Medicare/Medicaid: Data Bank Unlikely to Increase Collections From Other
Insurers (Letter Report, 05/06/94, GAO/HEHS-94-147).

The Department of Health and Human Services has been directed to
establish a data bank, beginning in February 1995, that would contain
information on all workers, spouses, and dependents who are covered by
employer-provided health insurance.  The goal is to save millions by
strengthening processes to (1) identify the approximately 7 million
Medicare and Medicaid beneficiaries who have other health insurance
coverage that should pay medical bills before Medicare and Medicaid
kicks in and (2) ensure that this insurance is appropriately applied to
reduce Medicare and Medicaid costs.  In GAO's view, however, the data
bank will end up costing millions and likely achieve little in the way
of savings.  GAO believes that changes and improvements to existing
activities would be a much easier, less costly, and thus preferable
alternative to the data bank.  This is largely because the data bank
will result in an enormous amount of added paperwork for both the Health
Care Financing Administration and the nation's employers.  GAO
summarized this report in testimony before Congress; see:
Medicare/Medicaid: Data Bank Unlikely to Increase Collections From Other
Insurers, by Leslie G. Aronovitz, Associate Director for Health
Financing Issues, before the Senate Committee on Governmental Affairs.
GAO/T-HEHS-94-162, May 6, 1994 (four pages).

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-94-147
     TITLE:  Medicare/Medicaid: Data Bank Unlikely to Increase 
             Collections From Other Insurers
      DATE:  05/06/94
   SUBJECT:  Medicaid programs
             Medicare programs
             Cost effectiveness analysis
             Federal/state relations
             Health insurance cost control
             Beneficiaries
             Information gathering operations
             Medical expense claims
             Data bases
IDENTIFIER:  Medicare/Medicaid Coverage Data Bank
             
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Cover
================================================================ COVER


Report to Congressional Requesters

May 1994

MEDICARE/MEDICAID - DATA BANK
UNLIKELY TO INCREASE COLLECTIONS
FROM OTHER INSURERS

GAO/HEHS-94-147

Medicare/Medicaid Data Bank Issues


Abbreviations
=============================================================== ABBREV

  HCFA - Health Care Financing Administration
  HHS - Department of Health and Human Services
  IRS - Internal Revenue Service
  MADRS - Medicare Automated Data Retrieval System
  MPRTS - Mistaken Payment Recovery Tracking System
  MSP - Medicare Secondary Payer
  OBRA-93 - Omnibus Budget Reconciliation Act of 1993
  SSA - Social Security Administration
  SSN - Social Security Number

Letter
=============================================================== LETTER


B-255760

May 6, 1994

The Honorable Joseph I.  Lieberman
Chairman
The Honorable Thad Cochran
Ranking Minority Member
Subcommittee on Regulation and
 Government Information
Committee on Governmental Affairs
United States Senate

The Omnibus Budget Reconciliation Act of 1993 (OBRA-93) directed the
Secretary of Health and Human Services (HHS) to establish a data
bank, beginning in February 1995, that would contain information on
all workers, spouses, and dependents that are covered by employer
group health plans.  The purpose of creating such a data bank is to
help (1) identify Medicare and Medicaid beneficiaries who have other
health insurance coverage that should pay medical bills ahead of the
Medicare and Medicaid programs and (2) ensure that this insurance is
appropriately applied to reduce Medicare and Medicaid costs. 

In November 1993, we reported our preliminary observations on why the
data bank may not contribute to more effective recovery of Medicare
funds.\1 As subsequently agreed with your offices, we further
reviewed whether the data bank would improve existing processes for
recovering Medicare and Medicaid funds, including whether it would
realize additional savings beyond what existing recovery programs
achieve.  Appendix I presents our methodology. 


--------------------
\1 Medicare/Medicaid Data Bank Issues (GAO/HRD-94-63R, Nov.  15,
1993). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

As the plans for implementing the data bank have progressed, our work
showed that the data bank may not measurably strengthen the existing
processes for ensuring that beneficiaries' health insurers pay ahead
of Medicare or Medicaid.  As envisioned, the data bank would have
certain inherent problems and likely achieve little or no additional
savings to the Medicare and Medicaid programs. 

First, the data bank would add significantly to record keeping for
both HHS and the nation's employers.  It would require employers to
report, and HHS to accumulate, health insurance coverage information
on about 160 million employees and their dependents, even though only
about 7 million are enrolled in Medicare or Medicaid and are also
covered by employer group health insurance. 

Second, there is no assurance that the increased record- keeping
requirements would provide additional or needed information on
Medicare and Medicaid beneficiaries' health insurance coverage.  For
Medicare, the data bank would not add significantly to information
that is already being developed in other recent cost-saving
initiatives, and therefore would not enhance recoveries.  For
Medicaid, in most cases the data bank would not produce information
quickly enough to be useful to states that administer the program. 

The Health Care Financing Administration (HCFA), an agency within HHS
that administers Medicare, already has processes that attempt to
apply a beneficiary's private health insurance coverage to a Medicare
or Medicaid claim, but these processes are also not without problems. 
HCFA's initial attempt to recover payments from insurers under a data
match program using data from federal agencies and employers had
mixed results.  However, improvements to the data match program are
being made for the next cycle of recoveries.  In our view, the
limitations of the data bank appear to make it a less effective
approach than the existing data match program.  We therefore believe
that the Congress needs to delay its implementation until the data
bank's potential cost-effectiveness and other benefits can be clearly
demonstrated. 


   BACKGROUND
------------------------------------------------------------ Letter :2

Medicare is a federal program that helps pay health care costs for
about 37 million people, most of whom are age 65 or older.  Medicaid
covers about 31 million people of all ages who have limited financial
resources.  HCFA administers Medicare through its contractors and
also oversees the administration of Medicaid by the states. 

Some persons who are eligible for Medicare or Medicaid may in fact
have other health insurance.  For example, 1990 census data showed
that about 13 percent of Medicaid recipients have employer group
health insurance coverage.  Similarly, some persons eligible for
Medicare have employer group health insurance through either their
own place of work or a spouse's employer.  Both Medicare and Medicaid
have provisions requiring that such insurance be tapped for its share
of medical costs. 

Beginning in 1981, the Congress enacted a series of amendments
calling for Medicare to act as the secondary, rather than the
primary, payer for certain beneficiaries covered under employer group
health plans.  These provisions are referred to as the "Medicare
secondary payer provisions." Generally, when Medicare beneficiaries
have such insurance, the providers of services (such as hospitals and
physicians) are required to bill primary insurers first.  Medicare is
to act as the secondary payer in such situations, covering the
remaining amount after the other insurer has paid up to the limits of
the coverage under the plan.  Contractors administering the payment
of Medicare claims for HCFA reported that, by properly billing or
recovering prior payments from other insurers, Medicare saved over $3
billion in fiscal year 1993.  HCFA paid the contractors $95 million
in fiscal year 1993 to administer the Medicare secondary payer
provisions. 

As a public assistance program, Medicaid is intended as the payer of
last resort.  Federal Medicaid regulations specify actions that state
Medicaid agencies must take to identify and recover payments from
insurers for services furnished under Medicaid.  These are referred
to as Medicaid third-party liability activities. 

For the past 10 years, reports issued by HHS's Inspector General and
by us have shown problems with efforts to identify insurers that are
responsible for paying ahead of Medicare and Medicaid.  As a result,
more effective efforts to identify and recover from insurers that
should pay before Medicare/Medicaid carry the promise of considerable
cost savings to the federal government.  OBRA-93, signed into law on
August 10, 1993, included two provisions designed to improve both the
Medicare Secondary Payer (MSP) and Medicaid Third-Party Liability
programs.  The two provisions, referred to as data match and data
bank, are discussed in the next section. 


      DATA MATCH
---------------------------------------------------------- Letter :2.1

The data match provision, originally authorized under the Omnibus
Budget Reconciliation Act of 1989, allows HHS to match data contained
in several federal information systems--including the Social Security
Administration (SSA) and Internal Revenue Service (IRS) files--to
identify beneficiaries that have potential for health insurance
coverage through their or a spouse's employer.  Section 13561 of
OBRA-93 extended HHS's authority to conduct data match activities
until September 30, 1998. 


      DATA BANK
---------------------------------------------------------- Letter :2.2

Section 13581 of OBRA-93, established the Medicare and Medicaid data
bank to assist in identifying, and collecting from, other insurers
responsible for Medicare and Medicaid claims.\2 The law requires
employers to report annually to the Secretary of HHS specific
information on individuals who elect coverage under an employer's
group health plan, including (1) descriptive data on the employees
and their dependents (names and social security numbers); (2) type of
coverage (single or family); (3) name, address, and identifying
number of the group health plan; (4) period during which coverage was
elected; and (5) the name, address, and tax identification number of
the employer.  Once the information is reported, HHS (or its
contractor) would establish and maintain the data bank and make the
data available to the Medicare and state Medicaid programs. 
Employers must begin filing calendar year 1994 information with HCFA
by February 28, 1995.  In September 1993, HCFA was assigned
responsibility for implementing the data bank, and as of April 1994,
was developing plans for implementation. 


--------------------
\2 In August 1993, just prior to the passage of OBRA-93, the
Congressional Budget Office estimated that an effective data bank
could save about $950 million during fiscal years 1994 through
1998--about two-thirds of it in Medicare, and the rest in Medicaid. 


   DATA BANK WOULD ADD
   SIGNIFICANTLY TO HCFA AND
   EMPLOYER RECORD KEEPING
------------------------------------------------------------ Letter :3

Both for HCFA and for employers, the proposed data bank represents a
significant increase in record keeping.  Employers would be required
to report, and HCFA would have to maintain, health insurance
information on all employees and covered dependents to identify the
relatively few with Medicare or Medicaid eligibility and private
health insurance coverage.  HCFA estimates information would be
reported for as many as 160 million people.  However, the estimated
number of such persons with health insurance coverage that is primary
to Medicare coverage is no more than 3 million, and for Medicaid, the
estimate is 4 million.\3

Employers we spoke with consistently raised other matters in addition
to the volume of records they would need to maintain:  the
uncertainty, potential cost, and difficulty involved in obtaining
sufficient information to meet data bank requirements. 


--------------------
\3 The Medicare estimate is based on our discussions with HCFA
officials, while the Medicaid estimate is based on our previous
Medicaid report, Medicaid:  HCFA Needs Authority to Enforce
Third-Party Requirements on States (GAO/HRD-91-60, Apr.  11, 1991). 


      RECORD-KEEPING REQUIREMENTS
      STILL UNCERTAIN, POTENTIALLY
      DIFFICULT, AND COSTLY
---------------------------------------------------------- Letter :3.1

Employers are unsure of HCFA's specific data reporting requirements
for the data bank.  As of April 20, 1994, HCFA had not finalized its
guidance--which is to be published as a general notice in the Federal
Register.  While HCFA develops this guidance, some employers said
that it is already too late for them to use it to reprogram their
systems to capture data needed to meet the law's calendar year 1994
reporting requirement of February 28, 1995. 

Employers and employer groups said that in the past, they generally
have not collected some of the information the law requires them to
report, such as tax identification numbers of spouses or dependents. 
In many cases, employers keep very little health insurance
information because it is maintained by a union or an insurance
company.  Some employers are understandably concerned because the
data bank statute holds them accountable for reporting information
that they may be unable to readily obtain from their employees,
insurers, or unions\4 . 

Finally, employers said they would likely face significant costs to
redesign their payroll or personnel systems once specific
record-keeping requirements were made known.  These costs would
likely vary greatly depending on the size of the employer, the
additional information they would need to collect, and the degree to
which their systems would need reprogramming.  For example, one
company with 44,000 employees estimated its costs for reprogramming
its system and collecting and reporting the data at $52,000, while
another company with 4,000 employees estimated its costs at $12,000. 
Given the wide variances in the factors involved, a reliable
nationwide estimate of the costs involved is not possible. 


--------------------
\4 OBRA-93 subjects employers who do not meet the reporting
requirements of the data bank to potential penalties of $50 for each
instance in which a return is not filed or contains incorrect
information, up to a maximum of $250,000 per year, or higher if
nonreporting is found to be deliberate. 


   IMPLEMENTATION PLANS RAISE
   CONCERNS ABOUT USEFULNESS OF
   DATA BANK APPROACH
------------------------------------------------------------ Letter :4

The additional information gathering and record keeping required by
the data bank appears to provide little benefit to Medicare or
Medicaid in recovering mistaken payments.  In regard to Medicare, our
review of HCFA's plans for the data bank raised concerns about
whether it would provide any useful information beyond what is being
collected under HCFA's ongoing data match process.  In fact, HCFA
anticipates using an employer questionnaire similar to that used by
the data match to fill information gaps in the data bank.  In regard
to Medicaid, our work suggests that the data bank information would
not be timely enough for use by states in their third-party liability
activities. 


      DATA BANK APPEARS TO ADD
      LITTLE TO MEDICARE'S DATA
      MATCH PROCESS
---------------------------------------------------------- Letter :4.1

A complete comparison of the data match program with the proposed
data bank process is difficult because data match activities are
currently being refined and HCFA's data bank processes are still in
the planning stages.  However, to illustrate the similarities and
differences between the two approaches, figure 1 compares the flow of
information under an annual data match process versus the data bank
approach as envisioned by HCFA at the time of our review.  As the
figure shows, the two approaches start with different data sources
but arrive at the same end point--seeking recovery from insurers. 

   Figure 1:  Comparison of Annual
   Data Match and Proposed Data
   Bank Processes

   (See figure in printed
   edition.)

Note:  Assumes that agencies' files are 95 percent complete when
needed. 

\a Data match depicts GAO's estimate of the earliest an annual date
match process could be accomplished, based on information from HCFA,
IRS, and SSA. 

\b Data bank time frames are HCFA's preliminary planning estimates. 

\c Under data match, employers may be penalized for not responding to
HCFA's requests for detailed information.  Under data bank, no
similar penalties apply for follow-up questionnaires. 

The data match process currently under way by HCFA matches Medicare
recipients against IRS and SSA files to identify instances in which a
working Medicare beneficiary (or working spouse) may have
employer-sponsored health insurance coverage.  For those instances in
which the potential for insurance is identified, HCFA must send
questionnaires to employers, first to determine which employers offer
health insurance, and then to confirm the insurance status of
specific beneficiaries.  HCFA has authority to assess penalties of up
to $1,000 per employee on employers who do not respond.  Medicare
contractors then (1) search previous Medicare payments to determine
whether Medicare paid claims that should have been paid by other
insurers and (2) execute recovery actions.  (See app.  II for a full
description of the process.)

Under the data bank program, employers would report to HCFA health
insurance coverage on all workers and dependents.  HCFA would then
extract the health insurance information for those beneficiaries
covered by Medicare.  According to HCFA officials, however, the data
bank provisions do not require employers to report enough specific
information about beneficiaries' health insurance to pursue recovery
from insurers.\5 As a result, HCFA's plan, at the time of our review,
was to obtain this additional information through both matching with
SSA files and separate follow-up questionnaires sent to
employers--much like those required under the data match program.\6
One important difference, however, is that under this follow-up
questionnaire, employers' responses would essentially be voluntary;
that is, they would not be subject to penalties as they are for not
responding to data match questionnaires.  This enforcement weakness
could seriously compromise the data bank's effectiveness in obtaining
accurate and complete information from employers. 


--------------------
\5 For HCFA to pursue Medicare secondary payer cases, more
information is needed, at the least, on period of employment and
basis of coverage (i.e., current employee, retiree, or other
relationship with the employer). 

\6 More specifically, after SSA earnings files are matched with data
bank information to determine which beneficiaries had earnings during
the period, detailed questionnaires will have to be mailed to
employers that have Medicare workers or dependents to determine
period of employment and basis of health insurance coverage.  Then
Medicare claims will be reviewed to detect instances in which
Medicare may have paid mistakenly as primary payer. 


      DATA BANK MAY BE OF LITTLE
      USE TO STATE ADMINISTRATION
      OF MEDICAID RECOVERIES
---------------------------------------------------------- Letter :4.2

HCFA intends to make data bank information available to states to
carry out their own matching programs for Medicaid.  However, state
officials have pointed out to us and to HCFA that data bank
information may be too old to enhance Medicaid recoveries. 

The reason that data may be of little use is that unlike Medicare,
which has authority to recover from insurers regardless of the health
insurers' claims filing deadlines, Medicaid programs are generally
subject to such claims filing deadlines.\7 HCFA and state officials
told us that insurance companies generally require that claims be
filed within 12 months of the date of service.  HCFA officials told
us that they anticipate having the data bank information available
for use by state Medicaid programs, at the earliest, about 6 months
after the calendar year ends.  In turn, the states may need several
more months to match information in the data bank with their Medicaid
files. 

The lack of timely information to the states would also appear to
restrict the Medicaid program's ability to use the data bank
information to identify a beneficiary's insurance coverage before
Medicaid pays future bills.  HCFA data shows that 44 percent of all
Medicaid recipients are on Medicaid for less than a year.  Thus, by
the time the states use the data bank to identify the insurance for
these beneficiaries, their Medicaid eligibility may have already
ended. 


--------------------
\7 Federal regulations provide that Medicare can recover without
regard to insurers' claim filing requirements, but that Medicare will
not seek recovery after the end of the year following the year that
Medicare discovers such claim was mistakenly paid in error (42 C.F.R. 
411.24(f)). 


   IMPROVING EXISTING MECHANISMS
   MAY OFFER BETTER WAYS TO OBTAIN
   THE SAME INFORMATION
------------------------------------------------------------ Letter :5

The overlap between the proposed data bank and HCFA's existing data
match process, as well as the potential record-keeping problems that
were surfacing as HCFA's plans for the data bank were taking shape,
raised this question:  does continued development of HCFA's existing
processes offer a better alternative than establishing the proposed
data bank?  We believe the answer is yes, with qualification.  The
data match not only can provide the same information without raising
the potential problems described above, but it can do so at less
cost.  HCFA also has other alternatives for providing information
soon enough for states to enhance Medicaid recoveries. 

But HCFA's existing processes still rely too much on a recovery
approach.  Enhancing up-front identification of other insurance and
avoiding mistaken payments is much preferable to relying on
after-the-fact recovery, such as the data match and data bank.  HCFA
has recognized this and has recently initiated a number of programs
to get insurance information into their systems early, updating it
with each transaction, and thereby avoiding mistaken payments. 


      DATA MATCH LESS COSTLY THAN
      DATA BANK BUT ALSO NEEDS
      IMPROVEMENT
---------------------------------------------------------- Letter :5.1

The data match program is less costly than the data bank program. 
For fiscal years 1995 and 1996, HCFA is budgeting $20 million and $18
million, respectively, for data match operation.  By comparison, HCFA
expects the data bank to cost about $15 million in start-up costs in
fiscal years 1994 and 1995 and an additional $25 million to $30
million in annual operating costs for fiscal year 1995 and beyond. 

Funding restrictions may place HHS in the position of choosing
between the data match or the data bank.  In September 1993, HHS
informed the Office of Management and Budget that it was unlikely
that the data bank could be established without additional
administrative funding.  HHS requested $15 million in supplemental
funding from Congress in fiscal year 1994 for design and
implementation activities, but as of April 20, 1994, no additional
funding had been approved.  HHS officials indicated that without such
funding, reprogramming of existing funds may be necessary.  While HHS
had not yet identified a source for these funds, other Medicare
secondary payer activities could be considered a potential source
from which to draw.\8

Development of the data match, however, has not been without its
problems.  Efforts have so far met with mixed results.  On the
positive side, under the first data match, HCFA received a high
response rate on questionnaires sent to employers.  Beginning in
December 1992, HCFA sent notices to insurers to collect about $1.5
billion in potential overpayments.  HCFA contractors were still
receiving responses from insurers as of March 1994, and at that time,
had resolved about $263 million of this amount, collecting about $120
million from insurers in the process.  On the negative side, this
first data match was marked by several problems that limited its
effectiveness.  Some examples follow: 

  The claims for which Medicare was seeking recovery were up to 10
     years old.  Several insurers told us that they did not keep
     records that were old enough to verify coverage or payments on a
     large portion of these claims.  As we were completing our work,
     HCFA was in the process of discussing with insurers approaches
     for lump sum settlements for these claims. 

  About 40 percent of the questionnaires HCFA sent out to employers
     were for employees that had reported low earnings and, as such,
     were in a pay status or job position that had a low potential
     for employer-provided health insurance.  Also, because no dollar
     tolerances were applied to recoveries, insurers were asked to
     refund even very small amounts--sometimes less than $1. 

HCFA has made changes to address such problems.  For example, it
plans to use progressively more current Medicare claims information
as data match becomes an ongoing process, which could eventually
reduce the age of the claims being recovered to 2 to 3 years.  In
addition, HCFA has established tolerances for employee income and
claim amounts that should substantially reduce the inquiries to
employers and insurers. 

According to HCFA officials, the data match may also be creating a
way to overcome a persistent problem in third-party insurance
recovery:  the lack of an incentive for primary insurers to pay ahead
of Medicare.  We have reported in the past that significant Medicare
secondary payer savings were not realized because insurers lacked
incentives to pay ahead of Medicare.\9 As the data match becomes a
systematic recovery activity, insurers should realize that by paying
claims immediately, they can avoid the inevitable recovery process. 
Recovery is more cumbersome and costly to insurers due in large part
to the need for researching claims several years later to determine
the insurer's liability.\10


--------------------
\8 Implementation of the data bank has already impacted the matching
program.  A number of HCFA staff who have been assigned data bank
responsibilities are the same people responsible for other Medicare
secondary payer programs. 

\9 Medicare:  Incentives Needed to Assure Private Insurers Pay Before
Medicare (GAO/HRD-89-19, Nov.  29, 1988). 

\10 Insurers told us it is time-consuming and costly to research past
claims.  Records must often be manually retrieved or reconstructed,
and HCFA assesses interest on recovery claims not resolved within 60
days of notification. 


      OPPORTUNITIES ALSO AVAILABLE
      FOR STRENGTHENING EARLIER
      IDENTIFICATION OF MEDICARE
      BENEFICIARIES' INSURANCE
---------------------------------------------------------- Letter :5.2

Efforts such as the proposed data bank and the data match processes
focus primarily on recovery of amounts paid in error.  This "pay and
chase" approach is widely recognized as more costly and less
effective than a cost avoidance approach.  The more efficient cost
avoidance approach seeks to identify the other insurance, bill the
insurer, and receive payment prior to billing Medicare as secondary
payer.  Thus, attention to any improvements that can be made with
regard to these cost avoidance activities is important.  HCFA has two
initiatives in process that are designed to improve its ability in
this regard. 

  The first initiative involves increased access to Medicare
     information on beneficiaries that have been identified as having
     other primary insurance.  HCFA has set up procedures to allow
     hospitals to have electronic access to Medicare's data on
     beneficiaries' primary health insurance information so that
     beneficiaries' insurance status can be confirmed at the point of
     service.  Hospitals can use this information to more efficiently
     and correctly bill the primary payer rather than Medicare.  HCFA
     is also studying the possibility of allowing doctors and
     outpatient providers similar electronic access to patients'
     insurance information. 

  HCFA also has completed plans for a fiscal year 1995 initiative to
     send a health insurance questionnaire to beneficiaries as they
     enroll in the Medicare program.  This would provide HCFA
     contractors a more systematic way of identifying whether a
     beneficiary had primary health insurance before they pay the
     beneficiary's first claim. 


      STATE MEDICAID SYSTEMS ALSO
      CAPABLE OF PROVIDING HEALTH
      INSURANCE INFORMATION
---------------------------------------------------------- Letter :5.3

Because Medicaid recoveries from other insurers must generally take
place within 1 year, timely up-front identification of Medicaid
recipients' insurance coverage is particularly important.  Federal
regulations prescribe specific cost-effective activities that state
Medicaid programs are required to adopt in order to identify and
recover from other insurers.  These requirements include identifying
a recipient's health insurance information at the time Medicaid
eligibility is determined and using this information to avoid
Medicaid payments when other insurance is available. 

Thus far, states have made only limited progress in developing
systems that effectively identify other insurance when Medicaid
eligibility is determined.  In 1991, we reported a significant level
of state noncompliance with the regulation calling for development of
such systems.\11 HCFA's latest review of state programs, which
covered state activities in fiscal year 1992, concluded that despite
general improvement, areas remained in which states persistently had
not complied with existing federal requirements. 

In our 1991 report, we concluded that one reason states had not
complied with existing federal requirements to identify mistaken
payments and recover from private insurers was that they faced no
significant penalty for not doing so.  We noted that congressional
approval would be needed to broaden HCFA's authority to impose
financial penalties.  To date, no such action has been taken. 

States are also developing the ability to perform data matches that
hold potential for improving savings.  According to HCFA officials,
25 states are developing the ability to obtain current data through
matching activities with insurance companies within their states. 
For example, New York's Medicaid program has established arrangements
with 15 insurance companies to share, through electronic matching,
its coverage eligibility information with Medicaid.  The state
performs these matches quarterly so that a Medicaid recipient's
insurance coverage can be kept current.  According to state
officials, this data match costs about $40,000 but yields savings of
about $20 million annually because it enhances Medicaid's ability to
avoid paying claims where other insurance is available. 


--------------------
\11 GAO\HRD-91-60, Apr.11, 1991. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Although reports have shown that the Medicare and Medicaid programs
could realize more savings if they had better information on their
beneficiaries' employer group health insurance coverage, establishing
the OBRA-93 health insurance coverage data bank for this purpose does
not appear to be the answer.  Existing procedures, with planned
improvements and continuing developments, appear to be capable of
providing equally useful information at less cost and effort.  Over
the next 5 years, the data bank would likely require more than $100
million in federal spending to administer and, at least initially,
would substantially increase record keeping on the part of both HCFA
and the nation's employers.  These additional costs could add to the
nation's administrative costs for health care without creating
significant benefits. 

It is also clear, however, that if existing alternatives are to be
used in place of the data bank, HCFA must continue to improve them. 
Medicare's efforts to improve identification and data match recovery
efforts are still under development, and state development of
Medicaid third-party liability programs has been uneven despite
federal requirements to establish such programs.  If the Congress
decides that implementation of the data bank should be stopped, HCFA
needs to ensure that these alternatives are pursued as vigorously as
possible.  For Medicaid programs, this may require additional
authority to impose penalties on states that do not comply. 


   RECOMMENDATION TO THE CONGRESS
------------------------------------------------------------ Letter :7

We recommend that the Congress delay the implementation of the
Medicare/Medicaid data bank until its potential cost-effectiveness
and other benefits to Medicare and Medicaid programs can be clearly
shown.  The Congress also should

  require the Secretary of HHS to report annually on the status of
     HCFA's ongoing and planned efforts to improve identification and
     recovery of claims from other insurers and

  amend Medicaid law by authorizing HCFA to withhold federal matching
     funds when states do not comply with federal requirements for
     identification and recovery of claims from other insurers. 


---------------------------------------------------------- Letter :7.1

As you requested, we did not obtain written comments from HHS on our
draft.  We did, however, discuss the issues raised in this report
with HCFA and HHS management officials and incorporated their
comments where appropriate. 

We are sending copies of this report to interested congressional
committees, the Secretary of Health and Human Services, and other
interested parties.  We will also make copies available to others on
request. 

Please call me on (202) 512-7119 if you or your staff have any
questions concerning this report.  Major contributors to this report
are listed in appendix III. 

Leslie G.  Aronovitz
Associate Director,
 Health Care Financing Issues


SCOPE AND METHODOLOGY
=========================================================== Appendix I

To determine whether the planned implementation of the data bank
strengthens existing Medicare and Medicaid activities for identifying
and recovering from other insurers, we did the following: 

  We reviewed the requirements of the data bank legislation and its
     legislative history, including estimates on its anticipated
     savings.  We also interviewed officials at the Office of
     Management and Budget and at the Congressional Budget Office who
     were knowledgeable about the origins and eventual passage of the
     data bank legislation. 

  We interviewed HCFA officials responsible for implementing the data
     bank as well as those responsible for administering the current
     secondary payer programs for Medicare and Medicaid.  We reviewed
     HHS reports and correspondence on its current and planned MSP
     activities, including its current resource plan for implementing
     the data bank.  We attended HCFA's two data bank conferences
     held in January 1994 with employers, insurers, and others
     interested that discussed data bank's requirements and
     implementation issues. 

  We interviewed Medicaid managers responsible for third- party
     liability activities in Texas, Washington, New York, and
     Connecticut, which account for about 25 percent of Medicaid
     expenditures.  We reviewed a HCFA survey that asked 15 states'
     Medicaid programs to comment on the usefulness of the data bank. 
     We also reviewed previous GAO reports on problems states were
     having in identifying Medicaid beneficiaries who had other
     health insurance and on HCFA's ability to enforce federal
     requirements on state Medicaid programs.  We reviewed HCFA most
     recent review of state third-party liability programs. 

  We interviewed representatives of employer associations, including
     the American Payroll Association, the American Trucking
     Association, and the ERISA Industry Committee.  We also
     interviewed payroll/benefits managers for 6 employers with from
     500 to 44,000 employees about the concerns we heard from
     employers at the HCFA meetings and from the employer groups.  We
     did not verify their estimates of additional costs of complying
     with the data collection and record keeping burden imposed by
     the data bank provision.  We also interviewed a number of
     representatives of insurance industry associations and
     individual insurers. 

We did our work from November 1993 to April 1994 in accordance with
generally accepted government auditing standards. 


HEALTH CARE FINANCING
ADMINISTRATION'S IRS/SSA DATA
MATCH PROCESS
========================================================== Appendix II

Step      Description
--------  --------------------------------------------------
1         SSA sends listing of all Medicare beneficiaries to
          the IRS.

2         IRS links together the name and social security
          number (SSN) of each individual who filed a joint
          or married filing separate tax return. The file is
          then returned to SSA.

3         SSA searches by SSN the Master Earnings File to
          identify either beneficiaries or spouses of
          beneficiaries that are employed by employers who
          filed 20 or more W-2 forms. The file is then sent
          to HCFA.

4         A HCFA contractor sends a "qualifying" mailer to
          all the identified employers. The mailer is
          designed to eliminate those employers who have
          fewer than 20 employees and those who no not offer
          health plans. At the same time, "larger" employers
          are sent Electronic Media Questionnaire election
          forms. This questionnaire is an electronic method
          of reporting information.

5         A detailed questionnaire is sent to all
          "qualified" employers. This questionnaire contains
          the name and SSN of all employees for whom HCFA is
          requesting information concerning dates of
          employment and coverage under a group health plan.
          Each questionnaire is "customized" to reflect the
          specific situation of each employer and each
          identified employee.

6         The questionnaire is returned to the data match
          contractor, who loads the data into the data match
          system. A Common Working File Medicare Secondary
          Payer update is created for each period of MSP
          identified. The employment and group health plan
          information is loaded into the Common Working
          File.

7         The confirmed MSP situations are forwarded to the
          Bureau of Data Management and Strategy. The Bureau
          searches the claim history database with the
          Medicare Automated Data Retrieval System (MADRS)
          to identify potential mistaken payments during
          periods of MSP.

8         The Bureau sends a mistaken payment report to each
          contractor who has mistakenly paid, identified
          from the MADRS search. This information, contained
          on the mistaken payment report, is loaded onto a
          tracking system called the Mistaken Payment
          Recovery Tracking System (MPaRTS).

9         Contractors use the mistaken payment report to
          search their internal paid claims history files. A
          total of the mistaken payments, identified from
          their internal files, is loaded into MPaRTS.

10        Contractors seek to recover mistaken payments from
          the identified third-party payer.

11        Contractors update MPaRTS to reflect the total
          amount recovered for each identified MSP case.
------------------------------------------------------------

MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

Frank C.  Pasquier, Assistant Director, (206) 287-4861
William A.  Moffitt, Evaluator-in-Charge
Sally J.  Coburn
Katherine M.  Iritani
Rajiv Mukerji
