Perspective               

HCFA Overpaid Medicare+Choice by $5.2 Billion in 1998

More than 934,000 older and disabled Americans with Medicare will lose their HMO coverage by the end of this year. Many HMOs claim that inadequate federal funding has forced them to withdraw from the market. However, the General Accounting Office recently reported that, HCFA, the government agency that administers Medicare, spent an enormous $3.2 billion more on enrollees in Medicare HMOs in 1998 than if their members had been enrolled in traditional fee-for-service Medicare. Furthermore, errors in spending predictions and payment provisions from the Balanced Budget Act of 1997 led to an additional $2 billion in excess payments.

The report demonstrated that the Medicare HMO program has failed to achieve Medicare savings. The HMOs attracted a disproportionate percentage of healthier and less expensive customers relative to fee-for-service Medicare. The government payment rates to HMOs were too high because they were based on the HMOs having a higher percentage of members with costly health care needs.

Despite HMOs' persistent claims of insufficient federal funding, nearly all HMOs were overpaid. Two-thirds of plans received at least 10 percent more money relative to the cost for enrollees in Original Medicare. The largest overpayment found was a generous 40 percent, or $334 million.

In sum, recent initiatives to turn Medicare over to private health plans have not been cost effective.

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