1.) (We classify these areas as “lower enrollment.”)

	Risk HMO Enrollment Linked to Payment and Other Factors

Our analysis of counties grouped by their AAPCC rates and risk HMO enrollment levels suggests that while AAPCC rates play a role, other factors also affect enrollment. In addition to HMO presence in the health care market, such factors as population density, the number of Medicare beneficiaries, and employers’ policies on retiree health benefits can influence risk enrollment. Most Counties With Lower Payment Rates Are Less Urban and Lack Strong HMO Presence

Medicare risk HMO enrollment in 2,257 counties that had lower AAPCC rates was minimal or nonexistent, but the principal barrier to risk HMO enrollment was not the payment level. Most of these primarily urban counties were in the West, where HMOs have a longer history than in many other parts of the country. A large number of Medicare beneficiaries were enrolled in risk HMOs that serve more urban, lower payment counties. Every county included in 8 of these 10 MSAs had lower AAPCC payments and higher enrollment in risk HMOs—the two exceptions were the Santa Fe MSA (where one of two counties did not have lower AAPCC payments and higher enrollment) and the Denver MSA (where three of five counties did not have lower AAPCC payments and higher enrollment). Lack of HMO Presence Can Impede Risk HMO Enrollment Where Payments Are Higher

Higher payment rates were no guarantee that risk HMO enrollment would also be higher. Our analysis showed that a third of the counties ranked among the highest AAPCC payment areas in the country had no, or virtually no, Medicare beneficiaries enrolled in risk HMOs. All six of these counties were in three MSAs—Ann Arbor, Detroit, and Flint. Despite the presence of these factors, only about 0.5 percent of the eligible Medicare beneficiaries in the three Michigan MSAs were enrolled in risk HMOs. The HMOs plan to target Medicare beneficiaries not covered by rich retiree health benefits. Another company indicated that the payment rate needs to be high enough to adequately pay health care providers. Although the linkage of Medicare payment rates to risk HMO enrollment may be important in some areas, dramatic differences in enrollment are often associated with other factors. The presence of HMOs, the density of population, and the number of Medicare beneficiaries, especially those familiar with managed health care, all facilitate growth in enrollment—and their absence hinders it. In addition to analyzing data for the three study categories, we selected three markets in which to perform more detailed work: (1) Portland, Oregon—a market in the lower AAPCC rate and higher enrollment category; (2) Detroit—a market in the higher AAPCC rate and lower enrollment category; and (3) Boston—a market in which risk enrollment grew considerably in a relatively short time. Clearly, factors other than payment rates affected risk HMO enrollment in these MSAs. HMO presence was generally strong and higher levels of risk HMO enrollment were coupled with lower payment rates in several of the more urban counties in MSAs with a few adjoining counties also having higher enrollments in risk HMOs.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the factors affecting Medicare risk health maintenance organization (HMO) enrollment, focusing on: (1) the patterns in HMO enrollment and Medicare payment rates; (2) selected geographical areas with higher enrollment, lower payment rates and areas with lower enrollment, higher payment rates; and (3) how the presence or absence of certain factors could affect enrollment.

What GAO Found

GAO noted that: (1) Medicare payment rates to HMOs are often considered to be the primary influence on Medicare HMO enrollment; (2) however, GAO's analysis suggest that several other factors also play a key, and sometimes, dominant role; (3) these factors include HMO presence, number of Medicare beneficiaries, and employers' policies toward retiree health benefits, and their relative importance varies across the country; (4) moreover, in markets such as Detroit and Portland, the influence of Medicare payment rates is not decisive; (5) enrollment in risk HMOs was virtually nonexistent in most counties with lower Medicare payment rates, but these lower rates were one of a constellation of factors that make such counties unattractive business propositions for Medicare HMOs; (6) GAO's analysis showed that these counties typically had few or no HMOs in their health care markets; (7) lower enrollment counties were primarily rural, only 16 percent fell within a metropolitan statistical area (MSA), and had fewer people overall and, in particular, averaged a small number of Medicare beneficiaries; (8) lower enrollment in risk HMOs did not occur in every county with lower payment rates; (9) risk HMOs enrolled large numbers of beneficiaries in 92 lower payment counties in which factors other than payment rates were more favorable; (10) these counties were mostly in the West, where HMOs are more prevalent and many consumers have embraced this form of health care delivery; (11) in contrast, higher payment rates were no guarantee that risk HMO enrollment would also be high; (12) about one-third of the 100 counties with the highest Medicare HMO payment rates in 1995 had risk HMO enrollments that were slight or nonexistent; (13) most of these higher payment/lower enrollment counties were in the South, where the presence of HMOs was limited; (14) however, several of these counties were in three Michigan urban areas; (15) although the presence of HMOs in the health care market was generally greater in the Michigan MSAs than in the South, employers' provision of richer retiree health benefits made the risk HMO option less attractive to Medicare beneficiaries in Michigan; (16) in addition to population density and other factors external to HMOs, HMOs' individual business strategies for the Medicare market are likely to affect the future direction of risk HMO enrollment; and (17) all these strategies are likely to boost risk enrollment and, sometimes, to change the market dynamics in certain areas.