Medicare HMOs

Congress has recently considered making Medicare's policies more consistent with those of other large health care purchasing organizations by establishing a limited time each year when Medicare beneficiaries could enroll in a particular plan and by restricting disenrollment outside that period. To assist Congress in considering the effects of such a policy change, this report assesses how a limited enrollment period would affect Medicare, private health plans, beneficiaries, and employees who provide Medicare supplemental benefits to retirees. GAO examines 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.

GAO noted that: (1) changing Medicare's current policy that allows beneficiaries to switch among health maintenance organizations (HMO) or between an HMO and fee for service monthly would have far-reaching consequences for the Medicare program, beneficiaries, HMOs, employers, and HCFA; (2) the specific effects would depend on the limits placed on switching plans; (3) any change that restricts beneficiary opportunities to enroll or disenroll would likely slow the growth of Medicare managed care; (4) a limited enrollment period for Medicare could have two principal advantages: (a) 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; and (b) to make impractical the current practice of in-home sales of HMOs, a source of marketing abuses, which are difficult for HCFA to deter; (5) a limited enrollment period could also have several of the following disadvantages, the combined effect of which could slow Medicare managed care enrollment growth: (a) lessen the effectiveness of marketing 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; (b) lessen the attractiveness of HMOs to beneficiaries: 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; and (c) pose considerable administrative obstacles for employers: accommodating Medicare's schedule could be so administratively difficult that some employers might simply stop offering a managed care option to their retirees; (6) limiting beneficiaries' option to change to fee-for-service Medicare except during the officially appointed open season could also produce the following mixed effects: (a) Medicare might achieve modest savings on money now spent on services for HMO members who change to fee for service; and (b) beneficiaries would lose an important consumer protection and might be less willing to enroll in managed care; (7) ultimately, changing Medicare's HMO enrollment and disenrollment policies could have unintended effects; and (8) savings could be offset if policy changes also led to slowing or reducing the enrollment of Medicare beneficiaries in HMOs.