Medicare Managed Care

Medicare risk health maintenance organization (HMO) plans are now available nationwide, and differences in premiums charged and benefits offered across the country have produced inequities for Medicare beneficiaries. In addition, the risk contract program has not realized the expected savings from enrolling beneficiaries in capitated managed care plans. Medicare's risk HMO payment system, which is built largely on fee-for-service costs, accounts for some, but not all, of the unevenness in Medicare's risk contract program. Differences in local medical prices and service utilization explain much of the variation in HMO capitation rates across counties. In turn, the variation in these rates explains some of the differences across locations in the availability of risk contract HMOs, the level of HMO premiums charged, and the richness of benefits offered. Other factors, however, also play an important role. GAO proposes correcting a flaw in Medicare's rate-setting method that contributes to excess payments to HMOs.

GAO noted that: (1) Medicare's risk HMO payment system, which is built largely on fee-for-service costs, accounts for some, but not all, of the unevenness in medicare's risk contract program; (2) differences in local medical prices and service utilization explain much of the variation in HMO capitation rates across counties; (3) in turn, the variation in capitation rates explains some of the differences across locations in availability of risk contract HMOs, level of HMO premiums charged, and richness of benefits offered; (4) however, other factors also play an important role; (5) reducing the unevenness in, and realizing the savings potential of, the risk contract program involves reforming its payment system; (6) as a start to that process, GAO has proposed correcting a flaw in Medicare's rate-setting method that currently contributes to excess payments to HMOs; and (7) GAO's proposed modification could also help smooth the unevenness in counties' HMO capitation rates.