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Medicare Minus Choice: The Impact Of HMO Withdrawals On Rural Medicare Beneficiaries

Abstract

 
A disproportionate share of the Medicare beneficiaries who lost coverage as a result of recent health maintenance organization (HMO) withdrawals have been from rural areas. Rural beneficiaries are less likely than urban beneficiaries are to have another Medicare+Choice (M+C) option. We surveyed a nationwide random sample of 1,093 rural beneficiaries to assess the impact of HMO withdrawals. A high proportion of beneficiaries ended up without any coverage beyond traditional Medicare; on average, beneficiaries experienced significant increases in premiums; and the proportion of beneficiaries with prescription drug coverage decreased significantly. These results raise questions about whether the federal government should encourage plans to enter rural markets where they will be the only M+C plan and where their withdrawal could have negative consequences for enrollees who lose coverage.

This paper assesses the immediate and longer-term impact of the 1 January 1999 Medicare HMO withdrawals on rural beneficiaries. A previous study examined the impact of HMO withdrawals on beneficiaries; however, the vast majority of these beneficiaries were urban and had other M+C options.³ Our study’s focus on rural beneficiaries arose from a concern that the loss of HMO coverage has a greater impact on rural beneficiaries, who are much less likely than urban beneficiaries are to have another Medicare managed care plan available in their county. Rural beneficiaries also have lower incomes, on average, than urban beneficiaries, making it more difficult for them to afford the higher premiums charged for Medicare supplemental coverage to replace their HMO coverage.⁴

Data And Methods

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Data for the study were collected through a telephone survey of a nationwide random sample of rural Medicare beneficiaries age sixty-five and older who lost their HMO coverage as of 1 January 1999 because their HMO dropped its Medicare contract or withdrew from its service area.⁵ Data from the Centers for Medicare and Medicaid Services (CMS) were used to identify eligible beneficiaries.

The survey was developed by the University of Minnesota Rural Health Research Center and conducted during February–May 2000. Survey topics included the type of replacement coverage obtained by the beneficiary on 1 January 1999 and at the time of the survey, thirteen to sixteen months later; premium costs; prescription drug coverage; the process of obtaining replacement coverage and any problems experienced by the beneficiary; demographic characteristics; health status; and health care use.⁶

A total of 1,093 usable surveys were completed, yielding a response rate of 87 percent. The survey data were linked to the CMS data on beneficiaries’ sex, race, and age and were analyzed using standard statistical techniques, primarily chi-square tests. Respondents also were compared to Medicare HMO enrollees nationally using data from the 1997 Medicare Current Beneficiary Survey (MCBS).⁷ The two groups were similar in terms of their income, education, and health status, which suggests that the study results are generalizable to other HMO enrollees who lose coverage and have similar replacement-coverage options.

Results

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Type of replacement coverage. On 1 January 1999, immediately after losing their Medicare HMO coverage, only 19 percent of survey respondents had enrolled in another HMO. Forty-six percent had traditional Medicare and a supplemental policy, 4 percent had employer-sponsored coverage, and 1 percent had Medicare and Medicaid. Twenty-nine percent had no additional coverage beyond traditional Medicare.

In February–May 2000, thirteen to sixteen months after losing their HMO coverage, the proportion of beneficiaries with supplemental policies increased to 55 percent, while the proportion with Medicare-only coverage declined to 22 percent. Medicare HMO coverage also declined somewhat during this period, while employer-sponsored coverage increased slightly and Medicaid coverage was stable.

The low HMO enrollment rate among the rural beneficiaries who lost their previous HMO coverage can be partially explained by the limited availability of Medicare HMOs in many rural areas. Only one-third of respondents indicated that another Medicare HMO was available after they were dropped by their previous HMO. About half of those who had a choice of another HMO or were unsure did enroll in an HMO, which is comparable to the national rate of HMO enrollment for beneficiaries who were dropped by HMOs and had another HMO option.⁸

Impact of loss of HMO coverage. The loss of HMO coverage resulted in large increases in monthly premiums for many beneficiaries and greatly decreased the proportion of beneficiaries with prescription drug coverage. Almost half of beneficiaries were paying monthly premiums of $75 or more for their replacement coverage, compared with 8 percent who paid that amount while enrolled in their previous HMO (Exhibit 1). Premiums differed greatly by primary type of replacement coverage; on average, beneficiaries with supplemental coverage paid higher monthly premiums than did those with employer-sponsored or HMO coverage.

Comparisons with urban enrollees who lost HMO coverage and all rural beneficiaries. It is not possible to definitively determine whether the rural beneficiaries in our study were worse off as a result of having and losing HMO coverage than they would have been if they had never obtained HMO coverage in the first place. However, a comparison with data from a study by Mary Laschober and colleagues of predominantly urban beneficiaries who lost HMO coverage, as well as with national data on rural Medicare beneficiaries’ coverage, suggests that the loss of HMO coverage had especially negative consequences for the rural enrollees in our study.⁹

The proportion of rural beneficiaries with Medicare-only coverage in our study (29 percent) was much higher than that of the predominantly urban beneficiaries who lost HMO coverage in the study by Laschober and colleagues (8 percent) (Exhibit 3). It was also much higher than the 15 percent of rural beneficiaries nationally who had Medicare-only coverage in the 1997 MCBS.¹⁰ In addition, a much higher percentage of rural beneficiaries in our study (47 percent) were paying a monthly premium of $75 or more for their replacement coverage than was true of the predominantly urban beneficiaries in the study by Laschober and colleagues (21 percent).

The high proportion of beneficiaries with Medicare-only coverage in our study is of concern for two reasons. First, these beneficiaries were more vulnerable on several measures than were those who had some type of additional coverage. They were much more likely to be minorities, have less education, have lower household incomes, live alone, report being in poor or fair health, and have no physician visits during the past year (Exhibit 4). This pattern is similar to that of the predominantly urban beneficiaries in the study by Laschober and colleagues. However, the proportions of vulnerable rural beneficiaries with Medicare-only coverage were much higher than those of urban beneficiaries, reflecting the overall higher proportion of rural beneficiaries with Medicare-only coverage.

The difficult situation of low-income beneficiaries with Medicare-only coverage was illustrated by one survey respondent, who said: "We are trying to survive on a little over $11,000 a year. We can’t afford to go see the doctor. We can’t afford our medicines. I had heart surgery and am still very weak from that and need to take pills that cost about $200. I can’t afford to get them. They say that we make $35 too much to qualify for Medicaid."

The loss of prescription drug coverage among rural beneficiaries in our study is of concern, because lack of coverage may cause Medicare beneficiaries to delay or forgo essential drug treatment. Large out-of-pocket expenditures for drugs serve as a barrier to elderly persons’ receiving needed medications, and chronically ill seniors are especially vulnerable.¹³ Having drug coverage decreases the financial burden on elderly persons and greatly increases the probability that they will use prescription drugs.¹⁴

Problems obtaining replacement coverage. The CMS required HMOs to send information to enrollees who lost their coverage about their options to join another Medicare HMO if one was available or to return to the traditional Medicare program and obtain a supplemental policy. Under federal law, these beneficiaries had the right to buy Medicare supplemental plans A, B, C, or F offered in their state for a sixty-three-day period after their HMO coverage terminated. Companies were forbidden from placing preexisting condition exclusions on these policies or discriminatory pricing based on the beneficiary’s health status or claims experience. In addition, a beneficiary who had been enrolled in an HMO for fewer than twelve months, was never enrolled in another Medicare HMO, and had a previous supplemental policy could return to that policy if the insurer still sold the policy in the state.¹⁵

However, these protections were not sufficient for some beneficiaries in our study, who did not receive adequate information to help them choose a new plan or who had problems obtaining replacement coverage. Although respondents reported receiving information from a variety of sources, 10 percent said that they did not receive information that would have helped them to choose a new plan. In open-ended comments, several beneficiaries stated that the information they received was not useful, that they had difficulty reading it, or that it overwhelmed them.

Fifteen percent of respondents reported having problems obtaining replacement coverage. The most frequently cited problems were the cost of replacement plans and a lack of comparable coverage. Minority beneficiaries, those with an eighth grade education or less, those with lower household incomes, and those in fair or poor health were much more likely to have experienced problems. A combination of factors was likely responsible for these difficulties.

Lack of suitable replacement. First, in the current study, beneficiaries’ choices of replacement coverage were limited by the lack of Medicare HMOs in many rural areas and by the absence of guaranteed-issue supplemental plans with prescription drug coverage. Only one-third of respondents had another Medicare HMO available, and none of the four guaranteed-issue supplemental plans included prescription drug coverage.

Confusing process. Second, previous research suggests that the process of choosing replacement coverage is sometimes confusing. Different methods of rating (issue-age, attained-age, and community rating) complicate comparisons of premiums for supplemental policies.¹⁶ Even in markets with high Medicare HMO penetration, beneficiaries have many problems understanding the Medicare program and Medicare HMOs in particular.¹⁷ Differences in benefit packages, premiums, and cost-sharing requirements make it difficult for beneficiaries to choose among Medicare HMOs or between HMOs and supplemental policies.¹⁸

Costly premiums. Third, premiums for Medicare supplemental policies have greatly increased in the past few years.¹⁹ For a variety of reasons, supplemental policies tend to have higher premiums and less generous benefits than is true for Medicare HMOs.²⁰ Therefore, although insurers were prohibited from discriminatory pricing of supplemental policies during the sixty-three-day period after beneficiaries’ HMO coverage terminated, it is likely that many beneficiaries could not obtain a supplemental policy that was comparable to their previous HMO coverage.

Conclusions And Policy Implications

Top Data And Methods Results Conclusions And Policy... NOTES

 
Both rural Medicare beneficiaries’ access to an M+C plan and the proportion of rural enrolled in such a plan have declined since 1998. Twenty-one percent of rural beneficiaries lived in the service area of an M+C plan in 2000, down from 31 percent in 1998.²¹ As of October 2000 only 2.1 percent of rural beneficiaries were enrolled in an M+C plan.²²

Recent data on M+C premiums and benefits indicate that the higher premiums and less generous benefits that have historically characterized Medicare managed care plans in rural areas, compared with urban areas, have not changed.²³ In fact, the overall trend toward increased premiums and reduced benefits in M+C plans for 2000 was especially evident in rural areas, and the number of rural Medicare beneficiaries whose only M+C option was a relatively high cost plan increased markedly.²⁴

It seems unlikely that rural areas will see much growth in M+C enrollment in the near future. The CMS is trying to encourage new plans to enter markets that do not have any M+C plans by giving these plans first priority for review and providing bonus payments as set forth in the Balanced Budget Refinement Act of 1999.²⁵ However, the U.S. General Accounting Office contends that enticing plans to participate in Medicare through reasonable payment rate increases is not likely to succeed in areas with relatively few beneficiaries and a limited supply of providers.²⁶ This view is shared by the Medicare Payment Advisory Commission (MedPAC), which has concluded that the provision of additional benefits through M+C plans in rural areas will require either an explicit or implicit subsidy.²⁷

Our results suggest that the policy debate needs to move beyond a discussion of how to encourage HMOs to serve rural areas through improved reimbursement. More fundamentally, we need to ask whether the federal government should continue to encourage managed care plans to enter rural markets where a plan will be the only M+C plan and where its withdrawal from the program could have especially negative consequences for enrollees who lose coverage.

The M+C program provides a small number of rural enrollees with fewer benefits at higher premium costs than urban enrollees. Rather than devoting Medicare funds to incentives for HMOs to serve unserved areas, it may be more equitable to use these funds to pay part of the cost of additional benefits, such as a drug benefit, for all Medicare beneficiaries, regardless of their geographic location and whether or not they have access to an M+C plan.

Editor's Notes

 
Michelle Casey is a research fellow at the Rural Health Research Center, Division of Health Services Research and Policy, University of Minnesota. Astrid Knott is a research associate at the center. Ira Moscovice is director of the center and a professor in the Division of Health Services Research and Policy.

This research was supported by Grant no. 032659 from the Robert Wood Johnson Foundation. A poster presentation of this paper was made at the Academy for Health Services Research and Policy Annual Meeting, 11 June 2001, in Atlanta, Georgia.

NOTES

Top Data And Methods Results Conclusions And Policy... NOTES

 

1. Centers for Medicare and Medicaid Services, "Status of Medicare Managed Care Non-Renewals as of October 14, 1998," 14 October 1998, www.hcfa.gov/medicare/status.htm (16 October 1998); U.S. General Accounting Office, Medicare+ Choice: Plan Withdrawals Indicate Difficulty of Providing Choice while Achieving Savings, GAO/HEHS-00-183 (Washington: GAO, September 2000); and CMS, "Medicare+Choice (M+C) Enrollees Affected by Non-Renewals and Service Area Reductions for 2001," 21 July 2000, www.hcfa.gov/medicare/nrwebdat.htm (29 May 2001).
2. R. Pear, "HMOs Plan to Drop Medicare, Calling Fees Too Low," New York Times, 22 September 2001, A8.
3. M.A. Laschober et al., "Medicare HMO Withdrawals: What Happens to Beneficiaries?" Health Affairs (Nov/Dec 1999): 150–157; and M. Laschober et al., How Medicare HMO Withdrawals Affect Beneficiary Benefits, Costs, and Continuity of Care (Menlo Park, Calif: Henry J. Kaiser Family Foundation, November 1999).
4. Medicare Payment Advisory Commission, "Rural Beneficiaries’ Access to Care," in Report to the Congress: Medicare in Rural America (Washington: MedPAC, June 2001).
5. Disabled Medicare beneficiaries under age sixty-five were excluded from the survey because there likely would be an insufficient number in this category to conduct statistical analyses.
6. The vast majority of beneficiaries did not have problems recalling information about their 1 January 1999 coverage thirteen to sixteen months later. Thirty-nine persons were removed from the sample because they stated they had not been enrolled in the HMO listed in their CMS file or in the Medicare product offered by that HMO. Several survey questions were structured to address possible problems with recall; for example, respondents who reported paying a monthly premium but did not know the exact amount were asked about categories of premium amounts.
7. CMS, "The Characteristics and Perceptions of the Medicare Population, 1997," www.hcfa.gov/surveys/mcbs/PubCNP97.htm (15 May 2000).
8. CMS, "Medicare+Choice: Changes for the Year 2000," September 1999, www.hcfa.gov/medicare/mc00rept.htm (1 October 1999).
9. Laschober et al., "Medicare HMO Withdrawals."
10. CMS, "The Characteristics and Perceptions of the Medicare Population, 1997."
11. U.S. Department of Health and Human Services, Report to the President: Prescription Drug Coverage, Spending, Utilization, and Prices (Washington: DHHS, April 2000).
12. CMS, "The Characteristics and Perceptions of the Medicare Population, 1997."
13. J. Rogowski, L. Lillard, and R. Kington, "The Financial Burden of Prescription Drug Use among Elderly Persons," Gerontologist 37, no. 4 (1997): 475–482.[Abstract]
14. L. Lillard, J. Rogowski, and R. Kington, "Insurance Coverage for Prescription Drugs: Effects on Use and Expenditures in the Medicare Population," Medical Care 37, no. 9 (1999): 926–936.[Medline]
15. CMS, "Fact Sheet on Non-Renewals," 14 October 1998, www.hcfa.gov/medicare/factf.htm (16 October 1998).
16. L. Alecxih et al., Key Issues Affecting Accessibility to Medigap Insurance (New York: Commonwealth Fund, August 1997).
17. J. Hibbard et al., "Can Medicare Beneficiaries Make Informed Choices?" Health Affairs (Nov/Dec 1998): 181–193.
18. K. Langwell, C. Topelski, and D. Sherman, Analysis of Benefits Offered by Medicare HMOs, 1999: Complexities and Implications (Menlo Park, Calif.: Henry J. Kaiser Family Foundation, August 1999); and MedPAC, Report to the Congress: Context for a Changing Medicare Program (Washington: MedPAC, June 1998).
19. T. D. McBride, "Disparities in Access to Medicare Managed Care Plans and Their Benefits," Health Affairs (Nov/Dec 1998): 170–180.
20. Alecxih et al., Key Issues Affecting Accessibility to Medigap Insurance; and J. Cys, "Rising Care, Drug Costs Trigger Hikes in Medigap Insurance Premiums," American Medical News, 18 September 2000.
21. N. Pourat et al., "Socioeconomic Differences in Medicare Supplemental Coverage," Health Affairs (Sep/Oct 2000): 186–196.
22. GAO, Medicare+Choice.
23. T. McBride, C. Andrews, and K. Mueller, An Update on Medicare+Choice: Rural Medicare Beneficiaries Enrolled in Medicare+Choice Plans through October 2000 (Omaha: RUPRI Center for Rural Health Policy Analysis, March 2001); and CMS, Medicare+Choice: Changes for the Year 2000.
24. CMS, Medicare+Choice: Changes for the Year 2000.
25. CMS, "Protecting Medicare Beneficiaries after HMOs Withdraw," 15 July 1999, www.hcfa.gov/medicare/mcfact.htm (26 July 1999).
26. GAO, Medicare+Choice.
27. MedPAC, "Bringing Medicare+Choice to Rural America."

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