The BBA created the Medicare+Choice program, effective January 1, 1999, to broaden beneficiaries’ health plan options. Withdrawals Reduce Access to Plans for Some Beneficiaries, but New Plan Entries May Increase Access for Others

In the fall of 1998, an unusually large number of plans decided to not renew their Medicare contracts for 1999 or to reduce the number of counties in which they offered services. As a result of these decisions, about 7 percent of all Medicare managed care enrollees had to switch to another plan or return to FFS. While some plans were deciding to leave, however, a number of plans were applying to enter the program or expand their existing service areas. A plan was more likely to withdraw from a county where payment rates were low relative to other counties in the plan’s service area, the plan had been operating since 1992, the plan had low enrollment, or the plan was in a weak competitive position compared with other plans in the county. At that time, many plans left Medicare because they were unable to attract members and were unprofitable. Although a smaller percentage of low-payment counties were affected by withdrawals compared with high-payment counties, enrollees living in the low-payment counties were more likely to be affected by the withdrawals. For plans that dropped selected counties from their service areas, payment rates appear to be one factor that influenced their decisions. The Medicare managed care program expanded rapidly in recent years; many new plans entered the program, and existing plans expanded the areas they served. Some plans may have withdrawn from counties where they found it difficult to build or maintain provider networks. Small Reductions Seen in Availability of Some Benefits

Medicare managed care plans have typically offered more generous benefits—such as coverage for prescription drugs, dental care, and hearing exams—than those available in the FFS program. Benefit Changes Had Larger Impact on Beneficiaries in Low-Payment Counties

In comparing 1997 and 1999 plan benefit packages for beneficiaries living in counties with at least one managed care plan, we found that access to plans offering different additional benefits decreased slightly after the BBA payment changes (see fig. Access to a plan offering prescription drug coverage, the only benefit for which overall beneficiary access increased between 1997 and 1999, decreased slightly for beneficiaries living in the lowest-payment-rate counties. When plans announced they would be withdrawing from Medicare or reducing the areas in which they offered services, however, some observers expressed concern about the future of Medicare managed care and debated whether certain provisions established by the BBA should be revised. At the same time, HCFA has approved a small number of new plans and is reviewing 30 new plan applications, indicating continued plan interest in participating in Medicare. Some of these new plans, if approved, would offer services in counties that previously had few or no managed care plans. While the new payment rates and regulations were undoubtedly considered by plans in making their participation decisions, other factors associated with plan withdrawals—recent entry in the county, low enrollment, and higher levels of competition—suggest that a number of Medicare plans withdrew from markets in which they had difficulty competing. For example, a plan that served an average beneficiary in Arthur County, Nebraska, would have received about $221 per month. A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on managed care plans' decisions to leave the Medicare program or to reduce the geographic areas that they serve, focusing on: (1) plans that receive capitated payments; (2) the patterns of plan and beneficiary participation in managed care; (3) factors associated with plans' decisions to enter or leave the Medicare Choice program; and (4) changes in plans' benefit packages and premiums.

What GAO Found

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.