Insights From the Medicare HMO Demonstrations

Abstract

Prologue: In June 1 989, Secretary of Health and Human Services Louis W. Sullivan made an unexpected announcement at the annual meeting of the Group Health Association of America, a health maintenance organization (HMO) trade industry group. He stated that one of his priorities was to see HMOs under Medicare paid amounts comparable to fee-for-service providers rather than 95 percent, as current policy dictates. Because the secretary's request carried a $100 million price tag, the 101 st Congress failed to pass any increase in payments at the end of its 1989 session. The secretary's move surprised observers, however, because of the perception in some quarters that Medicare already overpays HMOs for its beneficiaries. HMOs hold the opposite view: that they lose money on every Medicare beneficiary that enrolls. To shed some light on these and other difficult, often contradictory issues, Mathematica Policy Research, a Washington, D.C.-based think tank, undertook an evaluation of the Medicare HMO demonstration...