4125.0: Tuesday, November 14, 2000 - Board 4

Abstract #6429

The impact of Medicare HMO penetration on Medicare expenditures

Wen-Chen Tsai, Department of Health Services Management, China Medical College, 13 Ln.16 Sec.3 Chungching Rd, Taya, Taichung, 428, Taiwan, 011-886-4-5603149, janekung@ms28.hinet.net, Mahmud M. Khan, Department of Health Systems Management, Tulane University, 1440 Canal Street, New Orleans, LA 70112, and Pei-Tseng Kung, Department of Biostatistics, Tulane University, 1440 Canal Street, New Orleans, LA 70112.


This study using fixed-effects models explores the relationship between HMO market shares and Medicare FFS expenditures for 316 MSAs for the years 1991-94. The results suggest that increases in overall HMO market shares are associated with decreases in Medicare FFS expenditures, and the net savings become significant when the market share exceeds 30 percent level. Overall the HMOs show indirect spillover effects on Medicare Part B costs and do not have any significant impact on Part A, given the Medicare HMO market share. The relationship between Medicare HMO market share and Medicare FFS cost is found to be a concave line. Thus, increases in Medicare HMO market shares lead to increases in Medicare FFS expenditures. The reason for this could be that the effect of Medicare HMO favorable selection is relatively more important than the HMO spillover effect. The results also indicate that with the increase in Medicare HMO market shares, Medicare Part A FFS costs tend to increase. This may be due to the biased selection phenomenon. Medicare achieves its cost savings for Part B in low market share (below 45 percent) areas, but it increases the FFS expenditures in higher market share areas. The study also examines the cost patterns for aged and disabled groups separately. The results are quite similar for these two groups. Overpayment to HMOs due to biased selection and the small spillover effect for the FFS sector imply that Medicare is unlikely to save any money with the implementation of managed care plans.

Learning Objectives: From the results of this session, the participants will be able to: 1. recognize the effect of managed care plans on Medicare expenditures; 2. understand the shortcomings of HMO enrollment procedures for the Medicare program; 3. know the necessity of adjusting Medicare payment methods

Keywords: Managed Care, Medicare

Presenting author's disclosure statement:
Organization/institution whose products or services will be discussed: None
I do not have any significant financial interest/arrangement or affiliation with any organization/institution whose products or services are being discussed in this session.

The 128th Annual Meeting of APHA