Medicare Advantage: Increased Spending Relative to Medicare	 
Fee-for-Service May Not Always Reduce Beneficiary Out-of-Pocket  
Costs (22-FEB-08, GAO-08-359).					 
                                                                 
In 2006, the federal government spent about $59 billion on	 
Medicare Advantage (MA) plans, an alternative to the original	 
Medicare fee-for-service (FFS) program. Although health plans	 
were originally envisioned in the 1980s as a potential source of 
Medicare savings, such plans have generally increased program	 
spending. Payments to MA plans have been estimated to be 12	 
percent greater than what Medicare would have spent in 2006 had  
MA beneficiaries been enrolled in Medicare FFS. Some policymakers
are concerned about the cost of the MA program and its		 
contribution to overall spending on the Medicare program, which  
already faces serious long-term financial challenges. MA plans	 
receive a per member per month (PMPM) payment to provide services
covered under Medicare FFS. Almost all MA plans receive an	 
additional Medicare payment, known as a rebate. Plans use rebates
and sometimes additional beneficiary premiums to fund benefits	 
not covered under Medicare FFS, reduce premiums, or reduce	 
beneficiary cost sharing. This report examines for 2007 (1) MA	 
plans' projected rebate allocations; (2) additional benefits MA  
plans commonly covered and their costs; (3) MA plans' projected  
cost sharing; and (4) MA plans' allocation of projected revenues 
and expenses. GAO analyzed data on MA plans' projected revenues  
and covered benefits for the most common types of MA plans,	 
accounting for 71 percent of all beneficiaries in MA plans.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-359 					        
    ACCNO:   A80970						        
  TITLE:     Medicare Advantage: Increased Spending Relative to       
Medicare Fee-for-Service May Not Always Reduce Beneficiary	 
Out-of-Pocket Costs						 
     DATE:   02/22/2008 
  SUBJECT:   Beneficiaries					 
	     Cost sharing (finance)				 
	     Financial management				 
	     Health care cost control				 
	     Health care costs					 
	     Health care policies				 
	     Health care programs				 
	     Health care services				 
	     Managed health care				 
	     Medicare						 
	     Policy evaluation					 
	     Program evaluation 				 
	     Strategic planning 				 
	     Program goals or objectives			 
	     Medicare Advantage Program 			 
	     Medicare Fee-for-Service Program			 

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GAO-08-359

   

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material separately. 

Report to Congressional Requesters: 

United States Government Accountability Office:
GAO: 

February 2008: 

Medicare Advantage: 

Increased Spending Relative to Medicare Fee-for-Service May Not Always 
Reduce Beneficiary Out-of-Pocket Costs: 

GAO-08-359: 

GAO Highlights: 

Highlights of GAO-08-359, a report to congressional requesters. 

Why GAO Did This Study: 

In 2006, the federal government spent about $59 billion on Medicare 
Advantage (MA) plans, an alternative to the original Medicare fee-for-
service (FFS) program. Although health plans were originally envisioned 
in the 1980s as a potential source of Medicare savings, such plans have 
generally increased program spending. Payments to MA plans have been 
estimated to be 12 percent greater than what Medicare would have spent 
in 2006 had MA beneficiaries been enrolled in Medicare FFS. Some 
policymakers are concerned about the cost of the MA program and its 
contribution to overall spending on the Medicare program, which already 
faces serious long-term financial challenges. 

MA plans receive a per member per month (PMPM) payment to provide 
services covered under Medicare FFS. Almost all MA plans receive an 
additional Medicare payment, known as a rebate. Plans use rebates and 
sometimes additional beneficiary premiums to fund benefits not covered 
under Medicare FFS, reduce premiums, or reduce beneficiary cost 
sharing. 

This report examines for 2007 (1) MA plansâ projected rebate 
allocations; (2) additional benefits MA plans commonly covered and 
their costs; (3) MA plansâ projected cost sharing; and (4) MA plansâ 
allocation of projected revenues and expenses. GAO analyzed data on MA 
plansâ projected revenues and covered benefits for the most common 
types of MA plans, accounting for 71 percent of all beneficiaries in MA 
plans. 

What GAO Found: 

In 2007, plans projected that relatively little of their rebates would 
be spent on additional benefits compared to cost-sharing and premium 
reductions. Of the average projected rebate amount of $87 PMPM, plans 
projected they would allocate about $10 PMPM (11 percent) to additional 
benefits, about $61 PMPM (69 percent) to reduced cost sharing, and 
about $17 PMPM (20 percent) to reduced premiums. 

Using funding from both rebates and additional premiums, plans covered 
a variety of additional benefits not covered by Medicare FFS in 2007, 
including dental and vision benefits. On the basis of plansâ 
projections, GAO estimated that rebates would pay for approximately 77 
percent of additional benefits and additional beneficiary premiums 
would pay for the remaining 23 percent. 

MA plans projected that, on average, beneficiaries in their plans would 
have lower cost sharing than Medicare FFS cost-sharing estimates, 
although some MA plans projected that their beneficiaries would have 
higher cost sharing for certain service categories, such as home health 
care and inpatient services. Because cost sharing was projected to be 
higher for some categories of services, beneficiaries who frequently 
used these services could have had overall cost sharing that would be 
higher than under Medicare FFS. 

On average, MA plans projected that they would allocate about 87 
percent of total revenue ($683 of $783 PMPM) to medical expenses; 
approximately 9 percent ($71 PMPM) to non-medical expenses, including 
administration, marketing, and sales; and approximately 4 percent ($30 
PMPM) to the plansâ margin, sometimes called the plansâ profit. About 
30 percent of beneficiaries were enrolled in plans that projected they 
would allocate less than 85 percent of their revenues to medical 
expenses. 

Whether the value that MA beneficiaries receive in the form of reduced 
cost sharing, lower premiums, and additional benefits is worth the 
additional cost is a decision for policymakers. However, if the policy 
objective is to subsidize health care costs of low-income Medicare 
beneficiaries, it may be more efficient to directly target subsidies to 
a defined low-income population than to subsidize premiums and cost 
sharing for all MA beneficiaries, including those who are well off. As 
Congress considers the design and cost of MA, it will be important for 
policymakers to balance the needs of beneficiaries and the necessity of 
addressing Medicareâs long-term financial health. 

In commenting on a draft of this report, the Centers for Medicare & 
Medicaid Services expressed concern that the report was not balanced 
because it did not sufficiently focus on the advantages of MA plans. 
GAO disagrees. This report provides information on how plans projected 
they would use rebates and identified instances in which MA 
beneficiaries could have out-of-pocket costs higher than they would 
have experienced under Medicare FFS. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www..gao.gov/cgi-bin/getrpt?GAO-08-359]. For more information, contact James 
Cosgrove at (202) 512-7114 or [email protected]. 

[End of section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

MA Plans Projected That They Would Allocate Relatively Little of Their 
Rebates to Additional Benefits and the Majority to Reduced Cost 
Sharing: 

MA Plans Used Rebates and Additional Premiums to Cover Additional 
Benefits Such as Dental, Hearing, and Vision: 

MA Plans Projected That MA Beneficiaries, on Average, Would Have Lower 
Cost Sharing Than if They Were in Medicare FFS, but Some MA 
Beneficiaries Could Pay More: 

Approximately 87 Percent of Total Revenue Projected to Be Allocated to 
Medical Expenses, but Projections Varied among Individual Plans: 

Concluding Observations: 

Agency and Other External Comments and Our Evaluation: 

Appendix I: Example of a Rebate Calculation: 

Appendix II: Scope and Methodology: 

Appendix III: Plan Variation in Rebate Amounts: 

Appendix IV: Plan Variation in the Out-of-Pocket Maximum: 

Appendix V: Comments from the Centers for Medicare & Medicaid Services: 

Appendix VI: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Rebate Amount PMPM Allocated to Additional Benefits, Premium 
Reductions, and Cost-Sharing Reductions by Plan Type, 2007: 

Table 2: Percentage of Beneficiaries in Plans That Charge an Additional 
Premium and Average Amount of Additional Premium by Plan Type, 2007: 

Table 3: Average Projected PMPM Costs of Additional Benefits by Service 
Category and Plan Type for Plans That Offered Benefits and Reported 
Costs, 2007: 

Table 4: Beneficiaries in MA Plans with Higher Projected Cost Sharing 
Than Medicare FFS for a Given Service Category by Plan Type, 2007: 

Table 5: MA Plans That Exclude Some Services under a Service Category 
from Their Out-of-Pocket Maximum: 

Table 6: The Calculation of the Rebate for Two Hypothetical MA Plans: 

Table 7: Rebate Amount Allocated to Additional Benefits, Premium 
Reductions, and Cost-Sharing Reductions by Plan Type, 2007: 

Table 8: Variation in Values of Out-of-Pocket Maximum by Plan Type, 
2007: 

Figures: 

Figure 1: Projected Rebate Allocation to Additional Benefits, Premium 
Reductions, and Cost-Sharing Reductions by Plan Type, 2007: 

Figure 2: Percentage of Beneficiaries in Plans Covering Additional 
Benefits by Plan Type, 2007: 

Figure 3: Average Projected Cost Sharing for MA Beneficiaries Compared 
to Their Cost Sharing in Medicare FFS, by Plan Type, 2007: 

Figure 4: Example of an MA Plan with Inpatient Cost Sharing Different 
from the Medicare FFS Program: 

Figure 5: Beneficiaries in MA Plans by Out-of-Pocket Maximum Amount and 
Plan Type, 2007: 

Figure 6: Percentage of Beneficiaries in MA Plans That Project 
Allocating Less Than 85 Percent of Total Revenues to Medical Expenses, 
by Plan Type, 2007: 

Figure 7: MA Plans' Projected Marketing and Sales Expenses by Plan 
Type, 2007: 

Abbreviations: 

AHIP: America's Health Insurance Plans: 

CHAMP Act: Children's Health and Medicare Protection Act of 2007: 

CMS: Centers for Medicare & Medicaid Services: 

FFS: fee-for-service: 

HMO: Health Maintenance Organization: 

MA: Medicare Advantage: 

MedPAC: Medicare Payment Advisory Commission: 

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

MSA: Medical Savings Account: 

PFFS: Private Fee-for-Service: 

PMPM: per member per month: 

PPO: Preferred Provider Organization: 

PSO: Provider-Sponsored Organization: 

SNP: Special Needs Plan: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

February 22, 2008: 

Congressional Requesters: 

In 2006, the federal government spent an estimated $59 billion on the 
Medicare Advantage (MA) program, an alternative to the original 
Medicare fee-for-service (FFS) program.[Footnote 1] The MA program 
provides health care coverage to Medicare beneficiaries through private 
health plans, referred to as MA plans. As of August 2007, 8.1 million 
people--about one out of every five Medicare beneficiaries--were 
enrolled in an MA plan. Although private health plans were originally 
envisioned in the 1980s as a potential source of Medicare savings, such 
plans have generally increased overall program spending. Medicare 
spending on private health plans has increased rapidly since the 
enactment of the Medicare Prescription Drug, Improvement, and 
Modernization Act of 2003 (MMA),[Footnote 2] rising 64 percent from 
2004 to 2006, while enrollment has increased by more than 50 percent. 
The MMA increased payment rates for private health plans and allowed 
for larger annual rate increases, among other things.[Footnote 3] These 
payment increases enabled MA plans to spend more money on additional 
benefits relative to those available under Medicare FFS, such as vision 
and hearing coverage; reductions in cost sharing--the amount a 
beneficiary pays for covered services; and reductions in the premiums 
that many Medicare FFS beneficiaries pay for coverage of outpatient 
services and outpatient drugs. Beginning in 2006, MA plans were 
required to submit bids for providing Medicare-covered services. MA 
plans that submitted bids below predetermined benchmarks received 
additional payments, known as rebates, and were required to spend their 
rebates on additional benefits, reduced cost sharing, reduced premiums, 
or a combination of the three. 

As the MA program has grown, some policymakers and congressional 
advisors have raised concerns about the design and cost of the program 
as well as its effect on overall Medicare spending. The Medicare 
Payment Advisory Commission (MedPAC) found that payments to MA plans in 
2006 exceeded by 12 percent what Medicare would have paid had MA 
beneficiaries received services through Medicare FFS.[Footnote 4] The 
Congressional Budget Office estimated that $54 billion in projected 
Medicare spending from 2009 through 2012 is the result of setting MA 
plan payments above Medicare FFS spending.[Footnote 5] MA plans' 
payments thus place an additional financial burden on the Medicare 
program, which the Comptroller General and others have noted already 
faces serious long-term financial challenges resulting from rising 
health care costs and the retirement of the baby boom 
generation.[Footnote 6] Proponents of the MA program assert that the 
current level of MA plan payments has allowed plans to offer valuable 
additional benefits and make health care services more affordable for 
beneficiaries, particularly in rural areas where private plan options 
had been very limited. Further, they note that the MA program provides 
beneficiaries with private plan choices and enables them to select 
plans that reflect their preferences for premiums and cost sharing. 
They also point out that individuals with low incomes who do not 
qualify for other government health care coverage may receive some 
financial relief by enrolling in an MA plan. Critics of the current MA 
program suggest that if the policy objective is to subsidize the health 
care of individuals with low incomes, it would be more efficient to 
directly target subsidies to a well-defined low-income population 
instead of subsidizing the health care costs of all MA beneficiaries. 
Program critics also assert that a large portion of the additional 
payments to MA plans goes to profit and administrative costs and that 
some MA beneficiaries face higher cost sharing than they would if they 
received coverage through Medicare FFS. Questions have also been raised 
that while the MA program provides beneficiaries with many health plan 
choices, it can be difficult for even a sophisticated buyer to 
understand the implications of different cost-sharing arrangements. In 
addition, some policymakers are concerned that because premiums paid by 
beneficiaries in Medicare FFS are tied to both Medicare FFS and MA 
program spending, the excess payments to MA plans result in higher 
premiums for all Medicare beneficiaries. 

Medicare pays MA plans a per member per month (PMPM) amount that is 
based on a plan's bid--its projection of the revenue it requires to 
provide a beneficiary with services that are covered under Medicare 
FFS, and a benchmark--the maximum amount Medicare will pay the plan to 
serve an average beneficiary. Benchmarks vary by county, and in 2007, 
every county in the United States had a benchmark that was at least as 
high as average Medicare FFS spending PMPM in that county. If the 
plan's bid is higher than the benchmark, Medicare pays the plan the 
amount of the benchmark, and the plan must charge beneficiaries a 
premium to collect the amount by which the bid exceeds the 
benchmark.[Footnote 7] If the plan's bid is lower than the benchmark, 
Medicare pays the plan the amount of the bid and makes an additional 
rebate payment to the plan equal to 75 percent of the difference 
between the benchmark and the bid. Plans use the rebate to provide 
their beneficiaries with additional benefits beyond those offered in 
Medicare FFS, reduce premiums, reduce cost sharing, or any combination 
of the three. In 2007, the total amount of rebates paid to MA plans was 
about $8.3 billion. (See app. I for more information about how rebates 
are calculated.) Regardless of whether a plan's bid is above or below 
the benchmark, a plan may charge its beneficiaries an additional 
premium to provide additional benefits or reductions in cost sharing 
that are not otherwise financed by rebates.[Footnote 8] 

Given the additional spending--including rebates--for the MA program, 
you asked that we undertake a study on MA plans' rebates, benefit 
packages, and revenues. This report examines for 2007 (1) how MA plans 
projected they would allocate the rebates they receive, (2) what 
additional benefits MA plans commonly covered with the rebates and 
additional premiums and the projected costs of these additional 
benefits, (3) how MA plans' projected beneficiary cost sharing overall 
and by type of service compared to Medicare FFS, and (4) how MA plans 
projected they would allocate their revenue to medical and other 
expenses. 

We used two primary data sources in our analyses, the 2007 Bid Pricing 
Tool data and the 2007 Plan Benefit Package data that MA plans 
submitted to the Centers for Medicare & Medicaid Services (CMS), the 
agency that administers Medicare. The bid pricing data contain MA 
plans' projections of their revenue requirements and revenue sources. 
Specifically, the bid pricing data contain information on the amount of 
rebates and additional premiums plans project they will require to fund 
additional benefits, reduced premiums, and reduced cost sharing. The 
bid pricing data also contain information about how plans' projected 
cost sharing compared to estimates of cost sharing in Medicare FFS and 
plans' projections of revenue requirements--spending on medical 
expenses, spending on non-medical expenses (such as marketing, sales, 
and administration) and their margins.[Footnote 9] The benefit package 
data contain detailed information on the benefits and cost-sharing 
arrangements of plans. 

We analyzed bid pricing data and benefit package data from four 
different plan types, which together account for 98 percent of MA 
enrollment--including Health Maintenance Organizations (HMO), Private 
Fee-for-Service (PFFS) Plans, Preferred Provider Organizations (PPO), 
and Provider-Sponsored Organizations (PSO).[Footnote 10] Because there 
were only 22 PSOs and enrollment in those plans was only 1 percent of 
total MA enrollment, we did not report results separately for PSOs, but 
included them in the aggregated results we reported for all MA plans. 
We excluded plans that have restrictions on enrollment--such as 
employer plans and Special Needs Plans (SNP)--and bids for plans that 
only cover certain Medicare FFS services.[Footnote 11] We also excluded 
plans with service areas that are exclusively outside the 50 states and 
the District of Columbia. After all exclusions, we had 2,055 plans in 
our study that accounted for 71 percent of all beneficiaries in MA 
plans. Unless otherwise noted, the analyses were based on these 2,055 
plans and their beneficiaries. To address our study questions, we did 
the following: 

* To determine how plans projected they would allocate the rebates they 
receive, we used the bid pricing data. We applied the proportion of the 
combined rebate and additional premium allocated to additional 
benefits, reduced premiums, and reduced cost sharing to the projected 
total. We restricted this analysis to those plans that received a 
rebate--1,874 of the 2,055 plans. 

* To identify the additional benefits MA plans commonly covered with 
rebates and additional premiums, and the projected costs of these 
additional benefits, we analyzed both the benefit package and bid 
pricing data. We used the benefit package data to identify the 
additional benefits plans covered and used the bid pricing data to 
identify the projected cost of these additional benefits. When we 
analyzed the projected cost of additional benefits, we included both 
the rebate payments and additional premiums. We included rebates and 
additional premiums, rather than solely considering the effects of 
rebates, because rebates and premiums together fund the additional 
benefits that MA beneficiaries will receive. If we had estimated the 
cost of additional benefits funded only by the rebates, that amount 
would have been lower than the amount we report. 

* To compare projected beneficiary cost sharing in the MA and Medicare 
FFS programs, we used both the bid pricing and the benefit package 
data. We used the bid pricing data to quantify the projected cost-
sharing reduction, using the plans projections of the average cost-
sharing expenditure on a PMPM basis, and compared this to CMS estimates 
of what the average PMPM cost-sharing expenditure would be in Medicare 
FFS. To obtain details on the specific cost-sharing arrangements used 
by the plans, we used the benefit package data. As was the case for our 
analysis of additional benefits, the amounts we reported for average 
PMPM cost sharing and cost-sharing reductions were based on the amounts 
projected by the plans and included funding from both rebates and 
additional premiums. If we had estimated the amount of cost sharing 
funded only by the rebates, the PMPM cost-sharing amounts would have 
been higher and the cost-sharing reduction amounts would have been 
lower. 

* To identify how plans projected they would allocate their revenue to 
medical and other expenses, we used the bid pricing data. 

Throughout the report, dollar amounts are adjusted to reflect a 
beneficiary of average health status. Where noted, we used August 2007 
MA plan enrollment numbers to weight our results. 

To determine the reliability of the bid pricing, benefits, and 
enrollment data, we spoke with CMS officials about the strengths and 
limitations of these data sets. We also conducted logic tests to ensure 
that the bid pricing data were reasonable and consistent, and compared 
the bid pricing and benefits data to ensure consistency, where 
applicable, across the data sets. In some cases, there were 
discrepancies between the two data sources. For example, some plans 
indicated that they had an additional benefit in the benefit package 
data, but did not price that additional benefit in the bid pricing 
data. CMS officials indicated that these discrepancies could be due, in 
part, to the different purposes of the benefit package and bid pricing 
data sets, and resulting different benefit categorizations. CMS 
officials said discrepancies may also be the result of some plans with 
low projected amounts for additional benefits categorizing those 
benefits as Medicare-covered services, or the bid pricing data may 
accurately reflect low projected prices that round to zero. In general, 
based on CMS's recommendations, we used the benefit package data as the 
most reliable data source for identifying specific benefits covered by 
plans, and used the bid pricing data to identify costs. We determined 
that the data used were sufficiently reliable for the purposes of this 
report. However, verifying that the projections presented in the bid 
pricing data actually reflect plan revenues and expenditures was beyond 
the scope of our work. See appendix II for more details on our scope 
and methodology. We conducted our work from April 2007 through February 
2008 in accordance with generally accepted government auditing 
standards. 

Results in Brief: 

In 2007, MA plans that received rebates projected that relatively 
little of the rebates would be spent on additional benefits compared to 
cost-sharing and premium reductions. Of the average projected rebate 
amount of $87 PMPM, plans projected that they would allocate about $10 
PMPM (11 percent) to additional benefits, about $61 PMPM (69 percent) 
to reduced cost sharing, and about $17 PMPM (20 percent) to reduced 
premiums. 

Using funding from rebates, additional premiums, or both, plans covered 
a variety of additional benefits in 2007, including dental, hearing, 
and vision benefits. The average projected PMPM costs of specific 
additional benefits across all MA plans ranged from $0.11 PMPM for 
international outpatient emergency services to $4 PMPM for dental care. 
On the basis of plans' projections, we estimated that rebates would pay 
for approximately 77 percent of these additional benefits, and 
additional beneficiary premiums would pay for the remaining 23 percent. 

MA plans projected that, on average, beneficiaries in their plans would 
pay less in cost sharing than what their cost sharing would be in the 
Medicare FFS program, although some MA plans projected that their 
beneficiaries would have higher cost sharing for certain service 
categories. For example, 19 percent of MA beneficiaries were in plans 
that projected higher cost sharing for home health services and 16 
percent of beneficiaries were in plans that projected higher cost 
sharing for inpatient services. Because cost sharing was projected to 
be higher for some categories of services, beneficiaries who frequently 
used these services could have had overall cost sharing that would be 
higher than under Medicare FFS. Similar to payments for additional 
services, we estimated that rebates would pay for about 77 percent of 
the cost-sharing reduction and the remainder would be paid for with 
additional beneficiary premiums. 

Plans' total revenues in 2007 were $783 PMPM, on average, of which 
plans projected they would allocate approximately 87 percent ($683 
PMPM) to medical expenses--referred to as a medical loss ratio of 0.87. 
In addition, they projected that they would allocate approximately 9 
percent of total revenue ($71 PMPM) to non-medical expenses, and 
approximately 4 percent ($30 PMPM) to the plans' margin--sometimes 
called a profit. About 30 percent of beneficiaries were enrolled in 
plans with a medical loss ratio of less than 0.85. 

Medicare spends more per beneficiary in the MA program than it does for 
beneficiaries in Medicare FFS, at an estimated additional cost to 
Medicare of $54 billion from 2009 through 2012. MA beneficiaries 
generally, but not always, receive additional value in the form of 
reduced cost sharing, lower premiums, and extra benefits, compared to 
Medicare FFS beneficiaries. Whether the additional value that MA 
beneficiaries receive is worth the additional cost to Medicare FFS 
beneficiaries and other taxpayers is a decision for policymakers. If 
the policy objective is to subsidize health care costs of low-income 
Medicare beneficiaries, it may be more efficient to directly target 
subsidies to a defined low-income population than to subsidize premiums 
and cost sharing for all MA beneficiaries, including those who are well 
off. As Congress considers the design and cost of the MA program, it 
will be important for policymakers to balance the needs of MA 
beneficiaries and Medicare FFS beneficiaries with the necessity of 
addressing Medicare's long-term financial health. 

In commenting on a draft of this report, CMS stated that we did not 
consider that the majority of MA benefit packages in 2007 were better 
than Medicare FFS and expressed concern that the report was not 
balanced because it did not sufficiently focus on the advantages of MA 
plans. They also noted that while they did not disagree with our 
finding that some beneficiaries in MA plans could have higher out-of-
pocket costs, we did not recognize certain factors that would have 
mitigated the impact of the finding. We disagree with CMS. 
Specifically, we recognized in the report that, on average, plans 
projected MA beneficiary cost sharing that was 42 percent of estimated 
cost sharing in Medicare FFS. Our report provides an assessment of how 
MA plans projected they would use their rebates in 2007, and identified 
important issues related to cost sharing. America's Health Insurance 
Plans (AHIP) indicated that they agreed with our methodology, but 
raised certain points that they thought the report should have made or 
emphasized. We added these points to the report as appropriate. 

Background: 

MA plans are required to cover benefits that are covered under the 
Medicare FFS program.[Footnote 12] Medicare FFS consists of Part A; 
hospital insurance--which covers inpatient stays, care in skilled 
nursing facilities, hospice care, and some home health care, and Part 
B, which covers certain physician, outpatient hospital, and laboratory 
services, among other services. Persons aged 65 and older who meet 
Medicare's work requirement, certain individuals with disabilities, and 
most individuals with end-stage renal disease receive coverage for Part 
A services and pay no premium.[Footnote 13] Individuals eligible for 
Part A can also enroll in Part B, although they are charged a Part B 
premium.[Footnote 14] For 2007, the monthly Part B premium was set at 
$93.50, although high-income beneficiaries paid more. Most Medicare 
beneficiaries who are eligible for Medicare FFS can choose to enroll in 
the MA program instead of Medicare FFS.[Footnote 15] MA plans operate 
under Medicare Part C. 

All Medicare beneficiaries, regardless of their source of coverage, can 
choose to receive prescription drug coverage through Medicare Part D. 
Medicare FFS beneficiaries can enroll in stand-alone prescription drug 
plans, which are operated by private plan sponsors, and they generally 
must pay a premium to receive Part D coverage. MA beneficiaries who opt 
for prescription drug coverage generally receive that coverage through 
their MA plans, which may or may not charge an additional premium for 
Part D coverage. Beneficiaries enrolled in a PFFS plan that does not 
offer Part D coverage are allowed to enroll in a stand-alone 
prescription drug plan. 

Beneficiaries in both Medicare FFS and MA face cost-sharing 
requirements for medical services. Cost sharing gives beneficiaries a 
financial incentive to be mindful of the costs associated with using 
services. Medicare FFS cost sharing takes different forms. It includes 
both a Part A and a Part B deductible, which is the amount a 
beneficiary pays for services before Medicare FFS begins to pay. For 
2007, Medicare FFS required a deductible payment of $992 before it 
began paying for an inpatient stay, and $131 before it began paying for 
any Part B services. Cost sharing also includes coinsurance--a 
percentage payment for a given service that a beneficiary must pay, 
such as 20 percent of the total payment for physician visits, and 
copayments--a standard amount a beneficiary must pay for a medical 
service, such as $248 per day for days 61 through 90 of an inpatient 
stay in 2007. 

Medicare allows MA plans to have cost-sharing requirements that are 
different from Medicare FFS's cost-sharing requirements. Plans may 
require more or less cost sharing than Medicare FFS for a given 
service, although, on average, a plan cannot require overall cost 
sharing that exceeds what beneficiaries would be expected to pay under 
Medicare FFS. MA plans may establish dollar limits on the amount a 
beneficiary spends on cost sharing in a year of coverage. In contrast, 
Medicare FFS has no total cost-sharing limit.[Footnote 16] Plans can 
use both out-of-pocket maximums, limits that can apply to all services 
but can exclude certain service categories, and service-specific 
maximums, limits that apply to one service category. These limits help 
provide financial protection to beneficiaries who might otherwise have 
high cost-sharing expenses. 

CMS officials said that they evaluate the cost-sharing arrangements of 
MA plans to determine if cost sharing is too high for services likely 
to be used by a beneficiary with below average health status. According 
to CMS officials, in 2007, if an MA plan (1) had no out-of-pocket 
maximum, (2) had an out-of-pocket maximum above $3,100, or (3) had an 
out-of-pocket maximum of $3,100 or below and excluded certain 
categories of service from that maximum, CMS compared the plan's cost 
sharing for certain service categories to thresholds that CMS based on 
Medicare FFS cost-sharing levels.[Footnote 17] If a plan exceeded one 
or more thresholds, CMS may have sought to negotiate with the plan over 
its cost sharing. According to CMS officials, the decision to negotiate 
was based on various factors, including the extent to which the 
thresholds were exceeded, local market comparisons, and the extent to 
which high cost sharing in one category was balanced with low cost 
sharing in another.[Footnote 18] 

MA Plans Projected That They Would Allocate Relatively Little of Their 
Rebates to Additional Benefits and the Majority to Reduced Cost 
Sharing: 

MA plans that received rebates projected, on average, that their 
rebates would be $87 PMPM. The plans projected that they would allocate 
a relatively small amount to additional benefits, compared to cost-
sharing and premium reductions. Plans projected that, on average, about 
11 percent of their rebates would be allocated to additional benefits, 
69 percent to reduced cost sharing, 17 percent to Part D premium 
reductions, and 3 percent to Part B premium reductions. The average 
projected rebate allocation to additional benefits and reduced premiums 
varied by plan type. For example, PPOs projected that they would 
allocate less to Part D premium reductions and more to additional 
benefits than other plan types. PFFS plans projected that they would 
allocate less to additional benefits than other plan types. (See fig. 
1) 

Figure 1: Projected Rebate Allocation to Additional Benefits, Premium 
Reductions, and Cost-Sharing Reductions by Plan Type, 2007: 

[See PDF for image] 

This figure is a stacked vertical bar graph depicting the following 
information: 

Plan type: HMO [plans: 1,179; beneficiaries: 3,747,087]; 
Percentage of rebate, Cost-sharing reduction: 69%; 
Percentage of rebate, Part B premium reduction: 2%; 
Percentage of rebate, Part D premium reduction[B]: 18%; 
Percentage of rebate, Additional benefits: 12%; 
Total: 100%. 

Plan type: PFFS [plans: 367; beneficiaries: 1,361,668]; 
Percentage of rebate, Cost-sharing reduction: 73%; 
Percentage of rebate, Part B premium reduction: 5%; 
Percentage of rebate, Part D premium reduction[B]: 14%; 
Percentage of rebate, Additional benefits: 8%; 
Total: 100%. 

Plan type: PPO [plans: 306; beneficiaries: 268,460]; 
Percentage of rebate, Cost-sharing reduction: 73%; 
Percentage of rebate, Part B premium reduction: 2%; 
Percentage of rebate, Part D premium reduction[B]: 8%; 
Percentage of rebate, Additional benefits: 16%; 
Total: 100%. 

Plan type: All plans[A] [plans: 1,874; beneficiaries: 5,454,573]; 
Percentage of rebate, Cost-sharing reduction: 69%; 
Percentage of rebate, Part B premium reduction: 3%; 
Percentage of rebate, Part D premium reduction[B]: 17%; 
Percentage of rebate, Additional benefits: 11%; 
Total: 100%. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Percentages may not sum to 100 due to rounding. Percentages are 
weighted by August 2007 plan enrollment. Employer plans, Part B only 
plans, SNPs, regional PPOs, and plans with service areas that are 
exclusively outside of the 50 states and the District of Columbia were 
excluded from the analysis. This analysis includes only the 1,874 plans 
that received a rebate. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[B] Of the 1,874 plans that received a rebate, 1,423 offered Part D 
benefits to their beneficiaries. Of those that offered Part D, 1,037 
reduced Part D premiums. 

[End of figure] 

In dollar terms, the average projected rebates varied by plan type, 
from $55 PMPM for PPOs to $93 PMPM for HMOs. The dollar portions of the 
rebates that plans allocated to cost sharing varied, reflecting the 
variation in the average amount of the rebate. For example, on average, 
both PFFS plans and PPOs projected that they would allocate 73 percent 
of their rebate to cost-sharing reductions, but PFFS plans projected 
this would average $51 PMPM while PPOs projected this would average $41 
PMPM.[Footnote 19] (See table 1.) For more information on the variation 
in how plans allocated rebates and the rebate amounts, see appendix 
III. 

Table 1: Rebate Amount PMPM Allocated to Additional Benefits, Premium 
Reductions, and Cost-Sharing Reductions by Plan Type, 2007: 

Rebate average: 
HMO Plans = 1,179, Beneficiaries = 3,747,087: $93.29; 
PFFS Plans = 367, Beneficiaries = 1,361,668: $70.06; 
PPO Plans = 306, Beneficiaries = 268,460: $55.26; 
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $87.44. 

Amount of rebate allocated to: Additional benefits[B]; 
HMO Plans = 1,179, Beneficiaries = 3,747,087: $11.36; 
PFFS Plans = 367, Beneficiaries = 1,361,668: $5.58; 
PPO Plans = 306, Beneficiaries = 268,460: $9.08; 
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $9.95. 

Amount of rebate allocated to: Part D premium reduction[C]; 
HMO Plans = 1,179, Beneficiaries = 3,747,087: $16.35; 
PFFS Plans = 367, Beneficiaries = 1,361,668: $9.51; 
PPO Plans = 306, Beneficiaries = 268,460: $4.51; 
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $14.70. 

Amount of rebate allocated to: Part B premium reduction; 
HMO Plans = 1,179, Beneficiaries = 3,747,087: $1.59; 
PFFS Plans = 367, Beneficiaries = 1,361,668: $3.62; 
PPO Plans = 306 Beneficiaries = 268,460: $1.06; 
All plans[A] Plans = 1,874, Beneficiaries = 5,454,573: $2.29. 

Amount of rebate allocated to: Cost-sharing reduction[B]; 
HMO Plans = 1,179, Beneficiaries = 3,747,087: $63.99; 
PFFS Plans = 367, Beneficiaries = 1,361,668: $51.34; 
PPO Plans = 306, Beneficiaries = 268,460: $40.61; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $60.51. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Values are weighted by August 2007 plan enrollment and are 
standardized to represent a beneficiary of average health status. 
Employer plans, Part B only plans, SNPs, regional PPOs, and plans with 
service areas that are exclusively outside of the 50 states and the 
District of Columbia are excluded from the analysis. This analysis 
included only the 1,874 plans that received a rebate. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[B] The rebate amounts allocated to cost sharing and additional 
benefits included some non-medical expenses, such as administrative 
costs and plans' margins. 

[C] Of the 1,874 plans that received a rebate, 1,423 offered Part D 
benefits to their beneficiaries. Of those that offered Part D, 1,037 
reduced Part D premiums. 

[End of table] 

While nearly all MA enrollees were in plans that received rebates, some 
plans charged additional premiums either in addition to the rebate or 
as the sole funding source to pay for additional benefits, reduced cost 
sharing, or a combination of the two. In 2007, approximately 41 percent 
of beneficiaries (about 2.3 million people) were enrolled in an MA plan 
that charged an additional premium. There were differences in the 
extent to which plans charged additional premiums by plan type. For 
example, 31 percent of beneficiaries enrolled in PFFS plans were 
charged an additional premium, compared to 83 percent of beneficiaries 
enrolled in PPOs. Of plans that charged an additional premium, the 
average additional premium was $58 PMPM.[Footnote 20] (See table 2.) 
Plans that received rebates and charged additional premiums had lower 
rebates ($54 PMPM on average), than plans that received rebates and did 
not charge an additional premium ($107 PMPM on average), and these 
plans allocated less of their rebates to premium reductions and more to 
additional benefits and cost-sharing reductions.[Footnote 21] 

Table 2: Percentage of Beneficiaries in Plans That Charge an Additional 
Premium and Average Amount of Additional Premium by Plan Type, 2007: 

Percentage of beneficiaries in plans that charge an additional premium 
and do not receive a rebate: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: 6; 
PFFS Plans = 479, Beneficiaries = 1,408,103: 3; 
PPO Plans = 345, Beneficiaries = 301,746: 11; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: 5. 

Percentage of beneficiaries in plans that charge an additional premium 
and receive a rebate: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: 36; 
PFFS Plans = 479, Beneficiaries = 1,408,103: 28; 
PPO Plans = 345, Beneficiaries = 301,746: 72; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: 35. 

Average amount of additional premium (PMPM): 
HMO Plans = 1,209, Beneficiaries = 3,977,161: $61.87; 
PFFS Plans = 479, Beneficiaries = 1,408,103: $42.09; 
PPO Plans = 345, Beneficiaries = 301,746: $60.47; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: $58.00. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Values are weighted by August 2007 plan enrollment and are 
standardized to represent a beneficiary of average health status. 
Employer plans, Part B only plans, SNPs, regional PPOs, and plans with 
service areas that are exclusively outside of the 50 states and the 
District of Columbia were excluded from the analysis. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[End of table] 

MA Plans Used Rebates and Additional Premiums to Cover Additional 
Benefits Such as Dental, Hearing, and Vision: 

MA plans covered several common additional benefits with the rebates, 
additional premiums, or both. These benefits included: 

* dental benefits, which may include oral exams, teeth cleanings, 
fluoride treatments, dental X-rays, or emergency dental services; 

* health education benefits, which may include nutritional training, 
smoking cessation, health club memberships, or nursing hotlines; 

* hearing benefits, which may include coverage for hearing tests, 
hearing aid fittings, and hearing aid evaluations; 

* inpatient facility stays, which may include additional inpatient 
facility days beyond those covered under Medicare FFS; 

* international coverage for outpatient emergency services; 

* skilled nursing facility stays, which include days in a skilled 
nursing facility beyond those covered under Medicare FFS; and: 

* vision benefits, which may include coverage for routine eye exams, 
contacts, or eyeglasses (lenses and frames). 

Almost all plans covered international outpatient emergency services 
and additional days in a skilled nursing facility and inpatient 
facility beyond what Medicare FFS covers. The percentage of plans 
covering dental, vision, or hearing services varied by plan type. For 
example, PFFS plans were more likely to cover hearing and less likely 
to cover dental and vision services than HMOs and PPOs. (See fig. 2.) 

Figure 2: Percentage of Beneficiaries in Plans Covering Additional 
Benefits by Plan Type, 2007: 

[See PDF for image] 

This figure is a multiple vertical bar graph, depicting the Percentage 
of Beneficiaries in Plans Covering Additional Benefits by Plan Type, 
2007, as follows: 

Service category: Dental[A]; 
Plan type and percentage of beneficiaries: HMO (plans = 1,209; 
beneficiaries = 3,977,161): 33; 
Plan type and percentage of beneficiaries: PFFS (plans = 479; 
beneficiaries = 1,408,103): 24; 
Plan type and percentage of beneficiaries: PPO (plans = 345; 
beneficiaries = 301,746): 45. 

Service category: Health Education[B]; 
Plan type and percentage of beneficiaries: HMO (plans = 1,209; 
beneficiaries = 3,977,161): 83; 
Plan type and percentage of beneficiaries: PFFS (plans = 479; 
beneficiaries = 1,408,103): 80; 
Plan type and percentage of beneficiaries: PPO (plans = 345; 
beneficiaries = 301,746): 89. 

Service category: Hearing[C]; 
Plan type and percentage of beneficiaries: HMO (plans = 1,209; 
beneficiaries = 3,977,161): 61; 
Plan type and percentage of beneficiaries: PFFS (plans = 479; 
beneficiaries = 1,408,103): 89; 
Plan type and percentage of beneficiaries: PPO (plans = 345; 
beneficiaries = 301,746): 52. 

Service category: Inpatient stays[D]; 
Plan type and percentage of beneficiaries: HMO (plans = 1,209; 
beneficiaries = 3,977,161): 96; 
Plan type and percentage of beneficiaries: PFFS (plans = 479; 
beneficiaries = 1,408,103): 88; 
Plan type and percentage of beneficiaries: PPO (plans = 345; 
beneficiaries = 301,746): 98. 

Service category: International outpatient emergency; 
Plan type and percentage of beneficiaries: HMO (plans = 1,209; 
beneficiaries = 3,977,161): 95; 
Plan type and percentage of beneficiaries: PFFS (plans = 479; 
beneficiaries = 1,408,103): 95; 
Plan type and percentage of beneficiaries: PPO (plans = 345; 
beneficiaries = 301,746): 94. 

Service category: Skilled nursing facility stays[D]; 
Plan type and percentage of beneficiaries: HMO (plans = 1,209; 
beneficiaries = 3,977,161): 95; 
Plan type and percentage of beneficiaries: PFFS (plans = 479; 
beneficiaries = 1,408,103): 89; 
Plan type and percentage of beneficiaries: PPO (plans = 345; 
beneficiaries = 301,746): 94. 

Service category: Vision[E]; 
Plan type and percentage of beneficiaries: HMO (plans = 1,209; 
beneficiaries = 3,977,161): 89; 
Plan type and percentage of beneficiaries: PFFS (plans = 479; 
beneficiaries = 1,408,103): 49; 
Plan type and percentage of beneficiaries: PPO (plans = 345; 
beneficiaries = 301,746): 82. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: The percentages of beneficiaries in plans that have additional 
benefits are as of August 2007. This analysis included additional 
benefits funded by both rebates and additional premiums. Employer 
plans, Part B only plans, SNPs, regional PPOs, and plans with service 
areas that are exclusively outside of the 50 states and the District of 
Columbia were excluded from the analysis. 

[A] Dental benefits may include oral exams, teeth cleanings, fluoride 
treatments, dental X-rays, or emergency dental services. 

[B] Health education benefits may include nutritional training, smoking 
cessation, health club memberships, or nursing hotlines. 

[C] Hearing benefits may include coverage for hearing tests, hearing 
aid fittings, and hearing aid evaluations. 

[D] Inpatient stays and skilled nursing facility stays may include 
additional days beyond what Medicare FFS covers. 

[E] Vision benefits may include coverage for routine eye exams, 
contacts, or eyeglasses (lenses and frames). 

[End of figure] 

The average projected dollar amount of the common additional benefits 
across all MA plans ranged from $0.11 PMPM for international outpatient 
emergency services to $4 PMPM for dental care. These estimates were 
based on the subset of plans that provided cost projections in the 
categories associated with the benefits. The number of plans included 
in the averages varies from the number of plans offering the benefits 
in part because some plans did not consistently include the same 
additional services in the same benefit categories. For example, some 
plans categorized all or part of the costs associated with additional 
vision benefits in other categories, such as professional 
services.[Footnote 22] These estimates are also based on plans' 
reported funding for additional benefits from both rebates and 
additional premiums. Had we limited our analysis to additional benefits 
funded only from rebates, the estimated amounts of the additional 
benefits would have been lower. On the basis of plan projections, we 
estimated that rebates would pay for most of the additional benefits 
plans provided (77 percent), while additional premiums would pay for 
the remainder (23 percent). Table 3 provides a summary of the projected 
costs of additional benefits. 

Table 3: Average Projected PMPM Costs of Additional Benefits by Service 
Category and Plan Type for Plans That Offered Benefits and Reported 
Costs, 2007: 

Dental[B]: 
HMO: Number of plans: 435; 
HMO: Average cost (PMPM): $3.72; 
PFFS: Number of plans: 29; 
PFFS: Average cost (PMPM): $4.34; 
PPO: Number of plans: 80; PPO: Average cost (PMPM): $5.79; 
All plans[A]: Number of plans: 555; 
All plans[A]: Average cost (PMPM): $4.00. 

Health education[C]: 
HMO: Number of plans: 641; 
HMO: Average cost (PMPM): $2.01; 
PFFS: Number of plans: 97; 
PFFS: Average cost (PMPM): $1.12; 
PPO: Number of plans: 165; 
PPO: Average cost (PMPM): $1.95; 
All plans[A]: Number of plans: 920; 
All plans[A]: Average cost (PMPM): $1.88. 

Hearing[D]: 
HMO: Number of plans: 865; 
HMO: Average cost (PMPM): $0.86; 
PFFS: Number of plans: 185; 
PFFS: Average cost (PMPM): $0.97; 
PPO: Number of plans: 235; 
PPO: Average cost (PMPM): $1.51; 
All plans[A]: Number of plans: 1301; 
All plans[A]: Average cost (PMPM): $0.92. 

Inpatient stays[E]: 
HMO: Number of plans: 966; 
HMO: Average cost (PMPM): $1.74; 
PFFS: Number of plans: 255; 
PFFS: Average cost (PMPM): $1.31; 
PPO: Number of plans: 240; 
PPO: Average cost (PMPM): $1.75; 
All plans[A]: Number of plans: 1482; 
All plans[A]: Average cost (PMPM): $1.69. 

International outpatient emergency: 
HMO: Number of plans: 698; 
HMO: Average cost (PMPM): $0.13; 
PFFS: Number of plans: 165; 
PFFS: Average cost (PMPM): $0.05; 
PPO: Number of plans: 204; 
PPO: Average cost (PMPM): $0.06; 
All plans[A]: Number of plans: 1083; 
All plans[A]: Average cost (PMPM): $0.11. 

Skilled nursing facility stays[E]: 
HMO: Number of plans: 576; 
HMO: Average cost (PMPM): $1.33; 
PFFS: Number of plans: 119; 
PFFS: Average cost (PMPM): $0.38; 
PPO: Number of plans: 94; 
PPO: Average cost (PMPM): $1.55; 
All plans[A]: Number of plans: 801; 
All plans[A]: Average cost (PMPM): $1.14. 

Vision[F]: 
HMO: Number of plans: 1,076; 
HMO: Average cost (PMPM): $3.41; 
PFFS: Number of plans: 182; 
PFFS: Average cost (PMPM): $2.37; 
PPO: Number of plans: 280; 
PPO: Average cost (PMPM): $5.76; 
All plans[A]: Number of plans: 1559; 
All plans[A]: Average cost (PMPM): $3.37. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Dollar amounts are weighted by August 2007 plan enrollment and 
are standardized to represent a beneficiary of average health status. 
We considered an MA plan to have covered an additional benefit if it 
projected that it would allocate at least $.01 PMPM of revenue to the 
additional benefit. Employer plans, Part B only plans, SNPs, regional 
PPOs, and plans with service areas that are exclusively outside of the 
50 states and the District of Columbia were excluded from the analysis. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there are only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[B] Dental benefits may include oral exams, teeth cleanings, fluoride 
treatments, dental X-rays, or emergency dental services. 

[C] Health education benefits may include nutritional training, smoking 
cessation, health club memberships, or nursing hotlines. 

[D] Hearing benefits may include coverage for hearing tests, hearing 
aid fittings, and hearing aid evaluations. 

[E] Inpatient stays and skilled nursing facility stays may include 
additional days beyond what Medicare FFS covers. 

[F] Vision benefits may include coverage for routine eye exams, 
contacts, or eyeglasses (lenses and frames). 

[End of table] 

MA Plans Projected That MA Beneficiaries, on Average, Would Have Lower 
Cost Sharing Than if They Were in Medicare FFS, but Some MA 
Beneficiaries Could Pay More: 

For 2007, MA plans projected that MA beneficiary cost sharing would be 
42 percent of estimated cost sharing in Medicare FFS. (See fig 3.) 
Plans projected that their beneficiaries, on average, would pay $49 
PMPM in cost sharing, and they estimated that Medicare FFS equivalent 
cost sharing for their beneficiaries was $116 PMPM. On the basis of 
plans' projections, we estimated that about 77 percent of the reduction 
in beneficiary cost sharing was funded by rebates with the remainder 
being funded by additional beneficiary premiums. 

Figure 3: Average Projected Cost Sharing for MA Beneficiaries Compared 
to Their Cost Sharing in Medicare FFS, by Plan Type, 2007: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following 
information: 

Plan type: HMO; 
Percentage of Medicare FFS cost-sharing estimate: 40%. 

Plan type: PFFS; 
Percentage of Medicare FFS cost-sharing estimate: 51%. 

Plan type: PPO; 
Percentage of Medicare FFS cost-sharing estimate: 45%. 

Plan type: All plans[A]; 
Percentage of Medicare FFS cost-sharing estimate: 42%. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Employer plans, Part B only plans, SNPs, regional PPOs, and 
plans with service areas that are exclusively outside of the 50 states 
and the District of Columbia were excluded from the analysis. Numbers 
are weighted by August 2007 plan enrollment. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[End of figure] 

Although plans projected that beneficiaries' overall cost sharing was 
lower, on average, than Medicare FFS cost-sharing estimates, some MA 
plans projected that cost sharing for certain categories of services 
was higher than Medicare FFS cost-sharing estimates. For example, 19 
percent of MA beneficiaries were enrolled in plans that projected 
higher cost sharing for home health services, on average, than Medicare 
FFS, which has no cost sharing for this service at all, and 16 percent 
of beneficiaries were enrolled in plans that projected higher cost 
sharing for inpatient services compared to Medicare FFS 
estimates.[Footnote 23] (See table 4.) Because cost sharing is higher 
for some categories of services, some beneficiaries who frequently use 
these services can have overall cost sharing that is higher than what 
they would pay under Medicare FFS. 

Table 4: Beneficiaries in MA Plans with Higher Projected Cost Sharing 
Than Medicare FFS for a Given Service Category by Plan Type, 2007: 

Home health services[B]: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 422,078; 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 11; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 393,523; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 28; 
PPO Plans = 345, Beneficiaries = 301,746: Number: 253,242; 
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 84; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 
1,069,023; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 19. 

Inpatient services[C]: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 699,763; 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 18; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 170,737; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 12; 
PPO Plans = 345, Beneficiaries = 301,746: Number: 66,746; 
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 22; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 937,246; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 16. 

Skilled nursing facility services: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 384,960; 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 10; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 67,017; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 5; 
PPO Plans = 345, Beneficiaries = 301,746: Number: 47,094; 
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 16; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 499,071; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 9. 

Durable medical equipment, prosthetics, and supplies: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 92,070; 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 2; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 110,147; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 8; 
PPO Plans = 345, Beneficiaries = 301,746: Number: 13,324; 
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 4; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 215,541; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 4. 

Part B drugs[D]: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 88,458; 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 2; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 7,975; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 1; 
PPO Plans = 345, Beneficiaries = 301,746: Number: 4,806; 
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 2; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 101,416; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 2. 

Outpatient facility services[E]: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 31,359; 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 1; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 0; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 0; 
PPO Plans = 345, Beneficiaries = 301,746: Number: 138; 
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 0; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 31,497; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 1. 

Professional services[C]: 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Number: 14,641; 
HMO Plans = 1,209, Beneficiaries = 3,977,161: Percentage: 0; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Number: 5,781; 
PFFS Plans = 479, Beneficiaries = 1,408,103: Percentage: 0; 
PPO Plans = 345, Beneficiaries = 301,746: Number: 26,611; 
PPO Plans = 345, Beneficiaries = 301,746: Percentage: 9; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Number: 47,033; 
All plans[A] Plans = 2,055, Beneficiaries = 5,764,368: Percentage: 1. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Employer plans, Part B only plans, SNPs, regional PPOs, and 
plans with service areas that are exclusively outside of the 50 states 
and the District of Columbia were excluded from the analysis. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[B] Home health services include skilled nursing services, home health 
aides, and certain therapy services, all provided in the home setting. 

[C] Many MA plans include cost sharing for professional services, such 
as physician visits received during a hospital stay, in their inpatient 
cost-sharing amount. As a result, the cost sharing for professional 
services may be understated for MA plans, while the inpatient cost 
sharing may be overstated for MA plans. Professional services include 
physician visits, therapy, and radiology, among other services. 

[D] Part B drugs are drugs that are covered under Medicare Part B, and 
they include drugs that are typically administered by a physician. Many 
plans excluded Part B drugs from the out-of-pocket maximum if they were 
obtained from a pharmacy, but according to CMS, did not exclude Part B 
drugs administered by a physician. 

[E] Outpatient facility services include surgery, emergency, and other 
services provided in an outpatient facility. 

[End of table] 

Cost sharing for particular categories of services varied substantially 
among MA plans. For example, we found significant variation in cost 
sharing for inpatient services. Some MA beneficiaries were in plans 
with no cost sharing for inpatient services. More than half a million 
MA beneficiaries, representing 9 percent of MA beneficiaries, were in 
193 plans with no deductibles, copayments, or coinsurance requirements 
for inpatient services as of August 2007. Beneficiaries in these plans 
with long or frequent hospital stays could have saved thousands 
compared to what their cost sharing would have been if they were 
enrolled in Medicare FFS, which typically included a $992 deductible, a 
$248 daily copayment for hospital stays lasting between 61 and 90 days, 
and additional coinsurance payments for professional services provided 
in the hospital.[Footnote 24] 

Other MA beneficiaries, however, could have paid substantially more 
than Medicare FFS beneficiaries for inpatient care. We found 80 MA 
plans that charged a daily copayment of $200 or more for the first 10 
days of a hospital admission and placed high or no limits on out-of-
pocket costs for inpatient services.[Footnote 25] These 80 MA plans 
also had more than half a million beneficiaries. Beneficiary cost 
sharing in these 80 plans could have been $2,000 or more for a 10-day 
hospital stay, and $3,000 or more for three average-length hospital 
stays.[Footnote 26] Figure 4 provides an illustrative example of an MA 
plan that could have exposed a beneficiary to higher inpatient costs 
than under Medicare FFS. While the plan in this illustrative example 
had lower cost sharing than Medicare FFS for initial hospital stays of 
4 days or less as well as initial hospital stays of 30 days or more, 
for stays of other lengths the MA plan could have cost beneficiaries 
more than $1,000 above out-of-pocket costs under Medicare FFS. The 
disparity between out-of-pocket costs under the MA plan and costs under 
Medicare FFS was largest when comparing additional hospital visits in 
the same benefit period, since Medicare FFS does not charge a 
deductible if an admission occurs within 60 days of a previous 
admission. 

Figure 4: Example of an MA Plan with Inpatient Cost Sharing Different 
from the Medicare FFS Program: 

[See PDF for image] 

This figure is a multiple line graph depicting an example of an MA Plan 
with inpatient cost sharing different from the Medicare FFS Program. 
The vertical axis of the graph represents total cost to beneficiaries 
from 0 to $3,500. The horizontal axis of the graph represents length of 
stay in days from 1 to 35. Three lines are depicted, representing the 
following information: 

MA plan cost sharing consisting of a copayment for days 1-10 of a 
hospital stay: 
This line shows a cost of about $275 on day one, rising steadily to 
about $2,750 by day ten, and remaining constant for the remaining 
number of days. There is a $275 per day copayment under the MA plan for 
days 1-10 and no per day copayment under the MA plan for days 11-90. 

Medicare FFS estimated cost sharing for an initial hospital stay 
consisting of coinsurance for physician services received in the 
hospital and a deductible: 
This line shows a cost of about $1,100 on day one, rising steadily to 
about $3,000 by day 35. 

Medicare FFS estimated cost sharing for a subsequent hospital stay 
consisting of coinsurance for physician services received in the 
hospital (no deductible): 
This line shows a cost of 0 on day one, rising steadily to about $2,000 
by day 35. 

Source: GAO analysis of 2007 CMS Plan Benefit Package data and CMS 
actuarial data. 

Notes: In this example, the MA plan charged a $275 daily copayment for 
the first 10 days of the hospital stay, and charged no additional 
copayment for days 11 through 90. The plan had a $4,000 out-of-pocket 
maximum. In contrast, in 2007 Medicare FFS charged a $992 deductible 
for an initial hospital stay in a benefit period and $248 per day for 
days 61 through 90 of a hospital stay. Medicare FFS beneficiaries paid 
no deductible for a subsequent hospital stay if it occurred within 60 
days of the previous stay in an inpatient facility. In addition, 
Medicare FFS beneficiaries must pay coinsurance for physician services 
received while in the hospital. The charges associated with these 
physician services averaged $73 per day for the first 4 days of the 
hospital stay, and $58 per day for the remaining days of a hospital 
stay through 90 days. This example assumes that the beneficiary was 
charged the average coinsurance. The actual amount of coinsurance a 
beneficiary pays varies based on the amount of services a beneficiary 
receives, and charges can be above or below the average. 

[A] Nearly 88 percent of hospital stays under Medicare were 10 days or 
less in 2004 according to CMS data. About 3 percent of hospital stays 
were 20 days or longer, and 1 percent of stays were longer than 30 
days. 

[End of figure] 

As of August 2007, about 48 percent of MA beneficiaries were enrolled 
in plans that had an out-of-pocket maximum, which helps protect 
beneficiaries against high spending on cost sharing.[Footnote 27] (See 
fig. 5.) Of the three most common MA plan types, beneficiaries in PFFS 
plans were the most likely to be in a plan with an out-of-pocket 
maximum, but PFFS plans also had the highest average out-of-pocket 
maximum. For MA plans that had an out-of-pocket maximum, the average 
amount was $3,463. See appendix IV for further details on out-of-pocket 
maximums. 

Figure 5: Beneficiaries in MA Plans by Out-of-Pocket Maximum Amount and 
Plan Type, 2007: 

[See PDF for image] 

This figure is a stacked vertical bar graph depicting the following 
information: 

Plan type: HMO, Plans = 1,209, beneficiaries = 3,977,161: 
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or 
below: 20; 
Percentage of beneficiaries, Overall out-of-pocket maximum of greater 
than $3,100: 16; 
Percentage of beneficiaries, No overall out-of-pocket maximum: 64. 

Plan type: PFFS, Plans = 479, beneficiaries = 1,408,103: 
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or 
below: 28; 
Percentage of beneficiaries, Overall out-of-pocket maximum of greater 
than $3,100: 50; 
Percentage of beneficiaries, No overall out-of-pocket maximum: 23. 

Plan type: PPO, Plans = 345, beneficiaries = 301,746: 
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or 
below: 57; 
Percentage of beneficiaries, Overall out-of-pocket maximum of greater 
than $3,100: 11; 
Percentage of beneficiaries, No overall out-of-pocket maximum: 32. 

Plan type: All plans[A], Plans = 2,055, beneficiaries = 5,764,368: 
Percentage of beneficiaries, Overall out-of-pocket maximum of $3,100 or 
below: 24; 
Percentage of beneficiaries, Overall out-of-pocket maximum of greater 
than $3,100: 24; 
Percentage of beneficiaries, No overall out-of-pocket maximum: 52. 

Notes: For 2007, CMS generally applied less stringent criteria in 
evaluating a plan's cost-sharing requirements if the plan had an out-
of-pocket maximum of $3,100 or below. If a plan had two out-of-pocket 
maximums--one for in-network services and one for combined in-and out-
of-network services, then we used the lower value for this analysis. 
Some plans without an out-of-pocket maximum did have a service-specific 
maximum. Twenty-one percent of plans with no out-of-pocket maximum had 
a service-specific maximum for inpatient acute services, and 16 percent 
of plans with no out-of-pocket maximum had a service-specific maximum 
for inpatient psychiatric services. Employer plans, Part B only plans, 
SNPs, regional PPOs, and plans with service areas that are exclusively 
outside of the 50 states and the District of Columbia were excluded 
from the analysis. Some numbers do not add up to 100 due to rounding. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[End of figure] 

An out-of-pocket maximum does not always cover all categories of 
services. Some MA plans excluded some services from the out-of-pocket 
maximum. Beneficiaries who use these excluded services may pay more in 
total cost sharing than is indicated by the plan's out-of-pocket 
maximum. Part B drugs, which include drugs that are typically 
physician-administered drugs, were most often excluded from the out-of-
pocket maximum--29 percent of MA plans with an out-of-pocket maximum 
excluded some Part B drugs from that maximum.[Footnote 28] (See table 
5.) Plans that excluded a certain service category from the out-of-
pocket maximum did not necessarily exclude all services from that 
category. For example, many plans excluded Part B drugs from the out-
of-pocket maximum if they were obtained from a pharmacy, but according 
to CMS, did not exclude Part B drugs administered by a physician. 

Table 5: MA Plans That Exclude Some Services under a Service Category 
from Their Out-of-Pocket Maximum: 

Part B drugs[A]: 
Number of plans, Plans = 1,016: 296; 
Percentage of plans, Plans = 1,016: 29; 
Number of beneficiaries, Beneficiaries = 2,738,531: 1,107,876; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 40. 

Outpatient substance abuse: 
Number of plans, Plans = 1,016: 233; 
Percentage of plans, Plans = 1,016: 23; 
Number of beneficiaries, Beneficiaries = 2,738,531: 645,997; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 24. 

Physician specialist, excluding psychiatric: 
Number of plans, Plans = 1,016: 230; 
Percentage of plans, Plans = 1,016: 23; 
Number of beneficiaries, Beneficiaries = 2,738,531: 641,270; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 23. 

Mental health, non-physician: 
Number of plans, Plans = 1,016: 230; 
Percentage of plans, Plans = 1,016: 23; 
Number of beneficiaries, Beneficiaries = 2,738,531: 630,504; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 23. 

Psychiatric: 
Number of plans, Plans = 1,016: 218; 
Percentage of plans, Plans = 1,016: 21; 
Number of beneficiaries, Beneficiaries = 2,738,531: 602,500; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 22. 

Home health services: 
Number of plans, Plans = 1,016: 211; 
Percentage of plans, Plans = 1,016: 21; 
Number of beneficiaries, Beneficiaries = 2,738,531: 569,618; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 21. 

Prosthetics and medical supplies: 
Number of plans, Plans = 1,016: 128; 
Percentage of plans, Plans = 1,016: 13; 
Number of beneficiaries, Beneficiaries = 2,738,531: 603,952; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 22. 

Durable medical equipment: 
Number of plans, Plans = 1,016: 116; 
Percentage of plans, Plans = 1,016: 11; 
Number of beneficiaries, Beneficiaries = 2,738,531: 565,413; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 21. 

Outpatient hospital: 
Number of plans, Plans = 1,016: 72; 
Percentage of plans, Plans = 1,016: 7; 
Number of beneficiaries, Beneficiaries = 2,738,531: 192,182; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 7. 

Inpatient hospital, psychiatric: 
Number of plans, Plans = 1,016: 37; 
Percentage of plans, Plans = 1,016: 4; 
Number of beneficiaries, Beneficiaries = 2,738,531: 149,105; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 5. 

Skilled nursing facility: 
Number of plans, Plans = 1,016: 34; 
Percentage of plans, Plans = 1,016: 3; 
Number of beneficiaries, Beneficiaries = 2,738,531: 100,700; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 4. 

Inpatient hospital, acute: 
Number of plans, Plans = 1,016: 19; 
Percentage of plans, Plans = 1,016: 2; 
Number of beneficiaries, Beneficiaries = 2,738,531: 29,937; 
Percentage of beneficiaries, Beneficiaries = 2,738,531: 1. 

Source: GAO analysis of 2007 CMS Plan Benefit Package data. 

Notes: We considered an MA plan to have an out-of-pocket maximum if the 
plan had either an in-network out-of-pocket maximum or an out-of-pocket 
maximum for both in-network and out-of-network services. A plan was 
considered to have excluded a service category from the out-of-pocket 
maximum if the out-of-pocket maximum did not cover that service 
category and if the plan had no service-specific maximum for that 
category. Plans that excluded a certain service category from the out-
of-pocket maximum did not necessarily exclude all services from that 
category. HMOs, PFFS plans, PPOs, and PSOs were included in the 
analysis. Employer plans, Part B only plans, SNPs, regional PPOs, and 
plans with service areas that were exclusively outside of the 50 states 
and the District of Columbia were excluded from the analysis. Only 
plans with an out-of-pocket maximum were included in this analysis. 

[A] Many plans excluded Part B drugs from the out-of-pocket maximum if 
they were obtained from a pharmacy, but according to CMS, did not 
exclude Part B drugs administered by a physician. 

[End of table] 

Approximately 87 Percent of Total Revenue Projected to Be Allocated to 
Medical Expenses, but Projections Varied among Individual Plans: 

For 2007, MA plans projected that of their total revenues ($783 PMPM), 
they would allocate approximately 87 percent ($683 PMPM) to medical 
expenses, resulting in an average medical loss ratio of approximately 
0.87. MA plans projected that they would allocate approximately 9 
percent of total revenue ($71 PMPM) to non-medical expenses, and 
approximately 4 percent ($30 PMPM) to the plans' margin, on 
average.[Footnote 29] 

While there was little variation in the average projected medical loss 
ratio by plan type, there was variation among individual plans. For 
example, we found that about 30 percent of beneficiaries--about 1.7 
million--were enrolled in plans with a medical loss ratio of less than 
0.85--the threshold included in the Children's Health and Medicare 
Protection Act of 2007 (CHAMP Act).[Footnote 30] (See fig. 6.) A CMS 
official we spoke to stated that the medical loss ratio may vary for 
reasons other than utilization and the cost of providing care. For 
example, some MA plans may categorize the costs of delivering care 
management services as a medical expense, while other plans may include 
this as a non-medical expense. 

Figure 6: Percentage of Beneficiaries in MA Plans That Project 
Allocating Less Than 85 Percent of Total Revenues to Medical Expenses, 
by Plan Type, 2007: 

[See PDF for image] 

This figure is a vertical bar graph, depicting the following 
information: 

Plan type: HMO, Plans = 1,209; beneficiaries = 3,977,161; 
Percentage of beneficiaries: 33%. 

Plan type: PFFS, Plans = 479; beneficiaries = 1,408,103; 
Percentage of beneficiaries: 24%. 

Plan type: PPO, Plans = 345; beneficiaries = 301,746; 
Percentage of beneficiaries: 7%. 

Plan type: All plans[A], Plans = 2,055; beneficiaries = 5,764,368; 
Percentage of beneficiaries: 30%. 

Source: GAAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: A CMS official indicated that the percentage of revenues 
allocated to medical expenses (the medical loss ratio) may vary across 
plans for reasons other than utilization and the cost of providing 
care. For example, some MA plans may categorize the costs of delivering 
care management services as a medical expense, while other plans may 
include this as a non-medical expense. Employer plans, Part B only 
plans, SNPs, regional PPOs, and plans with service areas that are 
exclusively outside of the 50 states and the District of Columbia were 
excluded from the analysis. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[End of figure] 

MA plans projected expenses separately for four distinct non-medical 
expense categories--marketing and sales, direct administration, 
indirect administration, and the net cost of private 
reinsurance.[Footnote 31] On average, MA plans projected allocating 
total revenue to non-medical expenses approximately as follows: 

* 2.4 percent to marketing and sales; 

* 2.9 percent to direct administration, such as customer service and 
medical management; 

* 3.7 percent to indirect administration, such as accounting operations 
and human resources; and: 

* 0.1 percent to the net cost of private reinsurance. 

Of these four non-medical expense categories, the largest difference 
between plan types' allocation of revenue to non-medical expenses was 
in the category of marketing and sales. On average, as a percentage of 
total revenue, projected marketing and sales expenses were 2 percent 
($16 PMPM) for HMOs, 3.6 percent ($27 PMPM) for PFFS plans, and 2 
percent ($17 PMPM) for PPOs. (See fig. 7.) 

Figure 7: MA Plans' Projected Marketing and Sales Expenses by Plan 
Type, 2007: 

[See PDF for image] 

This figure is a vertical bar graph, depicting the following 
information: 

Plan type: HMO, Plans = 1,209; beneficiaries = 3,977,161; 
Percentage of total revenue: 2.0%. 

Plan type: PFFS, Plans = 479; beneficiaries = 1,408,103; 
Percentage of total revenue: 3.6%. 

Plan type: PPO, Plans = 345; beneficiaries = 301,746; 
Percentage of total revenue: 2.0%. 

Plan type: All plans[A], Plans = 2,055; beneficiaries = 5,764,368; 
Percentage of total revenue: 2.4%. 

Source: GAAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Percentages are weighted by August 2007 enrollment. Employer 
plans, Part B only plans, SNPs, regional PPOs, and plans with service 
areas that are exclusively outside of the 50 states and the District of 
Columbia were excluded from the analysis. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[End of figure] 

Concluding Observations: 

Medicare spends more per beneficiary in MA than it does for 
beneficiaries in Medicare FFS, at an estimated additional cost to 
Medicare of $54 billion from 2009 through 2012. Under the current 
payment system, the average MA plan receives a Medicare rebate equal to 
approximately $87 PMPM, on average. In 2007, MA plans projected that 
they would use the vast majority of their rebates--approximately 89 
percent--to reduce enrollees' premiums and to lower their out-of-pocket 
costs for Medicare-covered services. Plans projected that they would 
use a relatively small portion of their rebates--approximately 11 
percent--to provide benefits that are not covered under Medicare FFS. 
Although the rebates generally have helped to make health care more 
affordable for many beneficiaries enrolled in MA plans, some 
beneficiaries may face higher expenses than they would in Medicare FFS. 
Further, because premiums paid by beneficiaries in Medicare FFS are 
tied to both Medicare FFS and MA costs, the additional payments to MA 
plans have increased the premiums paid by beneficiaries in Medicare FFS 
as well as contributed to the substantial long-term financial challenge 
that Medicare faces. Whether the value that MA beneficiaries receive in 
the form of reduced cost sharing, lower premiums, and extra benefits is 
worth the increased cost borne by beneficiaries in Medicare FFS and 
other taxpayers is a decision for policymakers. However, if the policy 
objective is to subsidize health care costs of low-income Medicare 
beneficiaries, it may be more efficient to directly target subsidies to 
a defined low-income population than to subsidize premiums and cost 
sharing for all MA beneficiaries, including those who are well off. As 
Congress considers the design and cost of the MA program, it will be 
important for policymakers to balance the needs of beneficiaries--
including those in MA plans and those in Medicare FFS--with the 
necessity of addressing Medicare's long-term financial health. 

Agency and Other External Comments and Our Evaluation: 

CMS provided us with written comments on a draft of this report which 
are reprinted in appendix V, and AHIP, a national association that 
represents companies providing health insurance coverage, provided us 
with oral comments. 

CMS Comments: 

In general, CMS commented that the report did not recognize that the 
majority of MA benefit packages in 2007 were better and provided more 
protection for out-of-pocket costs than Medicare FFS. It stated that 
the report failed to acknowledge that MA plans provide beneficiaries 
with the ability to choose a plan that best meets individual medical 
and financial needs. CMS also expressed concern that the report was not 
balanced because it did not sufficiently focus on the advantages of MA 
plans. We disagree with CMS that we did not consider that most MA plans 
offered better cost sharing than Medicare FFS. We noted in the first 
paragraph of our cost sharing finding that, overall, plans projected MA 
beneficiary cost sharing that was 42 percent of estimated cost sharing 
in Medicare FFS. Regarding the absence of information about MA plans 
providing beneficiaries with choices, this was not the focus of our 
research. However, we agree the issue provides important context and 
therefore we noted in the report's introduction the additional choice 
MA plans provide Medicare beneficiaries. We disagree that the report is 
not balanced. We provided a fact-based assessment of how rebates were 
projected to be used in 2007, and identified important issues related 
to cost sharing. Even though cost sharing would be less, on average, in 
MA plans than in Medicare FFS, an important finding of our report is 
that beneficiaries who use certain services with high cost sharing in 
MA plans could have higher overall out-of-pocket costs than under 
Medicare FFS. 

CMS provided several additional comments. CMS commented that it did not 
disagree with our finding that 16 percent of beneficiaries were in 
plans with higher inpatient cost sharing than Medicare FFS. However, it 
noted that our discussion of the issue and accompanying table and 
figure did not account for several factors that would have mitigated 
the impact of the finding. Specifically, CMS commented that we should 
have considered that MA plans generally combine physician cost sharing 
in the hospital with inpatient hospital cost sharing, which would have 
decreased the difference in cost sharing between MA plans and Medicare 
FFS. Although we had noted this in table notes in the draft, we agree 
that this should be clearer and modified our text and accompanying 
figure comparing MA and Medicare FFS cost sharing, and clarified 
existing table notes. We also modified the text and accompanying figure 
to differentiate between first and subsequent admissions within the 
same benefit period, in response to CMS comments. These changes did not 
affect our finding that some beneficiaries could have cost sharing that 
was considerably higher than in Medicare FFS. 

CMS also commented that we should have discussed the mitigating impact 
of particularly long hospitalizations because beneficiaries with long 
inpatient hospitals stays in MA plans are likely to have lower cost 
sharing than under Medicare FFS. We acknowledged CMS's point and 
addressed this issue in the finding and modified the accompanying 
figure. However, most beneficiaries have relatively short lengths of 
stay. For example, in 2005, the average length for an inpatient stay 
was 5.4 days. This modification did not change our message that some 
beneficiaries in MA plans could have higher out-of-pocket costs. 

In addition, CMS commented that we should have noted that many plans 
have "effective" out-of-pocket maximums for inpatient stays even if 
they are not specified as such in the plan benefit package. For 
example, plans may require copayments for specific days of an inpatient 
stay, such as days 1 through 6, but not for any days beyond the sixth 
day, thereby capping maximum cost sharing for the stay. We agree that 
most plans have "effective" or actual out-of-pocket maximums for 
inpatient hospital services. We also agree that in many cases these 
maximums can limit beneficiary inpatient cost sharing to levels below 
inpatient cost sharing under Medicare FFS. However, MA plans projected 
that about 16 percent of beneficiaries were enrolled in plans that 
projected higher cost sharing than under Medicare FFS even after 
accounting for "effective" or actual out-of-pocket maximums. While some 
of the 16 percent of plans may have bundled physician services with 
their inpatient estimates, we also showed that 80 plans with high out-
of-pocket maximums for inpatient services could have higher cost 
sharing than Medicare FFS even with "effective" out-of-pocket maximums 
for inpatient hospital services. 

CMS raised other concerns about our out-of-pocket maximum analysis, 
specifically stating that we overestimated the impact of the exclusion 
of Part B drugs from out-of-pocket maximums. It noted that Part B drugs 
administered in a physician's office would be included under an out-of-
pocket maximum and that only a subset of plans excluded Part B drugs 
obtained from a pharmacy from the out-of-pocket maximum. We relied on 
the Plan Benefit Package for information regarding the analysis of Part 
B drug exclusions from out-of-pocket maximums. According to these data, 
there were 1.1 million beneficiaries in plans that reported such 
exclusions in 2007. We noted that the exclusions applied to Part B 
drugs obtained from a pharmacy and that the plans did not indicate the 
coverage for Part B drugs administered by a physician. We sought 
clarification from CMS for which Part B drugs were excluded from the 
out-of-pocket maximum and were told by a CMS official that plans 
excluded spending on Part B drugs from the out-of-pocket maximum if 
beneficiaries received them on an outpatient basis. We added this point 
of clarification to a footnote in the draft. Given CMS's subsequent 
agency comments on this issue, we clarified in the text that the 
exclusions applied to Part B drugs obtained from a pharmacy and do not 
typically apply to Part B drugs administered by a physician. However, 
we are concerned that the information in the Plan Benefit Package--
information that beneficiaries rely on when they are seeking benefit 
coverage information--does not indicate whether chemotherapy drugs are 
included or excluded under the out-of-pocket maximums. 

CMS also provided technical comments and clarifications, which we 
incorporated as appropriate. 

AHIP Comments: 

AHIP representatives stated that they agreed with our methodology, but 
raised certain points that they thought the report should have made or 
emphasized. 

AHIP representatives said that while they understood why we made a 
distinction between additional benefits and cost-sharing reductions, 
they believed that we characterized additional benefits as being the 
more valuable of the two. We disagreed with AHIP's assessment. While we 
did include a discussion of how MA plans projected they would allocate 
their rebates to additional benefits, premium reductions, and cost-
sharing reductions, it was beyond the scope of our work to assess the 
relative value of the allocation options. 

With regard to our cost-sharing finding, AHIP stated that while MA 
beneficiaries may have higher cost sharing for some categories of 
services, these may be offset by lower cost sharing for other 
categories of services. Like CMS, AHIP contended that our example of an 
MA plan with higher cost sharing for inpatient services, relative to 
FFS, did not account for the additional cost sharing Medicare FFS 
beneficiaries would pay for physician services during their inpatient 
stays. As both CMS and AHIP pointed out, most MA plans do not charge 
extra for physician services during inpatient stays. We have made 
changes to the text of our report and the accompanying figure to 
clarify this point. However, as our report noted, beneficiaries who 
frequently use high cost-sharing services could have overall cost 
sharing that would be higher than under Medicare FFS. 

AHIP stated that although some beneficiaries may face higher cost 
sharing under an MA plan than if they were enrolled in Medicare FFS, 
their out-of-pocket costs could be lower if their MA plan has a lower 
premium than Medicare FFS. While this may be true in some cases--we 
found that, on average, plans used 3 percent of their rebates to reduce 
Part B premiums--it was beyond the scope of our work to make such a 
determination. AHIP further stated that MA plans provide beneficiaries 
with options. Beneficiaries who prefer more predictable expenses can 
choose MA plans with higher premiums and lower cost sharing, while 
beneficiaries who are less averse to risk can choose MA plans with 
lower premiums and higher cost sharing. We agree that the MA program 
provides beneficiaries with options and have added this point to the 
text of our report. 

With regard to our reporting on MA plan medical loss ratios, AHIP 
representatives indicated that our point was fairly stated, but they 
asked us to mention this point in the Results in Brief section of the 
report. We believed that we made this point clear in our discussion of 
medical loss ratios and that the issue did not warrant mentioning in 
our high-level summary. 

As agreed with your offices, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from its date. At that time we will send copies to the Administrator of 
CMS and interested congressional committees. We will also make copies 
available to others upon request. The report will also be available at 
no charge on the GAO Web site at [hyperlink, http://www.gao.gov]. 

If you or your staffs have any questions about this report please 
contact me at (202) 512-7114 or [email protected]. 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 VI. 

Signed by: 

James C. Cosgrove: 
Acting Director, Health Care: 

List of Requesters: 

The Honorable John D. Dingell: 
Chairman: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Frank Pallone, Jr. 
Chairman: 
Subcommittee on Health: 
Committee on Energy and Commerce: 
House of Representatives: 

The Honorable Henry A. Waxman: 
Chairman Committee on Oversight and Government Reform: 
House of Representatives: 

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

The Honorable Pete Stark: 
Chairman: 
Subcommittee on Health: 
Committee on Ways and Means: 
House of Representatives: 

[End of section] 

Appendix I: Example of a Rebate Calculation: 

For most Medicare Advantage (MA) plan types, Medicare provides plans 
with a rebate if the plan's bid is below the benchmark, but provides no 
rebate if the plan's bid exceeds the benchmark.[Footnote 32] Table 6 is 
an example of rebate calculations for two hypothetical plans, both in 
the same county. 

Table 6: The Calculation of the Rebate for Two Hypothetical MA Plans: 

County's fee-for-service spending: 
Plan A dollars per member per month: $720; 
Plan B dollars per member per month: $720. 

County's benchmark: 
Plan A dollars per member per month: $800; 
Plan B dollars per member per month: $800. 

Plan bid: 
Plan A dollars per member per month: $700; 
Plan B dollars per member per month: $840. 

Amount by which bid is lower than benchmark; 
Plan A dollars per member per month: $100; 
Plan B dollars per member per month: $0. 

Plan's rebate (75 percent of amount by which bid is lower than 
benchmark): 
Plan A dollars per member per month: $75; 
Plan B dollars per member per month: $0. 

Medicare payment: 
Plan A dollars per member per month: $775; 
Plan B dollars per member per month: $800. 

Mandatory plan premium: 
Plan A dollars per member per month: $0; 
Plan B dollars per member per month: $40. 

Additional benefits, reduced premiums, and reduced cost sharing to 
beneficiary: 
Plan A dollars per member per month: $75; 
Plan B dollars per member per month: $0. 

Source: GAO. 

Note: All numbers in this example are standardized to represent a 
beneficiary of average health status. 

[End of table] 

Both plans have the same benchmark because they are in the same county. 
Plan A submits a bid of $700 per member per month (PMPM). Because the 
plan's bid is $100 PMPM below the benchmark, it receives a rebate equal 
to 75 percent of that amount, or $75 PMPM. Plan A must use the $75 PMPM 
rebate to provide additional benefits, reduced premiums, reduced cost 
sharing, or any combination of the three. Plan B, however, submits a 
bid that is $40 PMPM above the benchmark. As a result, the plan 
receives no rebate. Medicare's payments to plans cannot exceed the 
benchmark, so Medicare's payment to Plan B is set at $800 PMPM, the 
amount of the benchmark. Plan B must make up the remainder of the bid 
by charging its beneficiaries a mandatory plan premium of $40 PMPM. 
Since Plan A has extra benefits and no additional premium, while Plan B 
has no extra benefits and an additional premium, Plan A may attract 
more beneficiaries. If most beneficiaries choose Plan A over Plan B, 
Plan B is given an incentive to become more efficient in the following 
year and lower its bid. 

[End of section] 

Appendix II: Scope and Methodology: 

This section describes the scope and methodology used to analyze our 
four objectives: (1) how MA plans projected they would allocate the 
rebates they receive, (2) what additional benefits MA plans commonly 
covered with the rebates and additional premiums, and the projected 
costs of these additional benefits, (3) how MA plans' projected 
beneficiary cost sharing, overall and by type of service, compared to 
Medicare fee-for-service (FFS), and (4) how MA plans projected they 
would allocate their revenue to medical and other expenses. 

We used two primary data sources to analyze our four objectives: the 
2007 Bid Pricing Tool data and the 2007 Plan Benefit Package data. 
These data are submitted by MA plans to the Centers for Medicare & 
Medicaid Services (CMS), the agency that administers Medicare. The bid 
pricing data contain MA plans' projections of their revenue 
requirements and revenue sources. Specifically, the bid pricing data 
include MA plans' projections of revenue requirements--spending on 
medical expenses, spending on non-medical expenses, and the margin. The 
bid pricing data also contain information on the benefits and cost-
sharing arrangements of plans, including how MA plans' projected cost 
sharing compares to cost sharing in Medicare FFS. In addition, the bid 
pricing data contain information on the amount of rebates and 
additional premiums plans project they will require to fund additional 
benefits, reduced premiums, and reduced cost sharing. The benefit 
package data contain detailed information about the benefits and cost-
sharing requirements that MA plans offer to Medicare beneficiaries. 

For our objectives, we focused our analysis on plan types that account 
for 98 percent of MA enrollment: Health Maintenance Organizations (HMO) 
(71 percent), Private Fee-for-Service (PFFS) Plans (21 percent), 
Preferred Provider Organizations (PPO) (5 percent), and Provider-
Sponsored Organizations (PSO) (1 percent).[Footnote 33] We excluded 
Medical Savings Account plans and regional PPOs from our analysis 
because they follow a different bidding process. We excluded plan types 
that have unique restrictions on enrollment--such as employer plans, 
Special Needs Plans (SNP), and demonstration plans--and bids for plans 
that only cover Part B services. We also excluded plans with service 
areas that are exclusively outside the 50 states and the District of 
Columbia. Plans sponsors are permitted to submit separate bids for a 
single package of benefits by dividing the service area into segments; 
in these cases, benefits would be the same for each segment, but each 
segment's cost sharing and premiums may differ. We counted each segment 
as a separate plan. We used August 2007 enrollment numbers to weight 
our results. As a result of our methodology, we included 2,055 plans 
and 5,764,368 beneficiaries (71 percent of total MA enrollment) in our 
analysis--these numbers apply to all tables and figures in the report, 
unless otherwise noted. Because there were only 22 PSOs after the 
exclusions, and enrollment in those plans was 1 percent of MA 
enrollment, we do not report results separately for PSOs, but we 
include them in the aggregated results we report for all MA plans. 

To determine how plans projected they would allocate the rebate to 
additional benefits, reduced premiums, and reduced cost sharing, we 
used the bid pricing data. The bid pricing data contain the total 
amounts plans projected they would spend on additional benefits, 
reduced premiums, and reduced cost sharing. However, since MA plans use 
both rebates and additional premiums as a funding source for these 
additional benefits, reduced premiums, and reduced cost sharing, we 
calculated the proportion of total funding plans projected they would 
spend on additional benefits, reduced premiums, and reduced cost 
sharing and applied these projections to the projected rebate. We 
restricted our analysis of rebate allocations to the 1,874 plans that 
received a rebate. 

To identify the additional benefits that MA plans commonly covered with 
rebates and additional premiums, we used the benefit package data. The 
benefit package data provide the most detailed and accurate information 
about benefits offered, including additional benefits. We used the 
crosswalk CMS recommended--but did not require--plans to use to match 
service categories in the benefit package data to categories in the bid 
pricing data, and identified the percentage of beneficiaries in plans 
that offered additional benefits using bid pricing categories.[Footnote 
34] 

To identify the costs associated with these additional benefits, we 
used the bid pricing data. Plans did not use consistent categories for 
their additional benefits in the bid pricing data. For example, some 
plans categorized additional vision benefits under the category of 
other non-covered services. Therefore, our estimates of the costs of 
additional benefits do not include all plans that offer those benefits, 
but are based on a smaller number of plans that specified that 
additional benefit and the associated cost of providing that benefit. 
In addition, some categories, such as professional services and other 
non-covered services, were identified by CMS as unreliable because they 
likely included a variety of services, and we excluded these categories 
from our analysis. Other categories of additional services may include 
some inconsistent services, and the cost estimates for additional 
benefits should therefore be considered as approximations. 

To calculate estimated costs for each of the additional service 
categories, we identified plans that offered the additional benefit and 
that had projected a cost of at least $0.01 PMPM. The projected amounts 
of plans' additional benefits were adjusted for the health status of 
the plans' projected population by dividing the amount of the plans' 
additional benefits by the plans' projected risk scores--a number 
representing how a plan's beneficiaries' health expenditures are 
predicted to differ from the average beneficiary in Medicare 
FFS.[Footnote 35] We then calculated the average amount of the 
additional benefit, weighting the average by the number of enrollees in 
the plans. If we had estimated the amount of additional benefits funded 
only by the rebates, the PMPM amounts of additional benefits would be 
lower. 

To compare projected beneficiary cost sharing in MA plans and Medicare 
FFS, we analyzed plans' cost sharing for Medicare-covered services as 
reported in the bid pricing data and the equivalent Medicare FFS cost-
sharing amounts, also included in the bid pricing data. The equivalent 
Medicare FFS cost sharing represents an MA beneficiary's expected cost 
sharing under Medicare FFS if the beneficiary's MA plan had the same 
pricing and utilization as Medicare FFS. The Medicare FFS equivalent 
cost sharing for each service category was calculated by applying the 
average cost-sharing percentage under Medicare FFS for a given service 
category to each plan's total cost estimates for providing benefits in 
that service category. For example, if the cost-sharing percentage 
under Medicare FFS for inpatient services is 10 percent for a given 
county, and an MA plan in that county projects spending on inpatient 
services at $200 PMPM, then the equivalent inpatient cost sharing is 10 
percent of $200, or $20 PMPM. For Part A services, the cost-sharing 
percentage under Medicare FFS is calculated for each county--one county 
may have an equivalent inpatient cost-sharing percentage of 10 percent, 
while another county may have a percentage of 8 percent. For Part B 
services, however, the cost-sharing percentages are a national average, 
so the same percentages were applied to all counties. We divided each 
plan's estimated cost sharing and the Medicare equivalent cost sharing 
by each plan's projected risk score to get estimated cost sharing for a 
beneficiary with average Medicare health spending. We reported the 
percentage of plans that had cost sharing higher than the estimated 
Medicare cost sharing for a given service category. 


When we calculated the amount of reduced cost sharing, we used the 
total amounts reported in the bid pricing data. We included both 
rebates and additional premiums because this provided the accurate 
amount of cost-sharing reductions that MA plans projected their 
beneficiaries will receive. The amounts of the additional benefits and 
cost-sharing reductions in our analyses would be lower if we had 
restricted our analysis to rebates as the sole funding source. 

To determine plans' out-of-pocket maximums, we examined the in-network 
out-of-pocket maximum and the combined out-of-pocket maximum (a maximum 
that applies to both in-network and out-of-network services) fields in 
the benefit package data. If the two fields were the same value, then 
we defined the out-of-pocket maximum as equal to that value. If one of 
the fields was blank, and the other field was a positive number, then 
we defined the out-of-pocket maximum as equal to the value of the field 
with the positive number. If both fields had a positive number, but 
they were not equal, then we defined the out-of-pocket maximum as equal 
to the value of the field with the lower value. We categorized a plan 
as having an out-of-pocket maximum even if the plan excluded certain 
categories of service from that maximum. We did not categorize a plan 
that had only a service-specific maximum as having an out-of-pocket 
maximum. 

To determine the percentage of total revenue allocated to medical 
expenses and other expenses, we used the bid pricing data and 
calculated the projected values of medical expenses, non-medical 
expenses, and margin as a percentage of revenue for all plans and by 
plan type.[Footnote 36] We reported the percentages of beneficiaries in 
plans that projected medical expenses less than 85 percent. We also 
analyzed the percentage of revenue projected to go to sales and 
marketing from the bid pricing data. 

[End of section] 

Appendix III: Plan Variation in Rebate Amounts: 

Rebate amounts, as well as the allocation of rebates, varied 
considerably from plan to plan. To provide a measure of this variation, 
we calculated rebate amounts and the amounts of additional benefits, 
reduced premiums, and reduced cost sharing at the 25th and 75th 
percentiles, weighted for enrollment. A percentile is the value below 
which a certain percentage of beneficiaries fall. For example, the 
value of the cost-sharing reduction at the 25th percentile was $39.02 
PMPM and at the 75th percentile was $78.90 PMPM, meaning that at least 
25 percent of beneficiaries were in plans that projected a cost-sharing 
reduction of $39.02 PMPM or less, and at least 75 percent of 
beneficiaries were in plans that projected a cost-sharing reduction of 
$78.90 PMPM or less. (See table 7.) 

Table 7: Rebate Amount Allocated to Additional Benefits, Premium 
Reductions, and Cost-Sharing Reductions by Plan Type, 2007: 

Average: Rebate total; 25th percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $57.81; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $59.70; 
PPO Plans = 306 Beneficiaries = 268,460: $37.33; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $56.32. 

Average: Rebate total; 75th percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $118.19; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $83.30; 
PPO Plans = 306 Beneficiaries = 268,460: $69.83; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $108.55. 

Amount of rebate allocated to Additional benefits[B]; 25th percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $4.14; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $0.00; 
PPO Plans = 306 Beneficiaries = 268,460: $3.56; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $2.75. 

Amount of rebate allocated to Additional benefits[B]; 75th percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $15.51; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $11.41; 
PPO Plans = 306 Beneficiaries = 268,460: $13.96; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $13.70. 


Amount of rebate allocated to Part D premium reduction[C]; 25th 
percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $0.21; 
PFFS Plans = 367 Beneficiaries = 1,361,668: 0.00; 
PPO Plans = 306 Beneficiaries = 268,460: 0.00; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: 0.00. 

Amount of rebate allocated to Part D premium reduction[C]; 75th 
percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $24.04; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $24.12; 
PPO Plans = 306 Beneficiaries = 268,460: $7.25; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $24.12. 

Amount of rebate allocated to Part B premium reduction; 25th 
percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $0.00; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $0.00; 
PPO Plans = 306 Beneficiaries = 268,460: $0.00; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $0.00. 

Amount of rebate allocated to Part B premium reduction; 75th 
percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $0.00; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $0.00; 
PPO Plans = 306 Beneficiaries = 268,460: $0.00; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $0.00. 

Amount of rebate allocated to Cost-sharing reduction[B]; 25th 
percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $42.89; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $39.02; 
PPO Plans = 306 Beneficiaries = 268,460: $26.79; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $39.02. 

Amount of rebate allocated to Cost-sharing reduction[B]; 75th 
percentile; 
HMO Plans = 1,179 Beneficiaries = 3,747,087: $84.88; 
PFFS Plans = 367 Beneficiaries = 1,361,668: $68.95; 
PPO Plans = 306 Beneficiaries = 268,460: $52.60; 
All plans[A] Plans = 1,874 Beneficiaries = 5,454,573: $78.90. 

Source: GAO analysis of 2007 CMS Bid Pricing Tool data. 

Notes: Values are weighted by August 2007 plan enrollment and are 
standardized to represent a beneficiary of average health status. 
Employer plans, Part B only plans, SNPs, regional PPOs, and plans with 
service areas that are exclusively outside of the 50 states and the 
District of Columbia were excluded from the analysis. There were 1,874 
plans that received a rebate. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted1 percent of total 
MA enrollment. 

[B] The rebate amounts allocated toward cost sharing and additional 
benefits included some non-medical expenses, such as administrative 
costs and plans' margins. 

[C] Of 1,874 plans that received a rebate, 1,423 offered Part D 
benefits to their beneficiaries. Of those that offered Part D, 1,037 
reduced Part D premiums. 

[End of table] 

[End of section] 

Appendix IV: Plan Variation in the Out-of-Pocket Maximum: 

In 2007, about half of MA beneficiaries were in plans that had an out-
of-pocket maximum, a dollar limit on a beneficiary's cost sharing. The 
out-of-pocket maximum varied from plan to plan. To provide a measure of 
this out-of-pocket maximum variation, we calculated the out-of-pocket 
maximum at the 25th and 75th percentiles, weighted for enrollment. A 
percentile is the value below which a certain percentage of 
beneficiaries fall. For example, the out-of-pocket maximum at the 25th 
percentile was $2,750, and at the 75th percentile it was $4,600, 
meaning that at least 25 percent of beneficiaries were in plans with an 
out-of-pocket maximum $2,750 or less, and at least 75 percent of 
beneficiaries were in plans with an out-of-pocket maximum of $4,600 or 
less. (See table 8.) 

Table 8: Variation in Values of Out-of-Pocket Maximum by Plan Type, 
2007: 

Value of out-of-pocket maximum: Average; 
Plan type: HMO, Plans = 444, Beneficiaries = 1,436,148: $3,204; 
Plan type: PFFS, Plans = 350, Beneficiaries = 1,087,383: $4,026; 
Plan type: PPO, Plans = 219, Beneficiaries = 205,713: $2,377; 
Plan type: All plans[A], Plans = 1,016, Beneficiaries = 2,738,531: 
$3,463. 

25th percentile; 
Plan type: HMO, Plans = 444 Beneficiaries = 1,436,148: $2,750; 
Plan type: PFFS, Plans = 350 Beneficiaries = 1,087,383: $3,000; 
Plan type: PPO, Plans = 219 Beneficiaries = 205,713: $1,000; 
Plan type: All plans[A], Plans = 1,016, Beneficiaries = 2,738,531: 
$2,750. 

Value of out-of-pocket maximum: 75th percentile; 
Plan type: HMO, Plans = 444 Beneficiaries = 1,436,148: $4,000; 
Plan type: PFFS, Plans = 350 Beneficiaries = 1,087,383: $5,000; 
Plan type: PPO, Plans = 219 Beneficiaries = 205,713: $3,100; 
Plan type: All plans[A], Plans = 1,016, Beneficiaries = 2,738,531: 
$4,600. 

Source: GAO analysis of 2007 CMS Plan Benefit Package data. 

Notes: Values are weighted by plan enrollment. If a plan had two out-
of-pocket maximums--one for in-network services and one for combined 
in-and out-of-network services, then we used the lower value for this 
analysis. Determination of a plan's overall out-of-pocket maximum did 
not take into account whether a plan had a maximum for a specific 
category of service. Employer plans, Part B only plans, SNPs, regional 
PPOs, and plans with service areas that are exclusively outside of the 
50 states and the District of Columbia were excluded from the analysis. 

[A] The "All plans" category includes HMOs, PFFS plans, PPOs, and PSOs. 
Results are not reported separately for PSOs because there were only 22 
PSO plans and enrollment in those plans constituted 1 percent of total 
MA enrollment. 

[End of table] 

[End of section] 

Appendix V: Comments from the Centers for Medicare & Medicaid Services: 

Department Of Health & Human Services: 
Centers for Medicare & Medicaid Services: 
Office of the Administrator: 
Washington, DC 20201: 

Date: February 1, 2008: 
To: James C. Cosgrove: 
Director, Health Care: 
Government Accountability Office: 

From: [Signed by] Kerry Weems: 
Acting Administrator: 

Subject: Government Accountability Office (GAO) Draft Report: Medicare 
Advantage: Increased Spending Relative to Medicare Fee for Service May 
Not Always Reduce Beneficiary Out of Pocket Costs (GAO-08-359). 

Thank you for the opportunity to review and comment on the GAO draft 
report referenced above. In this draft report. the GAO examined (1) 
Medicare Advantage (MA) plans' projected rebate reallocations; (2) 
additional benefits MA plans commonly covered and their costs: (3) MA 
plans' projected cost-sharing; and (4) MA plans' allocation of 
projected revenues and expenses. 

General Comments: 

Inpatient Cost Sharing: 

The report finds that out of pocket costs for inpatient services arc 
more than double for 16 percent of MA enrollees than in Fee-For-Service 
(FFS). We do not disagree with the findings: however the report does 
not address a number of areas that mitigate the impact of the finding: 

(1) MA bundling of cost sharing versus unbundled FFS cost sharing: We 
believe that GAO did not take into consideration that an inpatient stay 
under FFS is not comprised of just the deductible amount for each 
hospitalization. It also contains a professional service charge which 
is billed to the beneficiary. As an example of the type of expense 
incurred by a FFS beneficiary for a 90-day hospital stay. the average 
professional service co-pay under FFS alone is equal to S5.286. MA 
enrollees do not receive a separate bill for professional services. The 
cost of these Part B services were not incorporated into the GAO 
analysis and therefore overstate the effect of inpatient cost sharing 
on the possible MA enrollees cited in the draft report. 

2) MA is more protective for longer hospitalizations than FFS: The 
report also does not contemplate the FFS costs for a long 
hospitalization (e.g., more than 15 days) compared to a long 
hospitalization under MA. The Centers for Medicare & Medicaid Services 
(CMS) has data to show that MA plans have lower cost sharing for an 
inpatient stay than an FFS stay for longer stays â for example 95 
percent of MA plans have a lower cost share than FFS for a 90-day stay,
and 85 percent of MA plans have a lower cost share than FFS for a 25-
day stay. Figure 4 on Page 21 is misleading in that it only compares 
out-of-pocket costs for 15 days of hospitalization or less. Less 
healthy beneficiaries may have longer than 15-day hospitalizations in a 
year. We would recommend providing longer inpatient hospitalization 
information and a figure demonstrating it to give a more balanced 
perspective on inpatient hospitalizations. 

3) The report does not address effective out-of-pocket maxes for 
inpatient stays: Maximum out-of-pocket values in the plan benefit 
package (PBP) data are not the only way to specify the maximum amount 
an enrollee will pay for a specific benefit. For example, a plan 
showing no out of pocket maximum value in its PBP but having a $200 per 
day copay for days 1 through 6 of inpatient stays has an effective 
maximum enrollee out-of-pocket cost of $I,200 for inpatient stays 
regardless of the length of stay. In fact, most plans "max out" their 
out of pocket costs for inpatient stays at values far less than those 
for FFS. Our data show that, for the same population of plans GAO 
includes, 74 percent of enrollees in 2007 were in plans having an 
effective maximum out of pocket for inpatient stays of $1,000 or less 
and nearly 100 percent of enrollees were in plans having an effective 
maximum out of pocket costs less than the FFS Medicare value. 

4) Misrepresentations of data in text, table and figures on inpatient 
cost sharing: 

* Footnote b to Table 4 states: "In some cases, MA plans include cost 
sharing for professional services, such as physician visits in, in the 
inpatient category." We believe that because plans include professional 
services in the bundled inpatient cost sharing, the data in Table 4 is 
a misrepresentation of a true comparison between MA inpatient cost 
sharing and FFS inpatient cost sharing. That is, inpatient cost sharing 
for MA will naturally look higher than FFS in your table because of the 
inclusion of professional services under the inpatient services 
category for MA. 

* Also, about 1/3 of Medicare FFS inpatient admissions fall within an 
existing benefit period resulting in no beneficiary liability for the 
Part A deductible. Also, FFS beneficiaries are required to pay cost 
sharing beginning on day 61 of an inpatient admission. Further, FFS 
beneficiaries are required to pay certain Part B cost sharing for care 
provided in inpatient facilities. Accordingly, the FFS representation 
in Figure 4 has an incorrect level and slope, and we suggest that the 
chart be modified accordingly, or removed from the report. 

5) Part B Drugs and out-of-pocket exclusion and more than 1 million 
affected enrollees: We believe that the number and impact contained in 
the report is overstated. Part B drugs administered in a physician's 
office would be included under an out-of-pocket cap because the bill 
for the Part B coinsurance would be incurred as a physician office 
visit. The exclusion of Part B drugs from out of pocket maximums is for 
those drugs obtained from a pharmacy (as opposed to at the physician's 
office). We believe Part B drugs obtained at the pharmacy represents a 
subset of the 2007 plans with a Part B drugs out-of-pocket maximum 
exclusion. 

6) We believe that the report misses the fact that the majority of MA 
benefit packages in 2007 are better and are more protective for out-of-
pocket costs than FFS. Overall, MA benefit packages in 2007 are richer 
than FFS. Some examples include: 

* MA plans are not required to cap out-of-pocket expenses for 
enrollees; however, almost one-half (48 percent in 2007) cap out-of-
pocket expenses for enrollees, making them far more protective than an 
FFS beneficiary who has no cap on out-of-pocket costs. 

* 72.8 percent of enrollees are in plans with a 21-day inpatient 
psychiatric stay cost less than that of FFS. 

* 93.6 percent of enrollees are in plans with an out-of-pocket cost for 
annual renal visits (dialysis) less than that of FFS. 

* 98.4 percent of eligibles have access to a plan with a maximum out-of-
pocket value of $3.150 or less that includes key specific benefit 
categories. 

* 87.3 percent of the plans cover additional inpatient hospital days 
beyond the FFS allowed 90-day maximum. 

7) We believe that the report fails to acknowledge that MA plans 
provide beneficiaries with a variety of choices in benefit structures 
other than original Medicare. These choices allow beneficiaries to 
select a benefit structure that best suits their medical needs while 
taking their financial considerations into account. For example, some 
beneficiaries may prefer to pay lower cost-sharing for some Medicare 
benefits that they anticipate using during the year, and are willing to 
accept the risk of paying higher cost-sharing on other benefits should 
they need them. 

8) We are also concerned that this report is unfairly skewed. To name a 
few that we believe should he addressed: 

* The title is misleading and does not reflect the content of the 
report. GAO report titles should be neutral, or, at least, not 
misrepresent the contents of the report. 

* On page 1 of the report, the discussion of the payment increases 
based on the Medicare Prescription Drug, Improvement and Modernization 
Act of 2003 fails to address the intention of Congress to expand access 
to MA plans in rural areas. 

* The presentation of MA plans that offer cost sharing that is higher 
than Medicare FFS does not provide a similarly structured presentation 
of examples of plans offering cost sharing lower than FFS. As such, the 
report relies on outlier plan designs (high inpatient cost sharing) 
with outlier plan services (e.g. long inpatient lengths of stay) to 
make its point. 

[End of section] 

Appendix VI: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

James C. Cosgrove, (202) 512-7114 or [email protected]: 

Acknowledgments: 

Other contributors to this report include Christine Brudevold, 
Assistant Director; Jennie Apter; William Black; Alexander Dworkowitz; 
Gregory Giusto; Dan Lee; Hillary Loeffler; and Christina C. Serna. 

[End of section] 

Footnotes: 

[1] Medicare is the federally financed health insurance program for 
persons aged 65 and over, certain individuals with disabilities, and 
individuals with end-stage renal disease. Medicare Part A covers 
hospital and other inpatient stays. Medicare Part B is optional 
insurance, and covers hospital outpatient, physician, and other 
services. Medicare Parts A and B are known as original Medicare or 
Medicare FFS. Medicare beneficiaries have the option of obtaining 
coverage for Medicare Part A and B services from private health plans 
that participate in Medicare's MA program--also known as Medicare Part 
C. All Medicare beneficiaries may purchase coverage for outpatient 
prescription drugs under Medicare Part D. 

[2] Pub. L. No. 108-173, Â§ 201, et. seq., 117 Stat. 2066, 2176. 

[3] Private health plans had previously provided heath coverage to 
Medicare beneficiaries through the Medicare + Choice program. MMA 
renamed the program "Medicare Advantage" and changed certain payments 
and other aspects of the program. 

[4] Medicare Payment Advisory Commission, The Medicare Advantage 
Program and MedPAC Recommendations (Washington, D.C.: April 2007). 

[5] Congressional Budget Office, The Medicare Advantage Program: 
Enrollment Trends and Budgetary Effects (Washington, D.C.: April 2007). 

[6] For a discussion of Medicare's long-term financial challenges, see 
GAO, Long-Term Budget Outlook: Saving Our Future Requires Tough Choices 
Today, GAO-07-342T (Washington, D.C.: Jan. 11, 2007). 

[7] Medicare compares a plan's bid to the benchmark after adjusting the 
benchmark to reflect the health status of the plan's enrollees. 

[8] About 95 percent of MA beneficiaries are in plans that receive 
rebates and 41 percent of MA beneficiaries are in plans that charge 
additional premiums. Some plans also offer optional benefits, which 
beneficiaries can purchase with the standard benefit package. Rebates 
can not be used for optional benefits. 

[9] Margins, sometimes referred to as profits, refer to plans' 
remaining revenue after medical and non-medical expenses are paid. In 
certain circumstances, such as for new market entrants, CMS allows a 
plan to have a negative margin, meaning that the plan's revenue is less 
than its combined medical and non-medical expenses. 

[10] HMOs account for 71 percent of total MA enrollment; PFFS plans 21 
percent; PPOs 5 percent; and PSOs 1 percent, totaling to 98 percent of 
enrollment. The remaining 2 percent of beneficiaries were enrolled in 
Medical Savings Accounts and regional PPOs. Beneficiaries in HMOs are 
generally restricted to seeing providers within a network, while PFFS 
beneficiaries can see any provider that accepts the plan's payment 
terms. Beneficiaries in PPOs can see both in-network and out-of-network 
providers but must pay higher cost-sharing amounts if they use out-of-
network services. PSOs are MA plans that are operated by a provider or 
providers. 

[11] Some MA plans only cover Medicare Part B services. 

[12] MA plans do not cover hospice care, a benefit that is provided 
under Medicare FFS. 

[13] U.S. citizens and permanent residents meet Medicare's work 
requirement if they worked for at least 10 years in Medicare-covered 
employment or if their spouse worked for at least 10 years in Medicare-
covered employment. 

[14] Beneficiaries who are also eligible for Medicaid can have their 
Part B premium paid for by their state Medicaid program. 

[15] Individuals with end-stage renal disease are not eligible for most 
MA plans, unless they develop the disease while enrolled in an MA plan. 
42 U.S.C. Â§ 1395w-21(a)(3)(B)(2000). 

[16] Many Medicare FFS beneficiaries pay premiums for a type of 
supplemental insurance known as Medigap, which limits beneficiary cost 
sharing for Medicare-covered services. Medigap policies do not cover 
the cost sharing of MA beneficiaries. 

[17] CMS officials said that the thresholds that trigger further review 
by CMS are at or above Medicare FFS cost-sharing levels. For example, 
in 2007 Medicare FFS beneficiaries were charged a $992 deductible for 
hospital services, so the cost-sharing threshold was at or above $992. 

[18] CMS officials indicated that in evaluating 2008 plans, they 
stratified plans based on having an out-of-pocket maximum of $3,250, 
instead of $3,100. 

[19] The rebate amounts allocated to cost sharing include some non-
medical expenses, such as administrative costs and plans' margins. 

[20] The average additional premium has been standardized to represent 
a beneficiary of average health status. 

[21] The 888 plans that received a rebate and did not charge an 
additional premium projected that they would allocate 11 percent ($11 
PMPM) of their rebate to additional benefits, 21 percent ($22 PMPM) to 
Part D premium reductions, 3 percent ($4 PMPM) to Part B premium 
reductions, and 65 percent ($70 PMPM) to cost-sharing reductions. The 
986 plans that charged additional premiums and received a rebate 
projected that they would allocate 14 percent ($8 PMPM) of their rebate 
to additional benefits, 3 percent ($2 PMPM) to Part D premium 
reductions, 0 percent ($0 PMPM) to Part B premium reductions, and 83 
percent ($44 PMPM) to cost-sharing reductions. These numbers are 
enrollment weighted. 

[22] Some categories were identified by CMS as unreliable and were 
excluded from our analysis. 

[23] Average cost sharing reflects expenditures for the entire 
population and includes both beneficiaries who are projected to use a 
certain category of service and beneficiaries who are not projected to 
use that service. 

[24] Medicare FFS beneficiaries could have paid the deductible more 
than once for multiple visits under some circumstances. The 2007 
deductible was $992 for each benefit period. Under Medicare FFS, a 
benefit period begins the day a beneficiary enters a hospital, skilled 
nursing facility, or critical access hospital, and it ends when the 
beneficiary has not been an inpatient of a hospital, skilled nursing 
facility, or critical access hospital for 60 consecutive days. A 
Medicare FFS beneficiary who had three hospital stays in one benefit 
period in 2007 would have paid a $992 deductible, while a beneficiary 
who had three hospital stays in three separate benefit periods would 
have paid a $992 deductible for each hospital stay, or $2,976. 

[25] The plans either had no out-of-pocket maximum or had a maximum 
that was above $3,100. In addition, the plans had no service-specific 
maximum for inpatient services. 

[26] The average length of stay in Medicare FFS was 5.4 days in 2005, 
according to a MedPAC analysis of Medicare cost report data. For plans 
with no out-of-pocket maximum and a per day copayment of $200 or more 
for the first 10 hospital days, beneficiaries would have been billed at 
least $2,000 for a 10-day hospital stay and at least $3,000 for three 
stays that are each 5 days long. However, beneficiaries in plans with 
an out-of-pocket maximum and a per day copayment of $200 or more could 
have been billed less than these amounts if they had already paid cost 
sharing for other categories of services. About 15 percent of hospital 
stays under Medicare lasted 10 days or more in 2004, according to CMS 
data. 

[27] Medicare FFS does not have an out-of-pocket maximum. However, 
Medicare FFS beneficiaries who have supplemental insurance can have 
some or all of their cost sharing paid for. Medicare FFS beneficiaries 
who buy Medigap insurance have their Part A and Part B cost sharing 
paid for by their Medigap plan, although they still may pay 
deductibles. Medicare FFS beneficiaries with Medicaid and with employer 
plans can also have some or all of their cost sharing paid for by their 
plan. As of 2004, 26 percent of Medicare beneficiaries had Medigap 
insurance, 17 percent had Medicaid, and 38 percent had employer 
insurance, with some beneficiaries having more than one type of 
supplemental insurance. Data are based on MedPAC's analysis of the 2004 
Medicare Current Beneficiary Survey. 

[28] A plan was considered to have excluded a service category from the 
out-of-pocket maximum if the out-of-pocket maximum did not cover that 
service category and if the plan had no service-specific maximum for 
that category. 

[29] Non-medical expenses include administration, marketing, and sales. 
Margin is the amount of revenue above or below the revenue needed to 
cover medical and non-medical expenses. Allocations to medical 
expenses, non-medical expenses, and margins do not add to $783 PMPM due 
to rounding. 

[30] There is no definitive standard for what a medical loss ratio 
should be. For example, the CHAMP Act, H.R. 3162, 110th Cong., Â§ 414 
(2007), which was passed in the House of Representatives on August 1, 
2007, included a medical loss ratio threshold of 0.85. In contrast, 
individual Medigap policies are currently required to achieve a medical 
loss ratio of at least 0.65, while group Medigap policies are required 
to achieve a medical loss ratio of at least 0.75. AHIP reported that 
from 1960 to 2003, the medical loss ratio for private plans averaged 
about 0.88. 

[31] Direct administration accounts for functions that are directly 
related to the administration of the MA program, such as customer 
service and medical management. Indirect administration accounts for 
functions that may be considered "corporate services," such as 
accounting operations and human resources. Private reinsurance is the 
insurance provided by another company that assumes financial risk 
previously assumed by the MA plan. The net cost of private reinsurance 
is equal to the reinsurance premium less projected reinsurance 
recoveries. 

[32] For Medical Savings Account (MSA) plans, Medicare makes a deposit 
into a beneficiary's savings account if the bid is lower than the 
benchmark, instead of providing the plan with a rebate. Regional 
Preferred Provider Organizations (PPO) can receive rebates, but their 
benchmarks are determined differently than local plans. Due to these 
differences, the example in this appendix does not refer to MSA plans 
and regional PPOs. 

[33] Percentage of MA enrollment by plan type is based on August 2007 
enrollment. 

[34] Centers for Medicare & Medicaid Services, Instructions for 
Completing the Medicare Advantage Bid Pricing Tool For Contract Year 
2007 (Baltimore, Md.: May 2006). 

[35] If a plan has a population with health expenditures that on 
average are the same as those for Medicare FFS, then the plan would 
have a risk score of one. If a plan has a population with projected 
health expenditures that on average are greater than or less than those 
for an average beneficiary in Medicare FFS, then the plan's risk score 
would be greater than or less than one, respectively. 

[36] The bid pricing data exclude the additional revenue requirements 
for beneficiaries with end-stage renal disease from this calculation. 

[End of section] 

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