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Policy Implications of Risk Selection in Medicare HMOs: Is the Federal Payment Rate Too High?

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Publication Date: November 1996

Publisher(s): Center for Studying Health System Change

Author(s): Heidi H. Whitmore

Series: Issue Brief No. 04

Topic: Health (Health care financing)

Type: Brief


For more than a decade, Medicare beneficiaries have had the option to enroll in risk-contract health maintenance organizations (HMOs) in which the federal payment is set at 95 percent of the estimated fee-for-service cost. Two questions have been raised by health policy researchers ever since: Are Medicare HMO enrollees healthier than the elderly who receive fee-for-service care? If so, does the government payment rate for Medicare HMOs accurately reflect the costs that would have been incurred by a healthier population? This Issue Brief discusses three recent studies of the extent to which risk-contract HMOs experience biased selection and the cost of this to Medicare.