This project will examine how Medical Health Maintenance Organizations (HMOs) have reacted to the new Medicare formula being used to set HMO capitation rates in 1998 and 1999. In 1998, 45 HMOs canceled their Medicare contracts, while 54 others reduced the market areas in which they offer services. At the same time, more than 30 new plans applied to enter; many plans lowered premiums and changed benefits; and overall Medicare HMO enrollment grew by eight percent. This study will take advantage of this setting to study HMO behavior and its differential response to Medicare payment policy. Empirical specifications will be based on an analytical model of HMO and consumer behavior. Three types of HMO decisions will be examined: HMO selection of counties to enroll Medicare beneficiaries in; the choice of the enrollee premiums; and HMO selection of optional benefits to offer beyond the minimum required levels. One consumer choice will be modeled, aggregate and plan-level Medicare HMO enrollment, in response to plan premiums and benefit features. The project will use rich information from the Health Care Finance Administration, the Area Resource File, and Interstudy. A series of statistical models of HMO behavior and consumer enrollment decisions identify the plan and market factors that explain the dramatic changes that have occurred in Medicare markets. The relationship between commercial and Medicare HMO activities will be explored. Results will contribute to the recent academic research about how health plans compete. Results will also be useful to policy makers in understanding how recent Medicare reforms have altered HMO premiums, competition, benefit features and the resulting Medicare enrollments.
