Medicare Managed Care:

HMO Rates, Other Factors Create Uneven Availability of Benefits

T-HEHS-97-133: Published: May 19, 1997. Publicly Released: May 19, 1997.

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GAO discussed aspects of Medicare managed care, including greater choice and equity across the program, focusing on: (1) the link between counties' capitation rates and Medicare's spending on fee-for-service care; (2) factors affecting the availability of plans in a given area, the level of premiums charged, and the benefit packages offered; and (3) modifications to Medicare's current payment methodology that could reduce health maintenance organization (HMO) overpayments.

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.

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