science Analyst
               Andrea Rozner, Senior Evaluator
               Lori Weiss, Senior Evaluator

               Page 45                    GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix V
Major Contributors to This Report

Page 46                             GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Appendix V
Major Contributors to This Report

Page 47                             GAO/HEHS-97-50 Limited Enrollment Period for Medicare
Related GAO Products

              Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO
              Performance (GAO/HEHS-97-23, Oct. 22, 1996).

              Medicaid: States’ Efforts to Educate and Enroll Beneficiaries in Managed
              Care (GAO/HEHS-96-184, Sept. 17, 1996).

              Medigap Insurance: Alternatives for Medicare Beneficiaries to Avoid
              Medical Underwriting (GAO/HEHS-96-180, Sept. 10, 1996).

              Medicare HMOs: Rapid Enrollment Growth Concentrated in Selected States
              (GAO/HEHS-96-75, Jan. 18, 1996).

              Medicare: Increased HMO Oversight Could Improve Quality and Access to
              Care (GAO/HEHS-95-155, Aug. 3, 1995).

(101392)      Page 48                    GAO/HEHS-97-50 Limited Enrollment Period for Medicare
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