Medicare HMO Enrollment:

Area Differences Affected by Factors Other Than Payment Rates

HEHS-97-37: Published: May 2, 1997. Publicly Released: May 2, 1997.

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William J. Scanlon
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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.

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.

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