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Risk Adjustment Is Not Enough: Strategies to Limit Risk Selection in the Medicare Program

Increased participation by managed care plans in Medicare has the potential to improve benefits for beneficiaries while limiting spending. According to Richard Kronick and Joy de Beyer of the University of California, San Diego, however, this potential will be realized only if HMOs are rewarded for quality and efficiency, and not for favorable risk selection (i.e. enrolling the healthiest and least costly patients).

In Risk Adjustment is Not Enough: Strategies to Limit Risk Selection in the Medicare Program, the authors contend that favorable selection creates serious quality-of-care concerns, especially for chronically ill patients and those who have serious medical problems. Adjusting payments to HMOs based on enrollees’ health status is a necessary first step toward solving the problem.

The authors also discuss the following additional strategies to help limit risk selection in Medicare HMOs:

  • Coordinating open enrollment periods for Medicare HMOs and Medigap policies. Coordinating enrollment and requiring all plans to offer coverage regardless of health status could reduce risk selection by unifying Medigap and HMO markets.
  • Providing consumers with information about Medicare managed care. Providing better information about how Medicare works, how managed care differs from fee-for-service, and the function of supplementary insurance could help limit selection. Comparative information about different HMOs could also encourage plans to compete on performance as well as cost.
  • Standardizing benefits across managed care plans. This could facilitate comparisons between plans and make risk selection based on subtle benefit variations more difficult.
  • Credentialing health plans. Improved standards required of all plans before entering the Medicare market could increase the likelihood of quality care for those most at risk.

Facts and Figures

  • Annual excess payments to HMOs could be as much as $2 billion because of favorable risk selection.

  • The elderly and disabled are least likely to be enrolled in HMOs.

  • In a 1991 survey, 18 of 22 Medicare HMOs showed evidence of favorable selection.

  • A 1993 survey of 3,000 Medicare beneficiaries found that 43 percent were asked about their health status when applying to a managed care plan, a possible violation of Medicare health screening prohibitions.

Publication Details



Risk Adjustment Is Not Enough: Strategies to Limit Risk Selection in the Medicare Program, Richard Kronick and Joy de Beyer, University of California, San Diego, The Commonwealth Fund, May 1997