Medicare+Choice

Of 309 plans serving Medicare beneficiaries at the end of 1999, 99 plans terminated their contracts or reduced the number of counties they served for the 2000 contract year, and 118 have announced they will terminate their contracts or reduce service areas for the 2001 contract year. These withdrawals affected about 328,000 enrollees in 2000 and will affect nearly 1 million enrollees in 2001. A disproportionate number of enrollees live outside major urban areas. Some of these enrollees will have no other Medicare managed care option available and will either have to switch to a nonmanaged care option or return to traditional fee-for-service Medicare. Many plans have attracted beneficiaries who have lower-than-average expected health care costs, while Medicare+Choice payments are based on the expected cost of beneficiaries with health care needs. Many plans also reported that Medicare's payment rates substantially increased their own estimated costs of providing Medicare-covered benefits. The magnitude of rate increases needed to make participating in Medicare a sufficiently attractive business option for some plans may not be reasonable in light of countervailing pressures to make the Medicare program financially sustainable for the long term.

GAO noted that: (1) of 309 plans serving Medicare beneficiaries at the end of 1999, 99 plans terminated their contracts or reduced the number of counties they served for the 2000 contract year, and 118 have announced they will terminate their contracts or reduce service areas for the 2001 contract year; (2) these withdrawals affected about 328,000 enrollees in 2000 and will affect almost 1 million enrollees in 2001; (3) the number of enrollees affected accounts for about 5 percent of Medicare Choice enrollees in 2000 and about 15 percent in 2001; (4) a disproportionate number of affected enrollees live outside of major urban areas; (5) a portion of these enrollees, approximately 79,000 in 2000 and 159,000 in 2001, will have no other Medicare managed care option available in their area and must either switch to a non-managed care option, if one is available in their area, or return to traditional fee-for-service (FFS) Medicare; (6) while a new private FFS plan has begun to offer services in many of the affected areas as an alternative to the traditional public FFS Health Care Financing Administration does not offer a prescription drug benefit; (7) in January 2000, Medicare Choice plans tended to withdraw from more difficult to serve rural counties or large urban areas that they had entered more recently or where they failed to attract sufficient enrollment; (8) in 2001, the trend is essentially the same for the service area reductions but somewhat different for the contract terminations, which involve some older, more established plans; (9) the pattern of Medicare Choice withdrawals shares common elements with plan participation in the similarly choice-based health insurance program for federal employees; (10) industry representatives contend that the Balanced Budget Act's (BBA) payment rate changes were too severe and that low Medicare payment rates are largely responsible for the plan withdrawals; (11) however, since the BBA was enacted, Medicare Choice payment rates have risen faster than per capita FFS spending; (12) in addition, many plans have attracted beneficiaries who have lower-than-average expected health care costs, while Medicare Choice payments are largely based on the expected cost of beneficiaries with average health care needs; and (13) it is unclear whether Medicare Choice payment rate increases would affect plans' participation decisions.