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Date: Aug. 1, 1996
Contacts: Dan Quinn, Media Relations Associate
Darice Griggs, Media Relations Assistant
(202) 334-2138; Internet <>


WASHINGTON -- The health care options available to Medicare beneficiaries should be expanded, but only after the federal government and private insurers take steps to make all health plans more accountable and understandable to the elderly, a committee of the Institute of Medicine said in a new report.* Many of the 70,000 Medicare beneficiaries who enroll in managed care plans each month lack sufficient information to choose the best plan, or to understand their coverage once enrolled, the committee found.

"Although managed care has become the norm for the employed population, for most elderly individuals it represents uncharted waters," said committee chair Stanley Jones, director of the George Washington University Health Insurance Reform Project, Washington, D.C. "It is vital to arm Medicare beneficiaries with high-quality, trustworthy, and relevant information and to hold health plans accountable to better standards so that beneficiaries can make informed choices from an expanding array of options."

The report says that choices available to Medicare beneficiaries should be expanded to include new alternatives like managed-care plans as well as traditional Medicare and Medigap insurance, which is purchased to fill gaps in Medicare coverage. In order to build the trust and confidence of Medicare beneficiaries, the committee said traditional Medicare should be preserved as a viable option for the foreseeable future, to ensure that this "safe harbor" is available to those whose experience with managed care is limited.

The committee called for the federal government to allow only those plans that meet new requirements to market to Medicare beneficiaries. These include the requirement to participate in an annual open enrollment season to enable beneficiaries to more easily compare the true value of all options; guaranteed renewal of coverage with no exemptions for people with pre-existing health problems; providing beneficiaries with information that is specified by the federal government to assure informed choice; and meeting quality certification requirements comparable to those already developed by national private accreditation organizations. Health plan guidelines about how to enroll, disenroll, and file for appeals or grievances should reflect beneficiaries' lack of understanding of traditional Medicare and Medigap insurance, the report says.

Any health plan that forces its physicians to sign an anti-criticism clause in their contract should be excluded from the Medicare market, the committee said. These so-called "gag clauses," like a variety of contractual and financial agreements, prevent physicians from criticizing or questioning a plan's ruling about coverage when talking to a patient, and "may motivate providers to evade their ethical responsibility to provide complete information to their patients about their illness, treatment options, and plan coverages."


As a group, Medicare beneficiaries are older and sicker than patients who traditionally have used managed care plans; their per capita spending on health care is roughly four times that of the rest of the population. As the Medicare market becomes more competitive, protections must be put into place to ensure that plans cannot engage in practices that discriminate against high-risk patients, the report says. Medicare beneficiaries on the whole are poorly informed about the traditional Medicare program and have very limited understanding of what managed care is or what the specific benefits of a particular managed care plan are, studies show. And surveys indicate that it takes more time and resources to educate the elderly than younger individuals about their health plan options.

Currently, these beneficiaries are offered the choice of traditional Medicare and Medigap policies, and in many areas of the country, a small but growing number of alternative health plans. Even without legislative reform, Medicare participants are moving into managed care arrangements at an unprecedented pace, especially in California and Florida. Still, 31 states have no significant enrollment in Health Maintenance Organizations among Medicare beneficiaries. Only 10 percent of the Medicare population is enrolled in managed care, as compared to 70 percent of the non-Medicare population.

The committee examined model practices used by large purchasers of health care in the private and public sectors, and said that lessons learned in these settings could form the basis of a new consumer-oriented information network for Medicare beneficiaries. Private-sector technology for information and communication has advanced well beyond the methods used to serve such beneficiaries. Various technologies can be used to educate the public about Medicare's coverages, costs, and purpose, and to provide broad and objective information about new care options. A customer service center, where one could reach a representative who has access to on-line information, is one example. Toll-free telephone service, online communications, town meetings, newsletters, and multimedia techniques should be used not only to provide information, but also to track complaints, grievances, and appeals, and to report this information to beneficiaries annually and to health plan chief executive officers monthly.

The committee recommended funding the information infrastructure through establishment of a new entity called the Informed Choice Fund, which could be financed through a predictable revenue source such as a flat fee paid by each Medicare managed-care enrollee or by the participating health plan. Such a center could be funded for a maximum of $5 to $10 per participant per year.

The committee also recommended studying the establishment of a Medicare market board, commission, or council, supported by adequate organizational, financial, and staffing resources, to administer the Medicare choices process. This entity should include an advisory committee composed of key stakeholders, including purchasers, providers, and consumers.


Medicare -- the single largest payer in the U.S. health care system -- purchases about 19 percent of all personal health services in the country. The program paid an estimated $183.8 billion in 1995 to cover 37 million individuals, 33 million of whom are elderly. The number of Medicare beneficiaries has tripled since the program was initiated in 1967, and is expected to grow by nearly 2 percent annually through 2019 as the population continues to age.

Legislation proposed in the 104th Congress would have provided new incentives for those who move into managed care, partly propelled by recent reports that the Federal Hospital Insurance Trust Fund will run out of money by the year 2001 unless changes are made. The proposed legislation was not enacted, but the sentiment that Medicare should rely more heavily on managed care is expected to be a major theme of any future reform. The IOM committee was not asked to determine the potential savings from increasing access to managed care, but it said that broadening choices available to Medicare beneficiaries could increase the likelihood that they would find an economical plan that provides better coverage for them than traditional Medicare.

The study was funded by the Robert Wood Johnson Foundation, the Commonwealth Fund, the Kansas Health Foundation, and the Pew Charitable Trusts. The Institute of Medicine is a private, non-profit organization that provides health policy advice under a congressional charter granted to the National Academy of Sciences. A committee roster follows.

Read the full text of <Improving the Medicare Market: Adding Choice and Protections> for free on the Web, as well as more than 1,800 other publications from the National Academies. Printed copies are available for purchase from the National Academy Press Web site or at the mailing address in the letterhead; tel. (202) 334-3313 or 1-800-624-6242. Reporters may obtain a pre-publication copy from the Office of News and Public Information at the letterhead address (contacts listed above).
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Office of Health Policy Programs and Fellowships

Committee on Choice and Managed Care

Stanley B. Jones (*) (chair)
George Washington University Insurance Health Reform Project
Washington, D.C.

Harry P. Cain II, Ph.D.
Executive Vice President, Business Alliances
Blue Cross and Blue Shield Association

Geraldine Dallek, M.P.H.
Director, Health Policy
Families USA
Washington, D.C.

Helen B. Darling, M.A.
Manager, Healthcare Strategy and Programs
Xerox Corp.
Stamford, Conn.

Tom J. Elkin
Independent Health Care Consultant
Sacramento, Calif.

Allen Feezor, M.A.
Vice President for Insurance and Managed Care Programs
East Carolina University Medical Center
Pitt County Memorial Hospital
Greenville, N.C.

James P. Firman, M.B.A., Ed.D.
President and Chief Executive Officer
National Council on the Aging
Washington, D.C.

Sandra Harmon-Weiss, M.D.
Vice President and Medical Director
U.S. Healthcare
Blue Bell, Pa.

Risa J. Lavizzo-Mourey, M.D., M.B.A.
Director, Institute on Aging;
Chief, Division of Geriatric Medicine;
Associate Executive Vice President for Health Policy; and
Sylvan Eisman Associate Professor of Medicine and
Health Care Systems
University of Pennsylvania

Mark V. Pauly, Ph.D. (*)
Professor of Economics, and
Bendheim Professor
Health Care Systems Department
The Wharton School
University of Pennsylvania


Marion Ein Lewin, M.A.
Study Director

Valerie Tate Jopeck
Research Assistant

(*) Member, Institute of Medicine