Medicare Managed Care Plans

The Balanced Budget Act of 1997 created the Medicare+Choice program to expand beneficiaries' managed care options, both by encouraging the wider availability of health maintenance organizations (HMO) and by allowing other types of health plans to participate in Medicare. The act also contained provisions to slow the growth in Medicare spending. Last fall, shortly before the start of the program, nearly 100 Medicare managed care plans announced that they would not renew their Medicare contracts or that they would reduce the geographic areas they served. Beneficiaries affected by these withdrawals either had to switch plans or return to traditional fee-for-service Medicare; a small number of beneficiaries were left with no alternative but fee-for-service. GAO found that although an unusually large number of managed care plans left Medicare recently, a number of new plans have applied to enter the program or expanded the areas in which they offer services. Plan withdrawals cannot be traced to a single cause; rather, various factors appear to be behind a plan's decisions to participate. Payment level is one factor that influences where plans offer services, but withdrawals were not limited to counties with low payments. When a plan reduced its service area, however, GAO found that counties with low payment rates were more likely to experience a withdrawal than counties with higher payment rates. Also, a portion of the withdrawals may have been the result of plans' deciding that they were unable to compete effectively in certain areas. Plan representatives also cited the administrative burden associated with Medicare+Choice as a significant factor. A broad comparison of plan benefit packages from 1997 and 1999 indicates modest reductions in the inclusion of certain benefits. In 1999, a slightly higher percentage of beneficiaries can join a plan offering prescription drug coverage, while a slightly smaller percentage of beneficiaries have access to a plan offering dental care, hearing exams, and foot care. Beneficiaries living in the lowest-payment areas saw greater decreases in access than the average beneficiaries. Also, those living in the lowest payment areas saw a decrease in access to plans offering prescription drug benefits, while beneficiaries in higher payment areas saw an increase in access to plans offering those benefits.

GAO noted that: (1) although an unusually large number of managed care plans left the Medicare program, a number of new plans have demonstrated their interest in serving beneficiaries by applying to enter the program or expanding the areas in which they offer services; (2) last fall, shortly before Medicare Choice was implemented, 45 plans announced they would not renew their Medicare contracts and 54 others announced they would reduce the geographic areas in which they provided services; (3) about 407,000 enrollees had to choose a new managed care plan or switch to fee-for-service; (4) at the same time, however, several new plans applied to enter the program; (5) thus far, the Health Care Financing Administration has approved 10 new plans for 1999 and is reviewing 30 additional plan applications; (6) some of the pending plan applications are for counties that previously had few or no managed care plans; (7) plan withdrawals cannot be traced to a single cause; a variety of factors appear to be associated with plans' participation decisions; (8) payment level is one factor that influences where plans offer services, but withdrawals were not limited to counties with low payments; (9) when a plan reduced its service area, however, GAO found that counties with low payment rates relative to payments in the rest of a plan's service area were more likely to experience a withdrawal than counties with higher payment rates; (10) a review of other factors suggests that a portion of the withdrawals may have been the result of plans deciding that they were unable to compete effectively in certain areas; (11) for example, plans were more likely to withdraw from counties where they had begun operating since 1992, where they had attracted fewer enrollees, or where they faced larger competitors; (12) some plans have indicated that they withdrew from areas where they were unsuccessful in establishing sufficient provider networks; (13) a broad comparison of plan benefit packages from 1997 and 1999 indicates modest reductions in the inclusion of certain benefits; (14) in 1999, a slightly greater percentage of beneficiaries can join a plan that offers prescription drug coverage, while a slightly smaller percentage of beneficiaries have access to a plan offering dental care, hearing exams, and foot care; (15) beneficiaries living in the lowest-payment-rate areas experienced greater decreases in access than the average beneficiary; and (16) those living in the lowest payment areas experienced a decrease in access to plans offering prescription drug benefits, while beneficiaries in higher payment areas saw an increase in access to plans offering drug benefits.