Medicare:

Fewer and Lower Cost Beneficiaries With Chronic Conditions Enroll in HMOs

HEHS-97-160: Published: Aug 18, 1997. Publicly Released: Sep 15, 1997.

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Pursuant to a congressional request, GAO examined a mature managed care market to determine: (1) the extent to which Medicare beneficiaries with chronic conditions enroll in health maintenance organizations (HMO); (2) whether beneficiaries with chronic conditions who enroll in HMOs are as costly as those remaining in fee-for-service (FFS) Medicare; and (3) whether beneficiaries with chronic conditions rapidly disenroll from HMOs to FFS at rates different from other newly enrolled beneficiaries.

GAO noted that: (1) data on California's FFS beneficiaries who enrolled in HMOs help explain why, despite the presence of chronic conditions among new HMO enrollees, their average costs are lower than the average FFS beneficiary; (2) the health status of beneficiaries, as measured by the number of selected chronic conditions they have, showed significant differences between those who enrolled in an HMO and those who remained in FFS; (3) also, when comparing beneficiaries categorized by the presence of none, one, or multiple chronic conditions, new HMO enrollees tended to be the least costly in each health status group; (4) this resulted in a substantial overall cost difference between those that did and did not enroll in HMOs; (5) about one in six 1992 California FFS Medicare beneficiaries enrolled in an HMO in 1993 and 1994; (6) HMO enrollment rates differed significantly for beneficiaries with selected chronic conditions compared to other beneficiaries; (7) among those with none of the selected conditions, 18.4 percent elected to enroll in an HMO compared to 14.9 percent of beneficiaries with a single chronic condition and 13.4 percent of those with two or more conditions; (8) GAO found that prior to enrolling in an HMO a substantial cost difference, 29 percent, existed between new HMO enrollees and those remaining in FFS because HMOs attracted the least costly enrollees within each health status group; (9) even among beneficiaries belonging to either of the groups with chronic conditions, HMOs attracted those with less severe conditions as measured by their 1992 average monthly costs; (10) GAO found that rates of early disenrollment from HMOs to FFS were substantially higher among those with chronic conditions; (11) while only 6 percent of all new enrollees returned to FFS within 6 months, the rates ranged from 4.5 percent for beneficiaries without a chronic condition to 10.2 percent for those with two or more chronic conditions; (12) also, disenrollees who returned to FFS had substantially higher costs prior to enrollment compared to those who remained in their HMO; and (13) these data indicated that favorable selection still exists in California Medicare HMOs because they attract and retain the least costly beneficiaries in each health status group.

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