Participation in Medicare Managed Care

In recent years, many health maintenance organizations (HMOs) have exited the market for Medicare managed care; since 1998, the number of participating plans has fallen from 346 to 174. As a result of this reduced participation by HMOs, hundreds of thousands of Medicare beneficiaries have been involun-tarily disenrolled from the program at the end of each year from 1998 to 2001. This paper estimates the Centers for Medicare and Medicaid Services (CMS)1 capitation payments that are necessary to support the participation of various numbers of HMOs in Medicare managed care per county market. This paper does not make a normative statement about how many HMOs should be sup-ported in this program; rather, it makes a positive statement about the levels of payment necessary to support various numbers of HMOs. The identification strategy is to observe how the number of participating HMOs varies over counties and time in response to CMS payment, while con-troffing for estimated costs. This paper studies the period 1993-2001 and fo-cuses in particular on the variation in payment, independent of costs, that oc