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HMO participation in Medicare plus Choice

Archived Abstract of Former PSC Researcher

Cawley, J., Michael Chernew, and C. McLaughlin. 2005. "HMO participation in Medicare plus Choice." Journal of Economics and Management Strategy, 14(3): 543-574.

In recent years, many health maintenance organizations (HMOs) have exited Medicare+Choice (M+C), the program that provides a managed-care option to Medicare. This paper answers the following questions: How does the equilibrium number of HMOs participating in county M+C markets vary with the capitation payment they are offered? How large a payment is required at the margin to ensure that various percentages of county markets have a M+C HMO, or to ensure that various percentages of Medicare beneficiaries have the choice of a M+C plan in their county of residence? The strategy for identifying the effect of government payment on HMO participation relies on a natural experiment; in 1997, Congress divorced M+C payments to HMOs from changes in underlying costs. The results in this paper suggest that the Centers for Medicare & Medicaid Services (CMS) has consistently underestimated the payment necessary to support HMOs in rural, sparsely populated areas. We also find that it would require a large incremental payment to support HMOs in M+C for the final 10% of counties or final 10% of Medicare beneficiaries.

DOI:10.1111/j.1530-9134.2005.00073.x (Full Text)

Country of focus: United States.

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