strategic consulting services at the national Blue Cross and Blue Shield Association.
Depending on their service area, HMOs' monthly capitated payments from HCFA can be more than $600-far higher than the average commercial HMO premium of $80 to $100, Glassman said.
HCFA calculates Medicare benefit costs by county and then pays an HMO 95% of that per capita. Capitated payments vary tremendously across the country.
Currently the highest payments are for the Bronx in New York, where an HMO receives $678.90 per Medicare recipient per month. The lowest payment-$177.32-is for Fall River, S.D., according to Susan E. Palsbo, a manager at Coopers & Lybrand's national healthcare practice in Washington.
Predictably, Medicare risk enrollment has grown largest where HCFA reimbursement rates have been highest-in Southern California and Florida.
According to a Coopers & Lybrand analysis of HCFA data, roughly 80% of 2 million risk HMO enrollees in 1994 resided in the 10 counties with the highest reimbursement rates.
Los Angeles County and Dade County, Fla., are currently among the top 11 counties in payment rates, at $558.76 and $615.57, respectively, Palsbo said.
As of June 1994, those counties also had among the highest Medicare risk enrollments in the country. Los Angeles had the highest, at 298,277 enrollees, and Dade County had the sixth highest, at 83,723, according to an analysis by San Mateo, Calif.-based Datis Corp.
HMO executives and government officials expect a steady increase in Medicare risk contracting in areas where health plans believe they can deliver care to the elderly at a cost that is lower than the payment rate. More and more plans think they can do so: 22 HMOs had risk contract applications pending with HCFA in February.
Blues test waters.
Traditionally, Blues plans have been the leaders in claims processing for standard fee-for-service Medicare and in writing supplemental Medigap policies. But as the Medicare market moves toward an acceptance of managed care, Blues plans intend to keep that edge, Glassman said.
A small number of Blues plans across the country-11-now offer Medicare risk products.
However, Blues plans find it a little more complicated to enter the Medicare risk market than plans that don't offer supplemental products. "We have to think about product positioning," he said.
Another big concern for Blues plans is their community role. "Blues plans are there to stay," Glassman said. They can't just pull out of the marketplace if it goes sour, as smaller plans can, he said.
Indeed, the going has not been smooth for plans entering the Medicare risk market. "We've gone through a roller coaster ride in the Medicare risk business," said PacifiCare's Schub. "For a number of reasons-plan structure, geography, the delivery systems in place-the business has grown up in such a way that it has been extremely successful in a limited geography."
Between 1987 and 1990, 44% of 117 plans left the Medicare risk business, principally because of inadequate reimbursement levels, according to a study by Mathematica Policy Research in Washington (Feb. 14, 1994, p. 82).
Yet some managed-care plans have done remarkably well. The market leaders in California-PacifiCare, FHP and Kaiser Permanente's Northern and Southern California regions-have offered capitated products since the mid-1980s, and each has a current enrollment of more than 300,000, with senior plans accounting for a significant part of their revenues. Humana, which dominates the Florida market, has enrollment of close to 300,000.
PacifiCare's Secure Horizons plan accounted for 55% of total revenues of $2.9 billion in 1994, a spokeswoman said.
In the last fiscal year, FHP's senior plan enrollment accounted for only 35% of total enrollment of about