There is also an incentive for HMOs to limit access to care for older and sicker enrollees, thereby encouraging them to disenroll. Favorable selection has cost Medicare hundreds of millions of dollars. The amount of the over-payment is open to question, with studies putting the figure as high as 28 percent. When this average cost rises, so does the capitation rate HCFA pays to risk contract HMOs. Favorable selection in the Medicare HMO program enriches the managed care plans and frustrates Medicare's efforts to use managed care to save money.
Savings are impossible without advanced payment methodology.
Selection problems will continue unless Medicare devises a payment formula which properly factors in the health status of enrollees. The Physician Payment Review Commission cautioned Congress against further expansion of the risk program until the HMO payment methods more accurately reflect Medicare's costs. Given the limitations of a program serving more than 30 million individuals, the General Accounting Office concluded that HCFA is not likely to develop a payment adjustment formula to eliminate favorable selection. So long as the HMO has more information on individual beneficiaries than can be captured by the risk adjustor, the HMO will have an opportunity to create favorable selection. Although the GAO has engaged in extensive review of this subject, there is no indication that they have developed a new payment methodology that eliminates the problem of favorable selection.