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


Publication Date: November 1996

Publisher: Center for Studying Health System Change

Author(s): Heidi H. Whitmore

Research Area: Health

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.