GAO-10-185, Medicare Managed Care: Observations about Medicare Cost Plans


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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

December 2009: 

Medicare Managed Care: 

Observations about Medicare Cost Plans: 

GAO-10-185: 

GAO Highlights: 

Highlights of GAO-10-185, a report to congressional committees. 

Why GAO Did This Study: 

Medicare cost plans—managed care plans paid based on the reasonable 
costs of delivering Medicare-covered services—enroll a small number of 
beneficiaries compared to Medicare Advantage (MA), Medicare’s managed 
care program in which the plans accept financial risk if their costs 
exceed fixed payments received for each enrolled beneficiary. Despite 
the small enrollment, industry representatives stated that cost plans 
provide a managed care option in areas that traditionally had few or no 
MA plans. Current law allows existing cost plans to continue operating 
unless specific MA plans of sufficient enrollment serve the same area. 
In such cases, the cost plan must discontinue serving that area 
beginning in 2011. The Medicare Improvements for Patients and Providers 
Act of 2008 (MIPPA) required GAO to examine issues related to the 
conversion of Medicare cost plans to MA plans. In response, GAO (1) 
determined the MA options available to beneficiaries in cost plans, (2) 
described key differences for beneficiaries between cost plans, MA 
plans, and Medicare fee-for-service (FFS); (3) determined the extent to 
which organizations offering cost plans also offer MA plans; and (4) 
described concerns cost plans have about converting to MA plans. GAO 
analyzed data from the Centers for Medicare & Medicaid Services (CMS), 
the agency that administers Medicare. GAO also reviewed requirements 
for Medicare managed care plans and interviewed officials from all 
Medicare cost plans and CMS. 

What GAO Found: 

All Medicare beneficiaries enrolled in the 22 cost plans had multiple 
MA options available to them. Nearly all beneficiaries enrolled in cost 
plans had at least 5 MA plans serving their county in June 2009, and 
more than 57 percent had a choice of 15 or more MA plans. 

Some of the differences between cost plans and MA plans that affect 
beneficiaries are out-of-network coverage, enrollment periods, and 
prescription drug coverage. Cost plans’ quality scores, on average, 
were higher than the average of competing MA plans’ scores in the 
county with the cost plan’s highest enrollment. Estimated out-of-pocket 
costs varied between cost plans and other options depending on the self-
reported health status of the beneficiary. In general, beneficiaries 
reporting poor health had lower estimated average out-of-pocket costs 
in most cost plans compared to competitor MA plans and FFS, while 
beneficiaries reporting good or excellent health had relatively higher 
estimated costs in most cost plans compared to MA plans and FFS. 

Half of the 18 organizations offering cost plans also offered at least 
one MA plan in some or all of their cost plans’ service area. These 9 
organizations operated a total of 12 cost plans. In general, 
organizations that offer cost plans and MA plans in the same service 
area must close their cost plan to enrollment. 

Officials from organizations that offered cost plans cited potential 
future changes to MA payments and difficulty assuming financial risk as 
concerns about converting cost plans to MA plans. Unlike cost plans, MA 
plans assume financial risk if payments from CMS do not cover their 
costs. Officials from 13 of the 18 organizations offering cost plans 
identified past and the potential for future payment changes in the MA 
program as reasons the decision to convert was difficult, though 6 of 
these organizations offered an MA plan in some or all of their cost 
plan’s service area in 2009. Additionally, officials from 5 
organizations said that their enrollment was insufficient to manage the 
financial risk plans would need to accept in the MA program. Officials 
from more than half of the organizations that offered cost plans also 
expressed concerns about the potential disruption to beneficiaries 
caused by transferring beneficiaries from cost plans to MA plans. 

GAO provided a draft of this report to CMS. CMS provided GAO with 
technical comments, which were incorporated as appropriate. 

View [hyperlink, http://www.gao.gov/products/GAO-10-185] or key 
components. For more information, contact James C. Cosgrove at (202) 
512-7114 and cosgrovej@gao.gov. 

[End of section] 

Contents: 

Letter: 

Background: 

Beneficiaries in Cost Plans Had Multiple MA Options: 

Cost Plan Quality Scores Higher Than MA Plans While Estimated Out-of- 
Pocket Costs Vary by Health Status: 

Half of Organizations Offering Cost Plans Also Offered MA Plans: 

Financial and Beneficiary Transition Issues Cited as Concerns Regarding 
Conversion to MA Plans: 

Agency and Other External Comments: 

Appendix I: Organizations That Offer Medicare Cost Plans: 

Appendix II: Organizations That Would Likely Be Affected by Medicare 
Improvements for Patients and Providers Act of 2008 Provision: 

Appendix III: Structural Differences among Cost Plans, MA Plans, and 
Medicare FFS for Beneficiaries: 

Appendix IV: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Percentage of Beneficiaries Enrolled in Cost Plans Who Have 
Access to Medicare Advantage (MA) Plans, by MA Plan Type, June 2009: 

Table 2: Organizations That Offered Cost Plans and MA Plans, June 2009: 

Table 3: Types of MA Plans Offered by Organizations That Offer Cost 
Plans and MA Plans, June 2009: 

Table 4: Organizations That Offer Medicare Cost Plans: 

Table 5: Preliminary Centers for Medicare & Medicaid Services (CMS) 
Estimates of the Cost Plans and Percentage of Cost Plan Enrollment 
Likely Affected by MIPPA Provision: 

Figures: 

Figure 1: Counties Served by Medicare Cost Plans, 2009: 

Figure 2: Time Line of Legislation Related to Medicare Cost Plans: 

Figure 3: Number of MA Plans Available to Beneficiaries Enrolled in 
Cost Plans, as of June 2009: 

Figure 4: 2007 Plan Summary Scores for Cost Plans Compared with Those 
for MA Competitors: 

Figure 5: Number of Cost Plans with Quality Scores Higher, the Same, or 
Lower than Competitors: 

Figure 6: Number of Cost Plans with Higher or Lower Estimated Out-of- 
Pocket Costs for 80-to 84-Year-Old Beneficiaries Reporting Poor Health, 
Compared with Competing MA Plans and Medicare FFS, 2009: 

Figure 7: Number of Cost Plans with Higher or Lower Estimated Out-of- 
Pocket Costs for 80-to 84-Year-Old Beneficiaries Reporting Good and 
Excellent Health, Compared with Competing MA Plans and Medicare FFS, 
2009: 

Abbreviations: 

AEP: annual election period: 

BBA: Balanced Budget Act of 1997: 

CAHPS: Consumer Assessment of Healthcare Providers and Systems: 

CCP: coordinated care plan: 

CMS: Centers for Medicare & Medicaid Services: 

FFS: fee-for-service: 

HEDIS: Health Effectiveness Data and Information Set: 

HMO: health maintenance organization: 

MA: Medicare Advantage: 

M+C: Medicare+Choice: 

MIPPA: Medicare Improvements for Patients and Providers Act of 2008: 

MMA: Medicare Prescription Drug, Improvement, and Modernization Act of 
2003: 

MSA: metropolitan statistical area: 

NAIC: National Association of Insurance Commissioners: 

OEP: open enrollment period: 

PDP: prescription drug plan: 

PFFS: private fee-for-service: 

PPO: preferred provider organization: 

PSO: provider sponsored organization: 

RBC: risk-based capital: 

SEP: special enrollment period: 

TEFRA: Tax Equity and Fiscal Responsibility Act of 1982: 

[End of section] 

United States Government Accountability Office: 
Washington, DC 20548: 

December 28, 2009: 

The Honorable Max Baucus: 
Chairman: 
The Honorable Chuck Grassley: 
Ranking Member: 
Committee on Finance: 
United States Senate: 

The Honorable Henry A. Waxman: 
Chairman: 
The Honorable Joe Barton: 
Ranking Member: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Charles B. Rangel: 
Chairman: 
The Honorable Dave Camp: 
Ranking Member: 
Committee on Ways and Means: 
House of Representatives: 

Medicare cost plans--managed care plans paid based on their reasonable 
costs incurred delivering Medicare-covered services--enroll a small 
number of Medicare beneficiaries compared with the number enrolled in 
Medicare Advantage (MA), Medicare's managed care program that pays 
health plans on a risk basis.[Footnote 1] Risk-based plans are paid a 
fixed monthly payment per beneficiary enrolled in the plan to furnish 
Medicare-covered services, and the health plans bear financial risk if 
their costs exceed Medicare payments.[Footnote 2] 

As of June 2009, 22 Medicare cost plans enrolled approximately 288,000 
Medicare beneficiaries, compared to 633 MA plans that served 
approximately 10.7 million Medicare beneficiaries. Despite their 
relatively small enrollment, industry representatives stated that cost 
plans fill a unique niche by providing a Medicare managed care option 
in rural and other areas that traditionally had few or no MA plans. 
Congress acted to curtail the expansion of cost plans multiple times. 
In 1997 Congress passed legislation prohibiting new cost plans from 
entering the Medicare market and prohibiting existing cost plans from 
being renewed or extended beyond 2002. Subsequent legislation extended 
the authorization of existing cost plans and, most recently, the 
Medicare Improvements for Patients and Providers Act of 2008 (MIPPA) 
allowed existing Medicare cost plans to continue to operate except 
where MA plans of sufficient enrollment served a cost plan's service 
area for the previous year.[Footnote 3] In such cases, the cost plan 
must discontinue serving that area beginning January 1, 2011. 

MIPPA also required GAO to report, by December 31, 2009, on issues 
related to the conversion of Medicare cost plans to MA plans. To 
respond to the mandate, we (1) determined the MA options available to 
beneficiaries enrolled in Medicare cost plans; (2) described the key 
differences for beneficiaries between cost plans, MA plans, and 
Medicare fee-for-service (FFS); (3) determined the extent to which 
organizations offering cost plans also offer MA plans; and (4) 
described concerns cost plans have about converting to MA plans. 

To determine the MA options available to beneficiaries enrolled in 
Medicare cost plans, we analyzed June 2009 MA and cost plan service 
area and enrollment data at the contract level from the Centers for 
Medicare & Medicaid Services (CMS), the agency that administers the 
Medicare program.[Footnote 4] 

To describe the key differences for beneficiaries between cost plans, 
MA plans, and Medicare FFS, we reviewed CMS requirements for Medicare 
cost plans, MA plans, and Medicare FFS. We examined quality data for 
cost plans and MA plans.[Footnote 5] We limited our quality analysis to 
the county in each cost plan's service area with the highest cost plan 
enrollment because the MA competitor plans for a cost plan may differ 
depending on the county within the service area. If a cost plan was 
missing a quality score, we did not report a comparison.[Footnote 6] We 
also analyzed CMS data that estimate total monthly out-of-pocket costs 
for beneficiaries in different managed care benefit packages and 
Medicare FFS. CMS reports the estimated out-of-pocket costs according 
to self-reported health status within a range of age groups, for 
example, among 80 to 84 year olds reporting good health.[Footnote 7] 
For our analysis, we compared enrollment-weighted averages of estimated 
out-of-pocket costs for each cost plan benefit package to enrollment- 
weighted estimates for MA benefit packages in the same service area. We 
separated the analysis according to whether the benefit package 
included Part D, Medicare's prescription drug benefit.[Footnote 8] 
Similarly, because the FFS-only estimate does not include Part D 
coverage, we compared the estimated out-of-pocket costs for 
beneficiaries enrolled in non-Part D cost plan benefit packages to the 
out-of-pocket costs for beneficiaries in Medicare FFS. We presented the 
results for beneficiaries that reported themselves as 80 to 84 years 
old and in poor, good, and excellent health; we used results for this 
age group because officials from the industry and CMS told us that 
beneficiaries in cost plans are generally older than the average MA 
beneficiary. 

To determine the extent to which organizations that offer cost plans 
also offer MA plans, we analyzed CMS service area and enrollment data 
to identify organizations offering both. We interviewed officials from 
each organization that offers a cost plan to verify the CMS data. We 
then compared the service areas of the MA plans with those of the cost 
plans offered by the same organizations. 

To describe the concerns that cost plans have about converting to MA 
plans, we interviewed officials from each organization that offers a 
cost plan, the CMS office responsible for oversight of Medicare's 
managed care programs, the Medicare Cost Contractors Alliance, which is 
an alliance of cost plans that advocates for cost plans in Congress and 
with CMS, and the National Association of Insurance Commissioners 
(NAIC), which is the organization of state insurance regulators. 

To determine the reliability of the data, we reviewed documentation for 
all the data sets we used. We conducted tests to look for obvious 
errors in the data and compared results to other published sources for 
CMS data on cost plan and MA plan service areas and enrollment. We 
interviewed CMS officials regarding the reliability of the out-of- 
pocket cost data and the quality ratings data. We determined that all 
data were sufficiently reliable for our purposes. 

We conducted our work from February 2009 to November 2009 in accordance 
with all sections of GAO's Quality Assurance Framework that are 
relevant to our objectives. The framework requires that we plan and 
perform the engagement to obtain sufficient and appropriate evidence to 
meet our stated objectives and to discuss any limitations in our work. 
We believe that the information and data obtained, and the analysis 
conducted, provide a reasonable basis for any findings and conclusions 
in this product. 

Background: 

Medicare began contracting with managed care plans on a cost- 
reimbursement basis in the 1970s. In 1982, Congress passed the Tax 
Equity and Fiscal Responsibility Act (TEFRA), which created the first 
Medicare risk contracting program for managed care plans beginning in 
1985. The Medicare risk program evolved into today's MA program. TEFRA 
also retained and authorized Medicare cost plans as an option if an 
organization did not have the capacity to bear the risk of potential 
losses, had an insufficient number of members to be eligible for a risk-
sharing contract, or the organization elected to offer a cost plan 
rather than a risk plan. 

Evolution of Medicare Advantage: 

Enrollment in the Medicare risk program grew from nearly 498,000 in 
1985 to about 5.2 million beneficiaries by 1997, primarily concentrated 
in urban counties. The Balanced Budget Act of 1997 (BBA) phased out the 
existing risk program and created a new risk program called 
Medicare+Choice (M+C). Under the M+C program, the method used to pay 
participating plans was revised significantly, and, due in part to 
these payment changes, by 2000 many health plans began to withdraw from 
the program. Enrollment fell from 6.3 million in 1999 to 4.6 million by 
2003. The Medicare Prescription Drug, Improvement, and Modernization 
Act of 2003 (MMA) renamed the M+C program Medicare Advantage and 
provided increases to MA plan payment rates and other program changes. 
MA enrollment increased steadily from 2003 to 2009. 

The MA program includes several types of plans: 

* Local coordinated care plans (CCP) consist of: 

- Health maintenance organizations (HMO), which have defined provider 
networks and primary care gatekeepers. Beneficiaries enrolled in HMOs 
generally are required to obtain services from hospitals and doctors in 
the plan's network, but some HMOs offer a point-of-service option under 
which a beneficiary may elect to obtain services from a non-network 
provider, though at a higher out-of-pocket cost. 

- Preferred provider organizations (PPO), which have defined provider 
networks and no requirement that beneficiaries obtain referrals for 
care. Beneficiaries enrolled in PPOs can use non-network providers, but 
at a higher out-of-pocket cost than in-network providers. 

- Provider sponsored organizations (PSO), which doctors, hospitals, or 
other Medicare providers operate rather than a health insurance 
company. The providers that operate the PSO furnish the majority of the 
health care and share in the financial risk of providing the health 
care to the beneficiaries enrolled in the plan. 

* Regional PPOs, which have a service area comprising 1 or more of 26 
state-level or multistate-level CMS-defined regions. Regional PPOs are 
also CCPs. 

* Special needs plans exclusively or disproportionately enroll special 
needs individuals. Special needs individuals are beneficiaries who are 
institutionalized, eligible for both Medicare and Medicaid, or have a 
disability or chronic condition.[Footnote 9] Special needs plans can be 
any type of CCP. 

* Private fee-for-service (PFFS) plans, which are local plans that are 
not required to have a contracted provider network as long as they pay 
willing providers at least the Medicare FFS rate.[Footnote 10] 

MA benefit packages may include Medicare Part D coverage; however, all 
CCPs must offer at least one benefit package with Part D coverage. 

Medicare Cost Plans: 

CMS pays cost plans the reasonable cost of the Medicare-covered 
services they furnish directly to, or arrange for, Medicare 
beneficiaries enrolled in their plan, less the value of the deductible 
and coinsurance.[Footnote 11] In addition to the costs directly related 
to the provision of health services, CMS also pays reasonable costs 
associated with operating a health plan, such as marketing, enrollment, 
and membership expenses. Cost plans receive an advance interim payment 
per member per month based on the cost plan's estimated reimbursable 
costs. CMS and the cost plans make adjustments after the contract 
period to align the payments with the actual costs incurred following 
the plan's submission of an independently certified cost report that 
details cost, utilization, and enrollment data for the entire contract 
period. 

As of December 2009, 18 organizations operated 22 cost plans, with 
enrollments ranging from 50 to 74,190. Of the 22 cost plans, 15 were 
open to enrollment. Nonprofit organizations operated 17 of the 22 cost 
plans. (See appendix I for a list of the organizations that offer cost 
plans.) Eight cost plans offered Part D coverage in 2009.[Footnote 12] 
Cost plans served at least one county in 16 states and the District of 
Columbia in 2009.[Footnote 13] Cost plans were most prevalent in 
Minnesota, where 3 cost plans operated across most of the 
state.[Footnote 14] (See figure 1.) 

Figure 1: Counties Served by Medicare Cost Plans, 2009: 

[Refer to PDF for image: U.S. map] 

The map depicts counties served in the following categories: 

No cost plans; 
One cost plan; 
Two cost plans; 
Three cost plans. 

Source: GAO analysis of CMS data. 

[End of figure] 

Congress acted to curtail the expansion of cost plans multiple times. 
The BBA provided that upon enactment, with few exceptions, the 
Secretary of Health and Human Services could not enter into any new 
cost plan contracts and could not extend or renew a cost plan contract 
beyond December 31, 2002.[Footnote 15] Subsequent laws modified the 
circumstances under which existing cost plans could continue to 
operate. The MMA, for example, allowed existing cost plans to be 
extended indefinitely, with the exception that, beginning January 1, 
2008, the Secretary could no longer renew or extend contracts for cost 
plans serving an area that for the previous year was also served by two 
or more regional CCPs or two or more local CCPs and that also met 
specified enrollment thresholds.[Footnote 16] A cost plan would only be 
required to leave the counties within its service area that were also 
served by the CCPs. Most recently, MIPPA extended the exception 
provision to January 1, 2010, meaning cost plans affected by this 
provision would close at the beginning of calendar year 2011. MIPPA 
also requires that the qualifying CCPs used to determine whether the 
cost plan must close must be offered by more than one organization (see 
figure 2). Separately, CMS requires organizations operating cost plans 
to close their cost plans to new enrollment if they open an MA plan in 
the same service area. 

Figure 2: Time Line of Legislation Related to Medicare Cost Plans: 

[Refer to PDF for image: line graph and time line] 

1982: 
Cost plan program begins, as authorized by the Tax Equity and Fiscal 
Responsibility Act of 1982 (TEFRA). 

Balanced Budget Act of 1997: 
With few exceptions, no new cost contracts are allowed. Existing cost 
plans cannot be extended or renewed beyond December 31, 2002. 

Medicare, Medicaid, and State Children’s Health Insurance Program 
Balanced Budget Refinement Act of 1999: 
Existing cost plans are provided an extension to December 31, 2004. 

Medicare, Medicaid, and SCHIP Benefits Improvement and Protection Act 
of 2000: 
Existing cost plans not allowed to expand their service area after 
September 1, 2003. 

Medicare Prescription Drug, Improvement, and Modernization Act of 2003: 
Authorized extensions and renewals of cost plans indefinitely, but, 
beginning January 1, 2008, cost plans cannot be extended or renewed if 
two or more regional or local MA plans of sufficient size served that 
service area. 

Medicare, Medicaid, and SCHIP Extension Act of 2007: 
Cost plans can not be extended or renewed on or after January 1, 2009, 
if sufficient MA competition exists in the service area.Medicare 
Improvements for Patients and Providers Act of 2008: Cost plans can not 
be extended or renewed after January 1, 2010, if sufficient MA 
competition exists in the service area. 

Year: 1985; 
Cost plan enrollment: 136,654. 

Year: 1986; 
Cost plan enrollment: 105,867. 

Year: 1987; 
Cost plan enrollment: 128,983. 

Year: 1988; 
Cost plan enrollment: 131,925. 

Year: 1989; 
Cost plan enrollment: 129,915. 

Year: 1990; 
Cost plan enrollment: 140,527. 

Year: 1991; 
Cost plan enrollment: 136,200. 

Year: 1992; 
Cost plan enrollment: 136,550. 

Year: 1993; 
Cost plan enrollment: 157,243. 

Year: 1994; 
Cost plan enrollment: 173,886. 

Year: 1995; 
Cost plan enrollment: 182,846. 

Year: 1996; 
Cost plan enrollment: 195,758. 

Year: 1997; 
Cost plan enrollment: 205,368. 

Year: 1998; 
Cost plan enrollment: 224,741. 

Year: 1999; 
Cost plan enrollment: 341,022. 

Year: 2000; 
Cost plan enrollment: 297,727. 

Year: 2001; 
Cost plan enrollment: 294,232. 

Year: 2002; 
Cost plan enrollment: 289,554. 

Year: 2003; 
Cost plan enrollment: 334,378. 

Year: 2004; 
Cost plan enrollment: 330,665. 

Year: 2005; 
Cost plan enrollment: 358,141. 

Year: 2006; 
Cost plan enrollment: 318,274. 

Year: 2007; 
Cost plan enrollment: 309,778. 

Year: 2008; 
Cost plan enrollment: 277,245. 

Year: 2009; 
Cost plan enrollment: 287,796. 

Source: GAO analysis. 

Note: TEFRA authorized Section 1876 cost plans, which we refer to as 
cost plans. Medicare began contracting with health plans on a cost- 
reimbursement basis in the 1970s. 

[End of figure] 

Based on 2009 enrollment information through December, CMS's 
preliminary estimates were that 7 of the 22 cost plans would need to 
withdraw from some or all of their 2009 service area in 2011.[Footnote 
17] Three of the 7 cost plans would need to withdraw from their entire 
service area. All 3 of these plans already were closed to new 
enrollment in 2009. In total, CMS estimated that approximately 8,000 
beneficiaries enrolled in cost plans, or about 3 percent of total cost 
plan enrollment, are in counties where their cost plan must discontinue 
service in 2011. (See appendix II for a list of the cost plans that 
would likely be affected by the MIPPA provision.) 

Beneficiaries in Cost Plans Had Multiple MA Options: 

All beneficiaries enrolled in cost plans had multiple MA options 
available to them. Nearly 100 percent of beneficiaries enrolled in cost 
plans had at least 5 MA plans serving their county in June 2009, and 
more than 57 percent had a choice of 15 or more MA plans (see figure 
3). About 10 percent of beneficiaries enrolled in cost plans had no 
local CCPs in their county, which is the MA plan type with the highest 
enrollment. Two cost plans, located in Colorado and Texas, enrolled 
about 90 percent of the beneficiaries without a local CCP plan option. 

Figure 3: Number of MA Plans Available to Beneficiaries Enrolled in 
Cost Plans, as of June 2009: 

[Refer to PDF for image: pie-chart] 

15+ plans: 57.3%; 
10-14 plans: 32.1%; 
5-9 plans: 10.5%; 
1-4 plans: 0.1%. 

Source: GAO analysis of CMS data. 

Note: We conducted this analysis at the contract level. Within each 
contract, an organization may offer one or more benefit packages. The 
number of options would be greater if we conducted the analysis at the 
benefit package level. 

[End of figure] 

About 10 percent of beneficiaries in cost plans were in counties 
without an HMO, about 62 percent were in counties without a local PPO, 
and about 8 percent were in counties without a regional PPO. 
Approximately 42 percent of beneficiaries enrolled in a cost plan were 
in counties with five or more MA HMOs. All beneficiaries enrolled in a 
cost plan could enroll in a PFFS plan in June 2009. (See table 1.) 

Table 1: Percentage of Beneficiaries Enrolled in Cost Plans Who Have 
Access to Medicare Advantage (MA) Plans, by MA Plan Type, June 2009: 

Percentage of beneficiaries enrolled in cost plans: 

Number of MA options within plan type: 0; 
HMOs available: 10.2%; 
PPOs available: 62.3%; 
PSOs available: 100.0%; 
Regional PPOs available: 7.9%; 
PFFS plans available: 0.0. 

Number of MA options within plan type: 1-4; 
HMOs available: 47.5%; 
PPOs available: 31.3%; 
PSOs available: 0.0; 
Regional PPOs available: 92.2%; 
PFFS plans available: 4.4%. 

Number of MA options within plan type: 5-9; 
HMOs available: 17.5%; 
PPOs available: 6.4%; 
PSOs available: 0.0; 
Regional PPOs available: 0.0; 
PFFS plans available: 87.9%. 

Number of MA options within plan type: 10-14; 
HMOs available: 24.1%; 
PPOs available: 0.0; 
PSOs available: 0.0; 
Regional PPOs available: 0.0; 
PFFS plans available: 7.7%. 

Number of MA options within plan type: 15+; 
HMOs available: 0.7%; 
PPOs available: 0.0; 
PSOs available: 0.0; 
Regional PPOs available: 0.0; 
PFFS plans available: 0.0. 

Number of MA options within plan type: Total; 
HMOs available: 100.0%; 
PPOs available: 100.0%; 
PSOs available: 100.0%; 
Regional PPOs available: 100.0%; 
PFFS plans available: 100.0%. 

Source: GAO analysis of CMS data. 

Note: Some percentages may not add to 100 because of rounding. We 
conducted this analysis at the contract level. Within each contract, an 
organization may offer one or more benefit packages. The number of 
options would be greater if we conducted the analysis at the benefit 
package level. 

[End of table] 

Cost Plan Quality Scores Higher Than MA Plans While Estimated Out-of- 
Pocket Costs Vary by Health Status: 

Some of the differences between cost plans and MA plans that affect 
beneficiaries involve out-of-network coverage, enrollment periods, and 
prescription drug coverage. Cost plans generally scored higher than 
competing MA plans on the quality scores CMS reports, and their 
estimated out-of-pocket costs compared to competing MA plans and FFS 
varied by health status. 

Cost Plan Structure Differs from MA Plans and Medicare FFS: 

Cost plans differ structurally from MA plans and Medicare FFS in 
several ways, including enrollment periods, out-of-network coverage, 
and prescription drug coverage. For example, cost plans that are open 
to enrollment must have an open enrollment period of at least 30 
consecutive days annually, and some cost plans choose to allow new 
enrollment all year. Beneficiaries enrolled in cost plans may disenroll 
at any time. In contrast, beneficiaries enrolled in an MA plan can 
join, switch, or drop plans, or join FFS, only during certain specified 
enrollment periods. 

Beneficiaries enrolled in cost plans who receive Medicare-covered 
services out of network are covered by Medicare FFS. These services are 
therefore subject to Medicare FFS coinsurance and deductibles. Out-of- 
network coverage varies among MA plans according to plan type, but if 
offered, it is covered by the MA plan, not Medicare FFS. Medicare FFS 
beneficiaries can receive services from any provider that accepts 
Medicare. 

Beneficiaries enrolled in cost plans may obtain Medicare prescription 
drug coverage by enrolling in any stand-alone Part D plan or a Part D 
plan offered by the cost plan sponsor. Beneficiaries enrolled in MA 
plans must choose a Part D plan offered by the MA plan sponsor. 
Beneficiaries enrolled in PFFS plans also must choose a Part D plan 
offered by the PFFS sponsor, unless the sponsor does not offer one, in 
which case beneficiaries can choose any Part D Plan. Beneficiaries 
enrolled in FFS may choose any Part D plan. For additional information 
about structural differences between cost plans, MA plans, and Medicare 
FFS, see appendix III. 

Cost Plan Quality Scores Generally Higher Than Competitor MA Plans: 

Our analysis of CMS quality scores found that cost plans' quality 
scores, on average, were higher than the average of competing MA plans. 
All 12 of the cost plans with plan summary scores, based on a scale of 
1 (poor quality) to 5 (excellent quality), were rated higher than or 
the same as their MA competitors in the county with the cost plan's 
highest enrollment.[Footnote 18] These 12 cost plans enrolled about 
202,500 beneficiaries, or about 70 percent of the total cost plan 
enrollment nationwide. (See figure 4.) 

Figure 4: 2007 Plan Summary Scores for Cost Plans Compared with Those 
for MA Competitors: 

[Refer to PDF for image: vertical bar graph] 

Contract: Plan 1; 
Cost plan score: 3.5; 
Enrollment-weighted MA competitor’s average score: 2.2. 

Contract: Plan 2; 
Cost plan score: 3.5; 
Enrollment-weighted MA competitor’s average score: 3.5. 

Contract: Plan 3; 
Cost plan score: 3.5; 
Enrollment-weighted MA competitor’s average score: 2.5. 

Contract: Plan 4; 
Cost plan score: 4.5; 
Enrollment-weighted MA competitor’s average score: 2.3. 

Contract: Plan 5; 
Cost plan score: 4.5; 
Enrollment-weighted MA competitor’s average score: 3.2. 

Contract: Plan 6; 
Cost plan score: 4; 
Enrollment-weighted MA competitor’s average score: 2.2. 

Contract: Plan 7; 
Cost plan score: 4; 
Enrollment-weighted MA competitor’s average score: 3.6. 

Contract: Plan 8; 
Cost plan score: 4; 
Enrollment-weighted MA competitor’s average score: 3.6. 

Contract: Plan 9; 
Cost plan score: 4; 
Enrollment-weighted MA competitor’s average score: 2.9. 

Contract: Plan 10; 
Cost plan score: 3.5; 
Enrollment-weighted MA competitor’s average score: 2.4. 

Contract: Plan 11; 
Cost plan score: 4; 
Enrollment-weighted MA competitor’s average score: 2.3. 

Contract: Plan 12; 
Cost plan score: 4.5; 
Enrollment-weighted MA competitor’s average score: 2.4. 

Source: GAO analysis of CMS data. 

Note: Cost plan and competitor scores are based on the counties with 
the cost plan's highest enrollment. CMS computes these scores at the 
contract level based on reported information from the Health 
Effectiveness Data and Information Set (HEDIS), a tool that is used by 
health plans to measure performance on dimensions of care; the Consumer 
Assessment of Healthcare Providers and Systems (CAHPS), which is a 
group of surveys that asks consumers and patients to report on and 
evaluate their experiences with healthcare; and appeals data. Ratings 
for competitors are an enrollment-weighted average. CMS only reports 
data for managed care plans that have been operational for a full year 
and meet minimum enrollment criteria. Therefore, not all cost plans and 
competitor plans have a plan summary score. Plans without plan summary 
scores were excluded from the analysis. Data for 2007 were the most 
recent available. 

[End of figure] 

The majority of cost plans had higher scores than their MA competitors 
in each of the five quality dimensions that make up the plan summary 
score. For example, 15 of the 18 cost plans with a score for the 
dimension "Ratings of Health Plans Responsiveness and Care," which 
includes ratings of beneficiary satisfaction with the plan, were rated 
higher than their MA competitors. Similarly, 17 of the 20 cost plans 
with a score for the dimension "Staying Healthy," which includes how 
often beneficiaries got various screening tests, vaccines, and other 
check-ups, were rated higher than their competitors. The majority of 
cost plans also rated higher than their competitors in the other three 
quality dimensions reported by CMS. (See figure 5.) 

Figure 5: Number of Cost Plans with Quality Scores Higher, the Same, or 
Lower than Competitors: 

[Refer to PDF for image: stacked horizontal bar graph] 

Quality dimension scores: How well and quickly health plans handled 
appeals[A]; 
Plans that scored lower than competitors: 2; 
Plans that scored same as competitors: 0; 
Plans that scored higher than competitors: 5. 

Quality dimension scores: Managing chronic (long-lasting) 
conditions[B]; 
Plans that scored lower than competitors: 3; 
Plans that scored same as competitors: 1; 
Plans that scored higher than competitors: 12. 

Quality dimension scores: Ratings of health plan responsiveness and 
care[C]; 
Plans that scored lower than competitors: 3; 
Plans that scored same as competitors: 0; 
Plans that scored higher than competitors: 15. 

Quality dimension scores: Getting timely care from doctors and 
specialists[D]; 
Plans that scored lower than competitors: 7; 
Plans that scored same as competitors: 0; 
Plans that scored higher than competitors: 11. 

Quality dimension scores: Staying healthy: screenings, tests, and 
vaccines[E]; 
Plans that scored lower than competitors: 2; 
Plans that scored same as competitors: 1; 
Plans that scored higher than competitors: 17. 

Quality dimension scores: Plan summary score[F]; 
Plans that scored lower than competitors: 0; 
Plans that scored same as competitors: 1; 
Plans that scored higher than competitors: 11. 

Source: GAO analysis of CMS data. 

Note: Cost plan and competitor scores are based on the counties with 
the cost plan's highest enrollment. CMS computes these scores at the 
contract level based on reported information from the Health 
Effectiveness Data and Information Set (HEDIS), a tool that is used by 
health plans to measure performance on dimensions of care; the Consumer 
Assessment of Healthcare Providers and Systems (CAHPS), which is a 
group of surveys that asks consumers and patients to report on and 
evaluate their experiences with healthcare; and appeals data. Scores 
for competitors are an enrollment-weighted average. CMS only reports 
data for managed care plans that have been operational for a full year 
and meet minimum enrollment criteria or, in cases where an individual 
quality score reports on a subpopulation, a minimum number of 
beneficiaries within that subpopulation. Consequently, not all plans 
had scores for each quality dimension or plan summary scores. If the 
score for the cost plan was missing, we did not report a comparison. 

[A] CMS calculates the score for this dimension by using individual 
measures regarding the plan's ability to make timely decisions about 
appeals and their review of appeals decisions. 

[B] CMS calculates the score for this dimension by using individual 
measures that include rates of osteoporosis management, diabetes care, 
and rheumatoid arthritis management. 

[C] CMS calculates the score for this dimension by using individual 
measures that include beneficiary reports of their ability to get 
appointments and care quickly, overall health care quality, and 
doctors' communication. 

[D] CMS calculates the score for this dimension by using individual 
measures that include follow-up visit rates following hospital stays 
for mental illness, doctor follow up for depression, and beneficiary 
reports of their ability to get needed care without delays. 

[E] CMS calculates the score for this dimension by using individual 
measures that include breast and colorectal cancer screening rates, 
diabetes care, osteoporosis testing, and administration of the annual 
flu vaccine. 

[F] CMS calculates the plan summary score by averaging the individual 
measures and the five quality dimensions, as well as applying an 
integration factor that rewards plans for consistently high scores. 

[End of figure] 

Cost Plans' Estimated Average Out-of-Pocket Costs Generally Lower for 
Beneficiaries Reporting Poor Health, Higher for Beneficiaries Reporting 
Good and Excellent Health: 

In 2009, estimated average out-of-pocket costs in cost plans, MA plans, 
and Medicare FFS varied by the health status of beneficiaries. In 
general, beneficiaries 80 to 84 years old reporting poor health had 
lower estimated average out-of-pocket costs in cost plans compared to 
competitor MA plans and Medicare FFS, while beneficiaries in the same 
age group in cost plans reporting good or excellent health had higher 
estimated average out-of-pocket costs.[Footnote 19] Specifically, we 
found estimated out-of-pocket costs for beneficiaries reporting poor 
health in 11 of the 12 cost plans without drug coverage to be lower 
than other MA options, on average, ranging from 69 to 99 percent of the 
competitor MA plans.[Footnote 20] Similarly, beneficiaries reporting 
poor health in all of the cost plans without drug coverage had out-of- 
pocket costs that ranged from 67 to 92 percent of Medicare FFS. We also 
found out-of-pocket costs to be lower by similar amounts for 
beneficiaries in poor health in 4 of the 8 cost plans with drug 
coverage compared to other MA plans with drug coverage.[Footnote 21] 
(See figure 6.) 

Figure 6: Number of Cost Plans with Higher or Lower Estimated Out-of- 
Pocket Costs for 80-to 84-Year-Old Beneficiaries Reporting Poor Health, 
Compared with Competing MA Plans and Medicare FFS, 2009: 

[Refer to PDF for image: stacked vertical bar graph] 

Plans with drug coverage: MA; 
Cost plan’s out-of-pocket costs lower: 4; 
Cost plan’s out-of-pocket costs higher: 4. 
 		
Plans without drug coverage: MA; 
Cost plan’s out-of-pocket costs lower: 11; 
Cost plan’s out-of-pocket costs higher: 1. 

Plans without drug coverage: FFS; 
Cost plan’s out-of-pocket costs lower: 12; 
Cost plan’s out-of-pocket costs higher: 0. 

Source: GAO analysis of CMS data. 

Note: We compared the estimates for cost plan benefit packages without 
Part D coverage to competitor MA benefit packages without Part D 
coverage and to Medicare FFS for beneficiaries 80 to 84 years old 
reporting poor health. Out-of-pocket cost data are available for six 
different age groups. We chose the 80 to 84 age group because industry 
representatives and CMS officials told us that beneficiaries enrolled 
in cost plans tend to be older than the average MA beneficiary. We did 
not compare the estimates for cost plan benefit packages with Part D to 
FFS because the FFS estimate assumes no drug coverage. We weighted 
estimates for both cost plans and MA plans according to their 
enrollment throughout the cost plan's service area. Eight cost plans 
did not submit plan benefit package information through CMS's plan 
benefit package submission module and are therefore not included in 
this analysis. Of the remaining 14 plans, as of May 2009, 6 had 
enrollment only in benefit packages without Part D, 2 had enrollment 
only in benefit packages with Part D, and 6 had enrollment in benefit 
packages both with and without Part D. 

[End of figure] 

For 80-to 84-year-old beneficiaries reporting good and excellent health 
in 8 of the 12 cost plans without drug coverage, we found estimated out-
of-pocket costs, on average, that were 5 to 37 percent higher than in 
competing MA plans without drug coverage. Beneficiaries in the same age 
category reporting good health in 6 of the 12 cost plans without drug 
coverage had, on average, higher out-of-pocket costs than FFS, and 
beneficiaries reporting excellent health in 11 of the 12 cost plans had 
higher estimated out-of-pocket costs than FFS. Similarly, for 
beneficiaries reporting good and excellent health in 7 of the 8 cost 
plans with drug coverage, the estimated out-of-pocket costs were 6 to 
36 percent higher than competitor MA plans with drug coverage. 

Figure 7: Number of Cost Plans with Higher or Lower Estimated Out-of- 
Pocket Costs for 80-to 84-Year-Old Beneficiaries Reporting Good and 
Excellent Health, Compared with Competing MA Plans and Medicare FFS, 
2009: 

[Refer to PDF for image: 2 stacked vertical bar graphs] 

Beneficiaries reporting good health: 

Plans with drug coverage: MA; 
Cost plan’s out-of-pocket costs lower: 1; 
Cost plan’s out-of-pocket cost the same: 0; 
Cost plan’s out-of-pocket costs higher: 7. 
 			
Plans without drug coverage: MA; 
Cost plan’s out-of-pocket costs lower: 4; 
Cost plan’s out-of-pocket cost the same: 0; 
Cost plan’s out-of-pocket costs higher: 8. 

Plans without drug coverage: FFS; 
Cost plan’s out-of-pocket costs lower: 4; 
Cost plan’s out-of-pocket cost the same: 2; 
Cost plan’s out-of-pocket costs higher: 6. 

Beneficiaries reporting excellent health: 

Plans with drug coverage: MA; 
Cost plan’s out-of-pocket costs lower: 1; 
Cost plan’s out-of-pocket cost the same: 0; 
Cost plan’s out-of-pocket costs higher: 7. 
 			
Plans without drug coverage: MA; 
Cost plan’s out-of-pocket costs lower: 4; 
Cost plan’s out-of-pocket cost the same: 0; 
Cost plan’s out-of-pocket costs higher: 8. 

Plans without drug coverage: FFS; 
Cost plan’s out-of-pocket costs lower: 1; 
Cost plan’s out-of-pocket cost the same: 0; 
Cost plan’s out-of-pocket costs higher: 11. 

Source: GAO analysis of CMS data. 

Note: We compared the estimates for cost plan benefit packages without 
Part D Coverage to competitor MA benefit packages without Part D 
coverage and to Medicare FFS for beneficiaries 80 to 84 years old 
reporting good and excellent health. Out-of-pocket cost data are 
available for six different age groups. We chose the 80 to 84 age group 
because industry representatives and CMS officials told us that 
beneficiaries enrolled in cost plans tend to be older than the average 
MA beneficiary. We did not compare the estimates for cost plan benefit 
packages with Part D to FFS because the FFS estimate assumes no drug 
coverage. We weighted estimates for both cost plans and MA plans 
according to their enrollment throughout the cost plan's service area. 
Eight cost plans did not submit plan benefit package information 
through CMS's plan benefit package submission module and are therefore 
not included in this analysis. Of the remaining 14 plans, as of May 
2009, 6 had enrollment only in benefit packages without Part D, 2 had 
enrollment only in benefit packages with Part D, and 6 had enrollment 
in benefit packages both with and without Part D. 

[End of figure] 

Half of Organizations Offering Cost Plans Also Offered MA Plans: 

In June 2009, 9 of the 18 organizations offering cost plans also 
offered MA plans in some or all of their cost plans' service area, 
which demonstrates that these organizations were capable of bearing 
financial risk. (See table 2.) These 9 organizations operated a total 
of 12 cost plans. The combined enrollment in these 12 cost plans in 
June 2009 was 124,467, or 43 percent of all beneficiaries in cost 
plans. Seven of the 12 cost plans enrolled fewer than 2,000 
beneficiaries, and 2 of the plans enrolled more than 30,000 
beneficiaries. Of the 9 organizations that offered both cost plans and 
MA plans, 1 organization's only MA plan was a special needs plan. 
Special needs plans exclusively or disproportionately enroll special 
needs individuals, so these plans may not be an appropriate option for 
the beneficiaries enrolled in this organization's cost plan. 

Table 2: Organizations That Offered Cost Plans and MA Plans, June 2009: 

Organization offered a cost plan and also offered: No MA plan; 
Number of organizations: 9; 
Percentage of organizations with cost plan: 50; 
Percentage of total beneficiaries enrolled in cost plans: 57. 

Organization offered a cost plan and also offered: 1 or more MA 
plan(s); 
Number of organizations: 9; 
Percentage of organizations with cost plan: 50; 
Percentage of total beneficiaries enrolled in cost plans: 43. 

Organization offered a cost plan and also offered: Total; 
Number of organizations: 18; 
Percentage of organizations with cost plan: 100; 
Percentage of total beneficiaries enrolled in cost plans: 100. 

Source: GAO analysis of CMS data. 

Note: For this analysis, we counted all the MA plans (local HMOs, local 
PPOs, local PSOs, regional PPOs, PFFS plans, and MA special needs 
plans) under each organization. In some situations we also counted the 
MA plans under each parent organization. This determination of whether 
to count MA plans offered by the parent organization was based on the 
information provided by cost plan representatives we interviewed and 
verified by CMS reports and the organizations' Web sites. 

[End of table] 

All eight organizations offering both cost plans and MA plans that were 
not special needs plans operated at least one MA plan in some or all of 
their cost plan's service area. Seven operated at least one MA plan in 
their cost plan's entire service area and one operated at least one MA 
plan in part of their cost plan's service area. CMS requires that 
organizations that offer an MA plan in the same service area as their 
cost plan close the cost plan to new enrollment. However, officials 
from CMS stated that there are some exceptions to this requirement. For 
instance, some organizations were able to keep their cost plan open to 
enrollment because the units of the organization that contracted with 
CMS were two distinct entities. The officials stated that they may 
inspect these organizations to ensure that they do not share 
beneficiary information across companies and do not route certain 
beneficiaries into different plans to maximize their profits. 

The Medicare managed care enrollment composition for the eight 
organizations that operated both a cost plan and an MA plan that were 
not special needs plans varied.[Footnote 22] All eight of these 
organizations had a total enrollment, including both their cost plan 
enrollment and MA enrollment, of at least 3,000 beneficiaries. Four of 
the eight organizations enrolled more than 95 percent of their total 
Medicare managed care enrollment in their MA plans. Another 
organization's Medicare managed care enrollment was fairly evenly split 
between its MA plan and cost plan. The remaining three organizations 
had more than 75 percent of their Medicare managed care enrollment in 
their cost plan. Six of the 11 MA plans offered by organizations that 
offered both cost plans and MA plans were local HMOs (see table 3). 

Table 3: Types of MA Plans Offered by Organizations That Offer Cost 
Plans and MA Plans, June 2009: 

Type of MA plan: Local HMOs; 
Number of organizations offering each plan type: 6. 

Type of MA plan: Local PSO; 
Number of organizations offering each plan type: 1. 

Type of MA plan: Local PPOs; 
Number of organizations offering each plan type: 1. 

Type of MA plan: PFFS plans; 
Number of organizations offering each plan type: 2. 

Type of MA plan: Regional PPOs; 
Number of organizations offering each plan type: 1. 

Source: GAO analysis of CMS data. 

Note: Special needs plans are not included in this analysis.Three of 
the organizations offered two different types of MA plans and were 
counted in this table under each plan type. 

[End of table] 

Financial and Beneficiary Transition Issues Cited as Concerns Regarding 
Conversion to MA Plans: 

Officials from organizations that offered cost plans cited potential 
future changes to MA payments and difficulty assuming financial risk as 
concerns about converting cost plans to MA plans. Officials also 
expressed concerns about the potential disruption to beneficiaries that 
could be caused by transferring beneficiaries in cost plans to an MA 
plan. 

Organizations Cited MA Payment Rates and Financial Risk as Concerns to 
Becoming MA Plans: 

Officials from organizations that offered cost plans reported that 
potential changes to MA payments were a significant concern in their 
decision about whether to convert their cost plans to MA plans. 
Officials from 13 of the 18 organizations that offered cost plans 
identified past payment changes in the Medicare risk programs and the 
potential for future payment changes in the MA program as making the 
decision to convert difficult, though 6 of these organizations offered 
an MA plan in some or all of their cost plan's service area in 2009. 
For instance, officials from one organization who told us that they 
would prefer to convert their cost plan to an MA plan, said they have 
not done so because of concerns future MA payment changes may then 
necessitate closing the plan. Recent congressional and administration 
proposals have called for slowing the increase in or reducing MA 
payments. 

Officials from some organizations said that the size of their 
enrollment was insufficient to manage the financial risk associated 
with the MA program. Officials from 5 of the 18 organizations that 
offered cost plans stated that their enrollment was too low to spread 
financial risk. For example, an official from 1 of these 5 
organizations stated that, because of the plan's location in a rural 
area, its enrollment would never be large, and its cost plan could not 
take on the financial risk. This official told us that a few high-cost 
beneficiaries would consume the payments the plan would receive from 
CMS. In June 2009, the cost plan enrollment levels for these 5 
organizations ranged from fewer than 500 beneficiaries to about 37,000 
beneficiaries.[Footnote 23] Despite the concerns of these 5 
organizations, we found that plans of equivalent size were able to 
operate in the MA program. Nationwide, 130 MA plans, or about 21 
percent of all MA plans, enrolled fewer than 500 beneficiaries, and 69 
percent of MA plans enrolled from 501 to 37,000 beneficiaries. Eleven 
percent of MA plans enrolled more than 37,000 beneficiaries.[Footnote 
24] According to CMS officials, after 3 years of operation, MA 
organizations should be able to meet the agency's enrollment threshold 
of 1,500 in rural areas and 5,000 in urban areas. However, these 
officials noted that the total enrollment can include enrollment from 
other lines of business if the enrollment is with the same legal entity 
that holds the contract with CMS. 

Officials from 3 of the 18 organizations that offered cost plans 
expressed concern about meeting risk-based capital (RBC) requirements, 
should they be required to convert to an MA plan.[Footnote 25] An 
official from the Medicare Cost Contractors Alliance also expressed 
concern about the ability of some organizations that offered cost plans 
to raise RBC in the event of a required conversion to an MA plan. The 
official noted that nonprofit organizations operate most cost plans, 
and some of these organizations have reservations about their ability 
to raise additional capital. NAIC officials confirmed that if an 
organization converted a cost plan to an MA plan, thus assuming more 
financial risk, the organization would probably need to raise more 
capital, though the extent of capital needed would depend on the size 
of the organization and how much of the organization's business was 
dependent on Medicare enrollment. Two of the three organizations that 
reported concerns about RBC did not have an MA plan in June 2009. The 
third organization operated at least one MA plan, but nearly 85 percent 
of the organization's Medicare managed care enrollment was in its cost 
plan. 

Cost Plans Cited Concerns about Transitioning Beneficiaries: 

Officials from more than half of the 18 organizations with cost plans 
stated they were concerned about the potential disruption to 
beneficiaries if they were required to convert to a MA plan. Some of 
these officials noted that the beneficiaries enrolled in their cost 
plan(s) would not understand the process and would default to Medicare 
FFS. Officials from two organizations with closed cost plans stated 
that they have tried in the past to transfer the beneficiaries enrolled 
in their cost plan into the organization's MA plan, but had trouble 
convincing beneficiaries to change plans. 

In general, if an organization decided to convert a cost plan to an MA 
plan, the organization would need to close the cost plan and open a new 
MA plan, if the organization did not already have one. Beneficiaries 
who wish to enroll in an MA plan offered by the organization that 
offered their cost plan must affirmatively enroll in the organization's 
MA plan. Those who do not choose a plan--whether unintentionally or by 
design--will be enrolled by default in Medicare FFS. 

CMS does have a standard process in place to alert beneficiaries when 
their MA or cost plan discontinues serving the beneficiaries' area. CMS 
requires cost plans that discontinue serving an area to notify each 
Medicare beneficiary enrolled in the plan by mail at least 60 days 
prior to the end of the contract period and notify the general public 
at least 30 days prior to the end of the contract period. CMS stated 
that they would strongly suggest that the cost plans adhere to the more 
stringent MA requirements regarding plan closures, which require the 
organization offering the plan to notify each Medicare beneficiary 
enrolled in the plan at least 90 days before it stops operating by 
sending a CMS-approved notice to beneficiaries describing available 
alternatives for obtaining Medicare services within the service area, 
including MA plans and Medicare FFS. The organization also must publish 
a notice in one or more local newspapers at least 90 days before the 
end of the calendar year to alert the public. 

Agency and Other External Comments: 

We provided a draft of this report to CMS and the Medicare Cost 
Contractors Alliance. CMS provided us with technical comments, which we 
have incorporated as appropriate, and representatives from the Medicare 
Cost Contractors Alliance provided us with oral comments. 

Medicare Cost Contractors Alliance Comments: 

Officials from the Medicare Cost Contractors Alliance stated that it 
was important to know whether cost plans were open or closed to 
enrollment in our discussion of competitors and the discussion of 
organizations offering both cost plans and MA plans. Information on the 
enrollment status of cost plans is provided in appendices I and II. The 
Medicare Cost Contractors Alliance officials also stated that cost 
plans have been in the Medicare managed care market significantly 
longer than most MA plans and it is this experience that has led the 
organizations to be weary of potential payment changes to the MA 
program. In addition, the Medicare Cost Contractors Alliance officials 
provided technical comments, which we incorporated as appropriate. 

We are sending copies of this report to the Administrator of CMS and 
other interested parties. In addition, this report will be available at 
no charge on the GAO Web site at [hyperlink, http://www.gao.gov] . 

If you or your staff have any questions about this report, please 
contact me at (202) 512-7114 or cosgrovej@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff who made major contributions 
to this report are listed in appendix IV. 

Signed by: 

James C. Cosgrove: 
Director, Health Care: 

[End of section] 

Appendix I: Organizations That Offer Medicare Cost Plans: 

As of December 2009, 18 organizations operated 22 cost plans, with 
enrollments ranging from 50 to 74,190. Of the 22 cost plans, 15 were 
open to enrollment. Nonprofit organizations operated 17 of the 22 cost 
plans. 

Table 4: Organizations That Offer Medicare Cost Plans: 

Organization: Blue Cross Blue Shield of Minnesota; 
States served: MN; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 791. 

Organization: Clarian Health Plans, Inc.; 
States served: IN; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: For-Profit; 
Total enrollment as of December 2009: 4,807. 

Organization: Colorado Choice Health Plans; 
States served: CO; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 547. 

Organization: Contra Costa Health Plan; 
States served: CA; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Closed; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 578. 

Organization: Dean Health Plan, Inc.; 
States served: WI; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: For-Profit; 
Total enrollment as of December 2009: 13,417. 

Organization: Excellus Health Plans, Inc.; 
States served: NY; 
Number of cost contracts: 2; 
Open/closed enrollment[A]: Closed; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 2,736. 

Organization: Group Health, Inc. (HealthPartners, Inc.); 
States served: MN, WI; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 36,676. 

Organization: Hawaii Medical Service Association; 
States served: HI; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 36,107. 

Organization: Heart of America HMO; 
States served: ND; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 454. 

Organization: HIP of Greater New York; 
States served: NY; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Closed; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 1,248. 

Organization: Kaiser Foundation Health Plan of the Mid Atlantic States; 
States served: DC, MD, VA; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 37,680. 

Organization: Kaiser Foundation Health Plan, Inc.; 
States served: CA, HI; 
Number of cost contracts: 3; 
Open/closed enrollment[A]: Closed; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 4,445. 

Organization: Kaiser Foundation Health Plan, Inc. of Ohio; 
States served: OH; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 19,680. 

Organization: Medica Insurance Company; 
States served: MN, ND, SD, WI; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: For-Profit; 
Total enrollment as of December 2009: 74,190. 

Organization: Medical Associates Clinic; 
States served: IA, IL, WI; 
Number of cost contracts: 2; 
Open/closed enrollment[A]: Open; 
Corporate status: For-Profit/Nonprofit[B]; 
Total enrollment as of December 2009: 10,562. 

Organization: Rocky Mountain Health Maintenance Organization; 
States served: CO, WY; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 21,813. 

Organization: Scott and White Health Plan; 
States served: TX; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: Nonprofit; 
Total enrollment as of December 2009: 23,526. 

Organization: Welborn Health Plan; 
States served: IN; 
Number of cost contracts: 1; 
Open/closed enrollment[A]: Open; 
Corporate status: For-Profit; 
Total enrollment as of December 2009: 1,502. 

Source: GAO analysis of CMS data. 

[A] CMS requires organizations operating cost plans to close their cost 
plans to new enrollment if they open an MA plan in the same service 
area. 

[B] Medical Associates Clinic operated two cost plans. The plan that 
served Iowa and Illinois operated as a for-profit organization and the 
plan that served Wisconsin operated as a nonprofit organization. 

[End of table] 

[End of section] 

Appendix II: Organizations That Would Likely Be Affected by Medicare 
Improvements for Patients and Providers Act of 2008 Provision: 

The Medicare Improvements for Patients and Providers Act of 2008 
(MIPPA) provides that, the Secretary of Health and Human Services would 
not extend or renew cost plan contracts for service areas where, during 
the entire previous year, two or more regional coordinated care plans 
(CCP) or two or more local CCPs were offered by different 
organizations, if the MA plans met specified enrollment thresholds. 
Private fee-for-service plans are not CCPs. 

Table 5: Preliminary Centers for Medicare & Medicaid Services (CMS) 
Estimates of the Cost Plans and Percentage of Cost Plan Enrollment 
Likely Affected by MIPPA Provision: 

Organization: Contra Costa Health Plan; 
States Served: CA; 
Total enrollment in organization's cost plan as of December 2009: 578; 
Percentage of total cost plan enrollment affected: 100; 
Open/closed enrollment[B]: Closed. 

Organization: Excellus Health Plans, Inc[A]; 
States Served: NY; 
Total enrollment in organization's cost plan as of December 2009: 
2,686; 
Percentage of total cost plan enrollment affected: 100; 
Open/closed enrollment[B]: Closed. 

Organization: Excellus Health Plans, Inc[A]; 
States Served: NY; 
Total enrollment in organization's cost plan as of December 2009: 50; 
Percentage of total cost plan enrollment affected: 100; 
Open/closed enrollment[B]: Closed. 

Organization: HIP Of Greater New York; 
States Served: NY; 
Total enrollment in organization's cost plan as of December 2009: 
1,248; 
Percentage of total cost plan enrollment affected: 93; 
Open/closed enrollment[B]: Closed. 

Organization: Kaiser Foundation Health Plan, Inc[A]; 
States Served: CA; 
Total enrollment in organization's cost plan as of December 2009: 958; 
Percentage of total cost plan enrollment affected: 98; 
Open/closed enrollment[B]: Closed. 

Organization: Kaiser Foundation Health Plan, Inc[A]; 
States Served: CA; 
Total enrollment in organization's cost plan as of December 2009: 
3,224; 
Percentage of total cost plan enrollment affected: 68; 
Open/closed enrollment[B]: Closed. 

Organization: Rocky Mountain Health Maintenance Organization; 
States Served: CO, WY; 
Total enrollment in organization's cost plan as of December 2009: 
21,813; 
Percentage of total cost plan enrollment affected: 17; 
Open/closed enrollment[B]: Open. 

Source: CMS. 

Note: CMS excluded special needs plans and employer group health plans 
that are not open to enrollment by non-employer group members from the 
CCPs considered to be available MA plans for the purposes of its 
analysis. CMS analyzed MA competitor enrollment at the benefit package 
level to determine which cost plans would need to discontinue serving 
portions of their service area in 2011. By analyzing at this level 
rather than at the contract level, it is likely that fewer competitors 
would have sufficient enrollment to meet the thresholds because 
enrollment in a contract would be divided among the benefit packages 
offered under a contract. 

[A] Excellus Health Plans, Inc, and Kaiser Foundation Health Plan, Inc. 
operated more than one cost plan that will likely be affected by the 
MIPPA provision regarding the extension of cost plan contracts. 

[B] CMS requires organizations operating cost plans to close them to 
new enrollment if the organization opens an MA plan in the same service 
area. 

[End of table] 

[End of section] 

Appendix III: Structural Differences among Cost Plans, MA Plans, and 
Medicare FFS for Beneficiaries: 

Table 6: 

Enrollment period; 
Cost plan: Cost plans that are open to enrollment must have an open 
enrollment period of at least 30 consecutive days annually; 
Coordinated Care Plans: Medicare Advantage (MA) Preferred Provider 
Organization (PPO) (Local & Regional): When beneficiary becomes 
eligible for Medicare, during the Annual Election Period (AEP), the MA 
Open Enrollment Period (MA OEP), or a Special Enrollment Period 
(SEP)[A]; 
Coordinated Care Plans: MA Health Maintenance Organization (HMO): When 
beneficiary becomes eligible for Medicare, during the AEP, the MA OEP, 
or a SEP[A]; 
MA Private Fee-For-Service (PFFS) plan: When beneficiary becomes 
eligible for Medicare, during the AEP, the MA OEP, or a SEP.[A]; 
Medicare Fee-For-Service (FFS): When beneficiary becomes eligible for 
Medicare, during the general enrollment period of January 1st to March 
31st of each year, or during a SEP[A]. 

Disenrollment; 
Cost plan: Beneficiary may disenroll at any time and return to FFS; 
Coordinated Care Plans: Medicare Advantage (MA) Preferred Provider 
Organization (PPO) (Local & Regional): In most cases, beneficiary must 
stay enrolled for the calendar year in which coverage begins[B]; 
Coordinated Care Plans: MA Health Maintenance Organization (HMO): In 
most cases, beneficiary must stay enrolled for the calendar year in 
which coverage begins[B]; 
MA Private Fee-For-Service (PFFS) plan: In most cases, beneficiary must 
stay enrolled for the calendar year in which coverage begins[B]; 
Medicare Fee-For-Service (FFS): In most cases, beneficiary must stay 
enrolled until next AEP or MA-OEP. 

Online enrollment; 
Cost plan: Not available; 
Coordinated Care Plans: Medicare Advantage (MA) Preferred Provider 
Organization (PPO) (Local & Regional): Available; 
Coordinated Care Plans: MA Health Maintenance Organization (HMO): 
Available; 
MA Private Fee-For-Service (PFFS) plan: Available; 
Medicare Fee-For-Service (FFS): Not applicable. 

Out-of-network coverage; 
Cost plan: Through Medicare FFS; 
beneficiary is responsible for FFS coinsurance and deductibles[C]; 
Coordinated Care Plans: Medicare Advantage (MA) Preferred Provider 
Organization (PPO) (Local & Regional): Services received out of network 
will generally cost more, but they are covered by the plan[C]; 
Coordinated Care Plans: MA Health Maintenance Organization (HMO): 
Beneficiary generally responsible for full cost of out-of-network 
services, however some plans may cover certain services out of network 
at a higher cost[C]; 
MA Private Fee-For-Service (PFFS) plan: Any Medicare-approved provider 
that accepts the plan's terms[D]; 
Medicare Fee-For-Service (FFS): Any provider that accepts Medicare. 

Part D coverage; 
Cost plan: Any stand-alone Medicare Prescription Drug Plan (PDP) or PDP 
offered by the cost plan organization; 
Coordinated Care Plans: Medicare Advantage (MA) Preferred Provider 
Organization (PPO) (Local & Regional): A Part D plan offered by the MA 
organization; 
Coordinated Care Plans: MA Health Maintenance Organization (HMO): A 
Part D plan offered by the MA organization; 
MA Private Fee-For-Service (PFFS) plan: A PDP offered by the PFFS 
organization. If the organization does not offer a PDP plan, 
beneficiaries can choose any PDP; 
Medicare Fee-For-Service (FFS): Any PDP. 

Initial appeals[E]; 
Cost plan: Subject to cost plan's internal appeal process; 
Coordinated Care Plans: Medicare Advantage (MA) Preferred Provider 
Organization (PPO) (Local & Regional): Subject to MA plan's internal 
appeal process; 
Coordinated Care Plans: MA Health Maintenance Organization (HMO): 
Subject to MA plan's internal appeal process; 
MA Private Fee-For-Service (PFFS) plan: Subject to MA plan's internal 
appeal process; 
Medicare Fee-For-Service (FFS): Subject to Medicare appeals process. 

Source: GAO. 

[A] The Annual Election Period (AEP) is from November 15th to December 
31st, the MA Open Enrollment Period (MA OEP) is from January 1st to 
March 31st, and Special Enrollment Periods (SEP) apply whenever a 
beneficiary meets certain criteria, such as moving out of their current 
plan's service area. 

[B] If the beneficiary moves out of the plan's service area, has both 
Medicare and Medicaid, qualifies for the Part D low-income subsidy, or 
lives in an institution, they may be able to drop their plans at other 
times. 

[C] The plan is responsible for certain services provided out of 
network, including emergency services. 

[D] Beginning in 2011, all employer-or union-sponsored PFFS plans, and 
all nonemployer-or union-sponsored PFFS plans in areas that have at 
least two available network-based plans, (such as an HMO or PPO) must 
form contracted networks of providers. In areas with fewer than two 
network-based plans, PFFS plans not sponsored by employer or union 
groups will continue to have the option of operating without networks 
if they pay providers at Medicare FFS rates or higher. 

[E] Beneficiaries have the right to appeal coverage decisions. This 
chart relates to the first of the five levels of appeals. 

[End of table] 

[End of section] 

Appendix IV: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James C. Cosgrove, (202) 512-7114 or cosgrovej@gao.gov: 

Staff Acknowledgments: 

In addition to the contact above, Christine Brudevold, Assistant 
Director; Lori Achman; Julianne Flowers; Hannah Marston; Sarah 
Marshall; Elizabeth T. Morrison; and Amanda Pusey made key 
contributions to this report. 

[End of section] 

Footnotes: 

[1] We use the term Medicare cost plans to refer to Section 1876 
Medicare cost contracts. Section 1876 refers to the section of the 
Social Security Act that authorizes the operation of cost plans. 

[2] Medicare Parts A and B are known as original Medicare or Medicare 
fee-for-service (FFS). Medicare Part A covers hospital and other 
inpatient stays. Medicare Part B is optional insurance, and covers 
hospital outpatient, physician, and other services. MA plans must cover 
services covered under Parts A and B, except for hospice care. 

[3] A cost plan's service area generally comprises one or more 
counties. 

[4] Agreements between CMS and an organization to provide one or more 
benefit packages of the same type in a specified geographic region are 
referred to as contracts. Benefit packages can have different monthly 
premiums or beneficiary cost-sharing requirements. For this report, we 
use the term plan to refer to the agreement at the contract level. 
Organizations may have more than one contract with CMS. 

[5] CMS quality scores are based on information from the Health 
Effectiveness Data and Information Set (HEDIS), a tool developed and 
maintained by the National Committee for Quality Assurance that is used 
by health plans to measure performance on dimensions of care; the 
Consumer Assessment of Healthcare Providers and Systems (CAHPS), a 
group of surveys that asks consumers and patients to report on and 
evaluate their experiences with healthcare; and appeals data. CMS 
reports the data using a rating system, where 1 is the lowest possible 
score and 5 is the highest possible score. We present information on 
the five quality dimensions that CMS reports and the plan summary 
score. CMS calculates the dimension scores by averaging individual 
quality measures in a given topic area. For example, the quality 
dimension for "Managing Chronic Conditions" uses individual measures of 
osteoporosis management, diabetes care, and rheumatoid arthritis 
management. CMS then calculates the plan summary score by averaging the 
individual quality measures and the dimension scores, as well as 
applying an integration factor that rewards plans for consistent high 
scores. 

[6] CMS reports quality scores for managed care plans that have been 
operational for a full year and meet minimum enrollment criteria. 

[7] The estimates of out-of-pocket costs are based on the reported 
utilization patterns of Medicare FFS beneficiaries who participated in 
the Medicare Current Beneficiary Survey, which is a CMS-sponsored, 
continuing survey of a nationally representative sample of aged, 
disabled, and institutionalized Medicare beneficiaries. These 
utilization patterns are combined with price data and benefit package 
information to estimate beneficiary out-of-pocket costs for 
beneficiaries in six age ranges (under 65, 65-69, 70-74, 75-79, 80-84, 
and 85 and above) and five self-reported health statuses (excellent, 
very good, good, fair, and poor). 

[8] We excluded from the cost-sharing analysis 8 of 22 cost plans 
because they did not have estimated out-of-pocket cost data. 

[9] Medicaid is a joint federal-state program that finances health care 
for certain categories of low-income individuals, including children, 
families, persons with disabilities, and persons who are elderly. 

[10] Beginning in 2011, PFFS plans will be required to form contracted 
networks of providers in areas that have at least two available network-
based plans (such as an HMO or PPO). In areas with fewer than two 
network-based plans, PFFS plans not sponsored by employers or union 
groups will continue to have the option of operating without networks 
if they pay providers at Medicare FFS rates or higher. A network-based 
plan is defined as (1) an MA plan that is a CCP, (2) a cost plan, or 
(3) a network-based Medical Savings Account plan. Beneficiaries in a 
Medical Savings Account plan receive annual deposits from CMS into an 
interest-bearing account to help them cover their health care costs 
until they have reached their plan's deductible, after which the plan 
is responsible for all Medicare-covered costs. A network-based plan 
does not include regional PPOs that do not meet provider access 
standards through written contracts. 

[11] The cost plan may charge Medicare enrollees for these costs in the 
form of premiums, copayments, or similar charges. 

[12] Cost plans may, but are not required to, offer Part D coverage. 

[13] Throughout the rest of this report, we will use the term states as 
inclusive of the District of Columbia. 

[14] Minnesota cost plan enrollment in June 2009 accounted for about 36 
percent of cost plan enrollment nationwide. 

[15] Balanced Budget Act of 1997, Pub. L. No. 105-33, § 4002(b), 111 
Stat. 251, 328-329. Section 1833 health care prepayment plans, which 
are employer-or union-sponsored Medicare managed care plans that 
provide or arrange for some or all Medicare Part B benefits on a 
prepayment basis, were allowed to convert to a Medicare cost plan. 

[16] To be considered a CCP with sufficient enrollment, the CCP must, 
with respect to any portion of the area involved that is within a MSA 
with a population of more than 250,000 and counties contiguous to such 
MSA, enroll at least 5,000 individuals. MIPPA further provides that if 
the service area includes a portion in more than one MSA with a 
population of more than 250,000, the minimum enrollment determination 
shall be made with respect to each MSA. With respect to any other 
portion of such service area, the CCP must enroll at least 1,500 
individuals. PFFS plans are not CCPs. 

[17] CMS excluded special needs plans and employer group health plans 
that are not open to enrollment by non-employer group members from the 
CCPs considered to be available MA plans for the purposes of its 
analysis. CMS analyzed MA competitor enrollment at the benefit package 
level to determine which cost plans would need to discontinue serving 
portions of their service area in 2011. 

[18] CMS only reports data for managed care plans that have operated 
for a full year and meet minimum enrollment criteria. Therefore, not 
all cost plans and competitor plans have a plan summary score. We did 
not report comparisons for cost plans without a plan summary score, and 
we excluded competitor plans without plan summary scores from our 
analysis. 

[19] The estimates of out-of-pocket costs are based on the reported 
utilization patterns of Medicare FFS beneficiaries who participated in 
the Medicare Current Beneficiary Survey. These utilization patterns are 
combined with price data and benefit package information to estimate 
beneficiary out-of-pocket costs in different age groups and self- 
reported health categories. We compared data for the 80-84 age group 
because industry representatives and CMS officials told us that 
beneficiaries enrolled in cost plans tend to be older than the average 
MA beneficiary. We excluded special needs plans from this analysis 
because their benefit packages may be tailored to the specific special 
needs population that each plan serves and may not be an appropriate 
alternative to beneficiaries in cost plans. 

[20] Eight cost plans did not submit plan benefit package information 
through CMS's plan benefit package submission module and are therefore 
not included in this analysis. Of the remaining 14 plans, as of May 
2009, 6 had enrollment only in benefit packages without Part D, 2 had 
enrollment only in benefit packages with Part D, and 6 had enrollment 
in benefit packages both with and without Part D. 

[21] As of June 2009, 65 percent of beneficiaries in cost plans had 
Part D coverage through their cost plan. 

[22] Medicare managed care enrollment includes local HMOs, local PSOs, 
local PPOs, PFFS plans, regional PPOs, and cost plans open to 
individuals. 

[23] One of these five organizations also operates an MA special needs 
plan. The other four do not operate any MA plans. 

[24] Percentages do not equal 100 because of rounding. 

[25] RBC refers to the minimum amount of capital an insurer should hold 
in order to ensure that it can pay its obligations. The NAIC 
established a formula to calculate RBC that takes into account the risk 
profile and size of a plan. Generally, the more risk a health insurer 
takes on, the more RBC the health insurer needs in reserve. Based on 
NAIC's model law, if a health insurer has less than 150 percent of the 
RBC required by the formula, a state insurance regulator may begin 
taking action to require the insurer to raise its capital reserves. 

[End of section] 

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