Medicare Managed Care: HCFA Missing Opportunities to Provide Consumer Information

Published by the Government Accountability Office on 1997-04-10.

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

                          United States General Accounting Office

GAO                       Testimony
                          Before the Special Committee on Aging, U.S. Senate

For Release on Delivery
Expected at 9:30 a.m.
Thursday April 10, 1997
                          MEDICARE MANAGED

                          HCFA Missing
                          Opportunities to Provide
                          Consumer Information
                          Statement of William J. Scanlon, Director
                          Health Financing and Systems Issues
                          Health, Education, and Human Services Division

Medicare Managed Care: HCFA Missing
Opportunities to Provide Consumer
             Mr. Chairman and Members of the Committee:

             We are pleased to be here today to discuss Medicare beneficiaries’ need
             for comparative information on health maintenance organizations (HMO)
             and steps the Health Care Financing Administration (HCFA) could take to
             meet that need promptly. Such information would be useful not only to the
             more than 4 million Medicare beneficiaries enrolled in HMOs, but also to
             the millions of beneficiaries expected to enroll in a managed care plan
             during the next several years. Although Medicare HMOs must cover all the
             benefits available under traditional fee-for-service Medicare, they differ
             from one another in additional benefits provided, required premiums,
             networks of providers, and ability to satisfy members. Because of these
             differences, beneficiaries need information to pick the plan that is right for

             Last October, at the request of the Chairman, the Ranking Minority
             Member, and other members of the Senate Special Committee on Aging,
             we reported1 on the marketing, education, and enrollment practices of
             Medicare risk HMOs.2 We also reviewed HCFA’s performance in providing
             beneficiaries information about Medicare HMOs and the usefulness of
             readily available HCFA data to caution beneficiaries about poorly
             performing HMOs. To develop this information, we interviewed
             representatives from HCFA, large health care purchasing organizations,
             HMOs, and beneficiary advocacy groups; reviewed beneficiary case files;
             studied HMO marketing materials; and analyzed HMO data available to HCFA.
             In our report, we recommended several steps that the Secretary of Health
             and Human Services should take promptly to help Medicare beneficiaries
             make informed health care decisions. Today, I will discuss both our
             report’s findings and HCFA’s plans to provide beneficiaries with more
             information about HMOs.

             In summary, we found that HCFA does not distribute to beneficiaries
             comparative consumer guides such as those the federal government and
             many employer-based health insurance programs routinely distribute to
             their employees and retirees. Without these guides, beneficiaries cannot
             easily compare HMOs. Marketing materials distributed by HMOs are of little
             help because HMOs describe their benefits and costs using different terms
             and formats.

              Medicare: HCFA Should Release Data to Aid Consumers, Prompt Better HMO Performance
             (GAO/HEHS-97-23, Oct. 22, 1996).
              Risk HMOs assume the financial risk of providing care for the monthly capitated amount Medicare

             Page 1                                                                       GAO/T-HEHS-97-109
                 Medicare Managed Care: HCFA Missing
                 Opportunities to Provide Consumer

                 Although beneficiaries lack information on HMOs, HCFA does not. HCFA
                 amasses volumes of information that could be summarized, packaged, and
                 distributed to help beneficiaries choose among competing Medicare HMOs.
                 For example, HCFA compiles information that can be used to construct HMO
                 benefit comparison charts. HCFA also routinely collects other information—
                 such as disenrollment rates, beneficiary complaints about HMOs, and the
                 results of HCFA’s HMO monitoring visits—that could be provided to
                 beneficiaries. Because some plans do a better job of retaining Medicare
                 beneficiaries than others, disenrollment rates—an indicator of beneficiary
                 satisfaction—may be especially useful in helping beneficiaries distinguish
                 among competing HMOs. For example, our analysis of HCFA’s data showed
                 that 1995 annual disenrollment rates ranged from 4 to 42 percent among
                 Los Angeles HMOs and from 12 to 37 percent among Miami HMOs.

                 HCFA   has initiatives, planned or under way, that will make some
                 comparative HMO information available to beneficiaries. Although these
                 initiatives are steps in the right direction, they are very small steps. With
                 little additional time or effort, HCFA could do much more to help Medicare
                 beneficiaries make informed selections among available HMOs. Specifically,
                 HCFA should adopt the recommendations in our report by

             •   requiring standard formats and terminology in HMOs’ informational
             •   producing benefit and cost comparison charts with all Medicare HMO
                 options available for each market area and ensuring that interested
                 beneficiaries are notified of the charts’ availability; and
             •   analyzing and widely distributing data it already collects—such as HMO
                 disenrollment rates, complaint rates, and the results of HMO monitoring
                 visits—that can help beneficiaries distinguish among competing HMOs.

                 Most beneficiaries live in areas where they can choose to receive Medicare
Background       benefits either through an HMO or through a traditional fee-for-service
                 arrangement. HMOs are required to cover all Medicare benefits, but many
                 also provide additional services, such as outpatient prescription drugs,
                 routine physical exams, and hearing aids, that are not covered under
                 traditional Medicare. Enrollees’ cost varies as well; some HMOs charge a
                 monthly premium but others do not.3 In return for the advantages offered
                 by HMOs, beneficiaries give up their freedom to choose any provider. If a
                 beneficiary enrolled in an HMO seeks nonemergency care from providers

                 Beneficiaries must continue to pay a monthly premium to Medicare for part B (currently, $43.80 per

                 Page 2                                                                        GAO/T-HEHS-97-109
                         Medicare Managed Care: HCFA Missing
                         Opportunities to Provide Consumer

                         other than those designated by the HMO, or seeks care without following
                         the HMO’s referral policy, the beneficiary is liable for the full cost of that

                         Because of the additional benefits offered by HMOs and the relatively low
                         out-of-pocket costs, growing numbers of Medicare beneficiaries are
                         leaving Medicare fee-for-service and joining managed care plans. In fact,
                         Medicare HMO enrollment is growing by about 85,000 beneficiaries per
                         month. More than 11 percent, or 4.4 million, of the 38 million Medicare
                         beneficiaries are now enrolled in “risk contract” HMOs. The Congressional
                         Budget Office estimates that nearly 15 million beneficiaries will be
                         enrolled in a risk HMO by the year 2007.

                         Medicare currently lags behind other large purchasers in helping
Medicare Does Not        beneficiaries choose among plans. The Federal Employees Health Benefits
Distribute Health Plan   Program, the California Public Employees’ Retirement System, Xerox
Information to           Corporation, and Southern California Edison are all large health care
                         purchasers that provide enrollees with comparative information such as
Beneficiaries            premium rates, benefits, out-of-pocket costs, and member satisfaction
                         survey results for available plans. By contrast, HCFA does not routinely
                         provide beneficiaries comparative information about the Medicare HMOs
                         available in their area.

                         For the last few years, however, HCFA’s regional office in San Francisco has
                         produced HMO comparison charts for selected market areas.4 More
                         recently, HCFA’s regional office in Philadelphia has also produced
                         comparison charts. The regional offices distribute these charts, however,
                         mainly to HMOs, some news organizations, and federally supported
                         insurance counselors in the Information, Counseling, and Assistance (ICA)
                         program.5 Beneficiaries may request the charts from the regional offices,
                         but few beneficiaries know the charts exist. Even the ICA insurance
                         counselors, most of whom are volunteers, may be unaware of the charts.
                         When GAO staff called a Los Angeles ICA insurance counselor and asked
                         specifically about Medicare HMO information, the counselor did not
                         mention that comparison charts were available.

                          However, the regional office has not yet issued 1997 comparison charts—even though the capitation
                         rates Medicare pays to HMOs, and thus their premiums and benefits, changed on January 1, 1997.
                          The ICA program is federally supported but state managed. ICA counselors can provide beneficiaries
                         with general information about Medicare, Medicaid, managed care plans, and various types of health
                         insurance available to supplement Medicare.

                         Page 3                                                                        GAO/T-HEHS-97-109
                              Medicare Managed Care: HCFA Missing
                              Opportunities to Provide Consumer

Beneficiaries Face a Nearly   For beneficiaries considering Medicare managed care for the first time or
Impossible Task to            switching to a new plan, getting information on area HMOs can be time
Compare HMOs’ Costs and       consuming. Beneficiaries must first find the correct telephone number to
                              request a list of area plans and then call each plan and request
Benefits                      information. When our staff called all 14 Medicare HMOs in Los Angeles to
                              request their marketing materials, information from only 10 plans was
                              received after several weeks and many follow-up phone calls. Some plans
                              were reluctant to mail the information but offered to send it with a sales
                              agent. Declining visits from sales agents, we finally received the missing
                              brochures by calling the HMOs’ marketing directors and insisting the
                              materials be mailed.

                              Using HMOs’ marketing materials to compare HMOs’ benefits and costs is
                              extremely difficult because each plan uses different formats and
                              terminology. One Los Angeles HMO’s “summary of benefits” spanned 14
                              pages; another had only a 1-page summary. All together, just the benefit
                              summaries from the 14 Los Angeles HMOs operating in 1995 cover a
                              10-foot-wide wall. Moreover, terminology differs from plan to plan. A
                              beneficiary reading the marketing materials from several HMOs may not be
                              able to tell, for example, which HMO provides better prescription drug
                              coverage. Most HMOs that offer a drug benefit place an annual limit or cap
                              on the dollar amount covered. Two HMOs with seemingly identical $1,000
                              annual drug limits may not offer equivalent benefits, however. One HMO
                              may count its actual drug costs, including any discounts it receives, in
                              computing its limit, while the other HMO may use generally higher
                              manufacturers’ list prices in computing its limit. Furthermore, HMO
                              brochures make comparisons difficult by using a variety of terms—such as
                              “preferred drugs,” “covered drugs,” “formulary drugs,” “legend drugs,” and
                              “authorized drugs”—in describing their prescription drug benefit limits.

                              HCFA  has a wealth of data collected for program administration and
HCFA Could Package            contract oversight purposes that can indicate beneficiaries’ relative
and Distribute                satisfaction with individual HMOs. These indicators include statistics on
Available Information         beneficiary disenrollment and complaint rates. In addition, HCFA collects
                              other HMO-specific information, including plans’ financial data and reports
on HMOs                       from monitoring visits to HMOs. However, HCFA does not routinely
                              distribute this potentially useful information.

                              Page 4                                                     GAO/T-HEHS-97-109
                           Medicare Managed Care: HCFA Missing
                           Opportunities to Provide Consumer

Publishing Disenrollment   Because Medicare beneficiaries enrolled in HMOs can vote with their feet
Rates Could Help           each month—switching plans or returning to fee-for-service—a
Beneficiaries Compare      comparison of HMOs’ disenrollment rates can suggest beneficiaries’ relative
                           satisfaction with plans’ service, benefits, out-of-pocket costs, and quality.
Competing HMOs             If beneficiaries are about equally satisfied with HMOs in a market, these
                           HMOs’ disenrollment rates should be about the same. Despite the potential
                           value of such information, however, HCFA neither routinely nor
                           systematically compares HMO disenrollment rates. Thus, HCFA misses an
                           opportunity to inform beneficiaries of plans with good records of retaining
                           Medicare enrollees.

                           To illustrate the value of disenrollment rates as an indicator, we analyzed
                           1995 HCFA disenrollment data for two large managed care markets: Los
                           Angeles and Miami. We found that Medicare HMOs’ ability to retain
                           beneficiaries varied widely among HMOs in the same market.6 For some
                           HMOs, disenrollment rates were high enough to raise questions about
                           whether the HMO’s emphasis was on providing health care to enrollees or
                           recruiting new enrollees to replace the many who disenrolled.

                           Annual disenrollment rates7 varied substantially among HMOs operating in
                           the same market. Among the 13 Los Angeles HMOs8 we analyzed,
                           Foundation Health’s 42 percent disenrollment rate was the highest in 1995.
                           (See fig. 1.) Four other plans, however, had disenrollment rates exceeding
                           20 percent. In contrast, several HMOs had disenrollment rates of 10 percent
                           or less. Kaiser Foundation Health Plan had the lowest rate—4 percent. The
                           seven Miami HMOs active for all of 1995 showed a similar, although slightly
                           less extreme pattern.

                            We excluded from our analysis disenrollments due to beneficiary death or loss of Medicare part B
                            Annual disenrollment rates represent the percentage of an HMO’s average Medicare enrollment lost to
                           disenrollment after excluding disenrollments due to death or loss of Medicare part B eligibility.
                            One Los Angeles HMO was excluded from our analysis because it had fewer than 100 members.

                           Page 5                                                                        GAO/T-HEHS-97-109
                                        Medicare Managed Care: HCFA Missing
                                        Opportunities to Provide Consumer

Figure 1: Los Angeles Medicare HMOs’ Annual Disenrollment Rates, 1995

 Inter Valley
  Health Net

                0           10              20                 30                  40                 50
                                     Percentage of Members in Plan

                                        Note: Annual disenrollment rates are the number of beneficiaries who disenrolled—excluding
                                        members who died or lost Medicare part B eligibility—in 1995 compared with the average
                                        number of enrollees in 1995.

                                        Source: GAO analysis of HCFA disenrollment data.

                                        Beneficiaries who leave an HMO within a short time are more likely to have
                                        been poorly informed about managed care in general or about the specific
                                        HMO they joined than those who leave after a longer time. Consequently,
                                        rates of early disenrollment may indicate beneficiary confusion and
                                        marketing problems. In our early disenrollment calculations, we included
                                        both cancellations—beneficiaries who signed an application but canceled
                                        before the effective date—and “rapid disenrollment”—beneficiaries who
                                        left within 3 months of enrollment.

                                        Page 6                                                                     GAO/T-HEHS-97-109
                                         Medicare Managed Care: HCFA Missing
                                         Opportunities to Provide Consumer

                                         Our analysis showed a wide variation in plans’ early disenrollment rates.
                                         In 1995, Medicare HMOs in Los Angeles had early disenrollment rates
                                         ranging from 5 to 29 percent. (See fig. 2.) For Miami HMOs, early
                                         disenrollment rates ranged from 9 to 30 percent. That is, nearly one out of
                                         three beneficiaries who signed an application with Watts Health
                                         Foundation, Inc. (Los Angeles) or CareFlorida (Miami) canceled the
                                         application or left the plan shortly after the effective date.

Figure 2: Los Angeles Medicare HMOs’ Rates of Early Disenrollment, 1995

  Inter Valley
  Health Net

                 0       5          10            15         20           25    30          35
                                 Percentage of Beneficiaries Who Applied

                                         Source: GAO analysis of HCFA data.

                                         Disenrollment rates do not indicate the reason for beneficiary
                                         dissatisfaction. Out-of-pocket costs, access, or quality issues can all affect
                                         beneficiaries’ decisions to disenroll. However, we found such large
                                         variations within market areas that, even as gross indicators,

                                         Page 7                                                       GAO/T-HEHS-97-109
                              Medicare Managed Care: HCFA Missing
                              Opportunities to Provide Consumer

                              disenrollment rates can provide valuable information to beneficiaries
                              trying to distinguish among seemingly identical HMOs. Furthermore, if
                              disenrollment rates are published, then health plans may begin to compete
                              on the basis of service and member retention as well as price and drug
                              benefits. In fact, at least one Medicare HMO with low disenrollment
                              advertises its member retention rate. Because beneficiaries do not know
                              about competing plans’ member retention (or disenrollment) rates,
                              however, they cannot use this information to compare plans.

                              HCFAhas several initiatives to compile information on Medicare HMOs,
HCFA’s Consumer               make that information available, and increase consistency among HMOs’
Information Initiatives       marketing materials. These initiatives include
Fall Short of
                          •   making a database of HMO information available on the Internet;
Reachable Goals           •   issuing National Marketing Guidelines for HMOs to follow when preparing
                              materials distributed to beneficiaries;
                          •   conducting a satisfaction survey of HMO enrollees; and
                          •   compiling selected HMO performance measures from the Health Plan
                              Employer Data and Information Set 3.0 (HEDIS 3.0),9 including data from a
                              longitudinal study of HMO enrollees’ health status.

                              Although these initiatives are a step in the right direction, many of them
                              fall short in one way or another. For example, HCFA’s planned Internet HMO
                              database may have limited value to beneficiaries. Although the
                              information will be available, it may not reach beneficiaries who want it.
                              Many beneficiaries may lack Internet access or the computer
                              sophistication necessary to use the database. HCFA realizes that relatively
                              few Medicare beneficiaries “surf the Web.” HCFA expects that HCFA regional
                              offices, the Aging Network, insurance counselors, and beneficiary
                              advocates will be the primary users of the database and will distribute the
                              information to beneficiaries. Such a system can break down, however, as
                              we discovered when we called the Los Angeles ICA office seeking
                              information on HMOs.

                              HCFA’sNational Marketing Guidelines initiative may not ensure that
                              beneficiaries can readily compare HMOs using plans’ marketing materials.
                              As currently drafted, the guidelines will not require HMOs to use standard

                               HCFA’s selected HEDIS 3.0 measures include effectiveness of care, access to/availability of care,
                              health plan stability, use of services, cost of care, informed health care choices, and health plan
                              descriptive information. HCFA helped develop and fund the National Committee for Quality
                              Assurance’s efforts to develop Medicare-specific clinical effectiveness measures included in HEDIS

                              Page 8                                                                         GAO/T-HEHS-97-109
              Medicare Managed Care: HCFA Missing
              Opportunities to Provide Consumer

              formats and terminology in their marketing materials. Because adherence
              to the model formats in the guidelines will be voluntary, plans may
              continue to produce and distribute very dissimilar marketing
              materials—such as those we obtained from the Los Angeles HMOs.

              The initial HMO enrollee satisfaction survey results may be of limited value
              because the initial survey excludes beneficiaries who were so dissatisfied
              with their health plan that they disenrolled.10 HCFA plans to conduct the
              survey—known as the Consumer Assessments of Health Plans Study—this
              summer and release the results in the fall. However, HCFA will survey only
              beneficiaries who have been continuously enrolled in the same plan for 12
              months or more. In the two markets we studied, we found that PCA,
              CareFlorida, Foundation, Prudential (Los Angeles), and Watts lost more
              than 25 percent of their members (excluding deaths and loss of eligibility)
              in 1995. HCFA’s survey will miss these Medicare beneficiaries.

              We have similar concerns about HCFA’s planned longitudinal study of HMO
              enrollee health status. HCFA plans to gather self-reported health status data
              from a sample of HMO enrollees and then resurvey those same enrollees 2
              years later to determine if their health status has improved, stayed the
              same, or deteriorated. HCFA intends to compare health outcomes in
              specific HMOs using the survey results. This survey, however, will miss
              beneficiaries who become ill and leave because they are dissatisfied with
              the care they received in their health plan. Moreover, because the study is
              longitudinal, HCFA does not expect these data to be available until 1999.

              Medicare beneficiaries need more and better information so that they can
Conclusions   make informed decisions when choosing a health plan. Though Medicare
              is the nation’s largest purchaser of managed care services, it lags behind
              other large purchasers in providing comparative information to
              beneficiaries. The need for this information grows more urgent each
              month as tens of thousands of beneficiaries join the already 4 million
              beneficiaries who have opted for the advantages of Medicare managed
              care. HCFA is moving in the right direction to make information available,
              but we believe the agency could do much more with relatively little
              expenditure of time or effort. Requiring that HMOs use standard
              terminology and formats to describe benefits, producing comparison

                According to HCFA’s recently published regulations on physician incentive plans in managed care
              settings, HMOs with providers that have been determined to be at substantial financial risk will be
              required to conduct a survey of current and recently disenrolled members. Plans that are not required
              to do a survey under the physician incentive regulations are not required to conduct a disenrollment

              Page 9                                                                         GAO/T-HEHS-97-109
               Medicare Managed Care: HCFA Missing
               Opportunities to Provide Consumer

               charts and ensuring that interested beneficiaries know how to get such
               charts, and analyzing and publishing comparative data already available
               (such as disenrollment rates) would greatly enhance the ability of
               Medicare beneficiaries to be wise consumers of managed care.

               Mr. Chairman, this concludes my prepared statement. I am pleased to
               answer any questions you or other members of the Committee may have.

               For more information on this testimony, please call James C. Cosgrove,
Contributors   Assistant Director, Health Financing and Systems Issues, on
               (202) 512-7029. Other major contributors to this statement include Charles
               A. Walter, Marie E. Cushing, George M. Duncan, and Wayne J. Turowski.

               Page 10                                                  GAO/T-HEHS-97-109
Page 11   GAO/T-HEHS-97-109
Related GAO Products

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

              Medicare HMOs: Rapid Enrollment Growth Concentrated in Selected States
              (GAO/HEHS-96-63, Jan. 18, 1996).

              Health Care: Employers and Individual Consumers Want Additional
              Information on Quality (GAO/HEHS-95-201, Sept. 29, 1995).

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

(101537)      Page 12                                                GAO/T-HEHS-97-109
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