Medicare enrollment in health maintenance organizations. (1987)

The Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 (Public Law 97-248) provided new incentives for health maintenance organizations (HMO's) to enroll Medicare beneficiaries on an at-risk basis.1 TEFRA provisions encouraging HMO participation in Medicare on an at-risk basis sought to further the goals of promoting competition and cost effectiveness, and providing greater beneficiary choice in health care and greater autonomy to providers.

The TEFRA provisions represented a major change from the way HMO's were paid under the 1972 Amendments to the Social Security Act (Public Law 92-603). Under TEFRA, HMO's are paid a prospectively determined amount for risk enrollees. They receive 95 percent of the adjusted average per capita cost (AAPCC), which is defined as the actuarially estimated per capita amount that would be payable if Medicare services for HMO members were furnished in the local fee-for-service market. HMO's must use any difference between 95 percent of the AAPCC and their adjusted community rate (ACR) to provide additional benefits or to lower premiums. The ACR is defined as the premium the HMO would have charged Medicare enrollees for the Medicare benefit package. TEFRA also provides for cost contracts with HMO's in which case HMO's are paid for reasonable costs up to 100 percent of the AAPCC.

Under the 1972 Amendments to the Social Security Act, payments under both cost and risk contracts were subject to retrospective adjustments. This is contrary to the way HMO's are paid in the private sector where they receive a fixed premium and can appropriately budget and plan. Only four plans signed risk contracts under the provisions of the 1972 amendments.

This article describes the trends in TEFRA HMO enrollment. It compares patterns of Medicare and total HMO enrollment by State, by HMO, by type of HMO, and by profit status. Data on extra benefits offered beyond those covered by Medicare are also presented.

There are four classes of Medicare HMO enrollees. These are:


Risk enrollees under the TEFRA provisions.


Cost enrollees under the TEFRA provisions.


Risk enrollees under the 1972 Amendments to the Social Security Act.


Enrollees in HMO demonstration projects.




Trends
In September 1985, there were 552,096 total Medicare HMO enrollees (Figure 1). Growth continued each month and by December 1986 there were 1,025,466 enrollees, representing a 4.2 percent compound rate of growth per month. As shown in Figure 1, TEFRA provisions encouraged growth in Medicare HMO enrollment. Regulations to implement the TEFRA HMO provisions were issued in January 1985, and the first contract under these provisions was signed in April 1985. By September 1985, there were 395,374 TEFRA HMO enrollees, of which 92.2 percent were enrolled under TEFRA risk contracts and 7.8 percent under TEFRA cost. Total TEFRA enrollees reached 916,995 by December 1986.



Figure 1

Medicare health maintenance organization (HMO): September 1985-December 1986



This growth in TEFRA enrollees averaged 5.8 percent monthly while enrollment in old risk plans showed a much slower rate of growth, less than 1 percent per month. Enrollment in demonstration projects more than doubled, rising from 12,387 in September 1985 to 30,404 in December 1986.

Enrollment by State
Data by State on HMO enrollment in the total population (maintained by InterStudy) are compared with data on HMO enrollment of Medicare beneficiaries (Table 1). In 1986, 23.7 million persons2 or nearly 10 percent of the total U.S. population was enrolled in an HMO. Five States accounted for nearly one-half of those enrollees: California, 6.5 million or 27.3 percent; New York, 1.7 million or 7.1 percent; Michigan, 1.2 million or 5.0 percent; Minnesota, 1.0 million or 4.4 percent; and Illinois, 1.1 million or 4.8 percent. HMO enrollment in both California and Minnesota represented nearly one-fourth of those States' total populations. Other States that had a high percent enrolled in HMO's were Wisconsin (19.4 percent), Hawaii (18.4 percent), and Massachusetts (16.6 percent).



Table 1

Population, total health maintenance organization (HMO) enrollees, Medicare enrollees, and HMO Tax Equity and Fiscal Responsibility Act (TEFRA) of 1982 risk Medicare enrollees, by State



Of the 29 million aged and disabled Medicare enrollees, 3.5 percent are enrolled in HMO's, with most, 2.8 percent, under TEFRA risk contracts. (The number of contracts is larger than the number of plans because a plan may have several contracts, for example, one for each service area within a State. Plans are used synonymously with contracts in this article.) Concentrations (50,000 or more) of TEFRA risk enrollees were heavy in five States: Florida, 175,192 or 9.0 percent of its Medicare population enrolled under TEFRA risk contracts; California, 164,296 or 5.9 percent of its Medicare population; Minnesota, 137,390 or 25.6 percent; Massachusetts, 51,509 or 6.5 percent; and Illinois, 53,525 or 3.8 percent of its Medicare population. These States accounted for 71.5 percent of the TEFRA risk enrollees in December 1986.

The five States with the highest percents of Medicare enrollees covered by TEFRA risk plans were Minnesota (25.6), Hawaii (18.2), Nevada (15.3), Florida (9.0), and New Mexico (8.8). Minnesota and Hawaii, as noted earlier, also had high HMO penetration in the total population. Medicare TEFRA risk enrollment in California (5.9 percent of the Medicare population) had not yet reached the level of HMO penetration in that State (24.0 percent). In four States (Florida, Minnesota, New Mexico, and Nevada) the HMO penetration in the Medicare population was greater than the HMO penetration in the general population.