Medicare: GAO Views on Medicare Payments to Health Maintenance Organizations

GAO discussed Medicare payments to health maintenance organizations (HMO) and the administration's proposal to increase the medicare HMO payment rate. GAO found that: (1) HMO agree to provide all covered health care services to enrolled Medicare beneficiaries in return for a fixed payment; (2) the payment was set at 95 percent of Medicare's estimate of the average cost of fee-for-service health care; (3) the administration proposed increasing the HMO payment from 95 to 100 percent of the adjusted average per capita cost (AAPCC), in order to save Medicare funds; (4) the fixed payment amount for Medicare HMO enrollees was intended to be 5 percent less than the expected Medicare cost if the enrollees had remained in the fee-for-service sector; (5) increasing the payment rate to 100 percent would eliminate potential savings from the HMO program; (6) recent studies show that even with the rate at 95 percent of AAPCC, risk contracts with HMO may not reduce Medicare outlays; (7) Medicare beneficiaries enrolled in HMO tended to be healthier and less likely to use health care services than non-HMO beneficiaries; (8) the methodology used to calculate AAPCC did not accurately reflect those cost differences; and (9) the adjusted community rate was not meeting its objective.