<p> HPA 420, Risk Selection Practice DUE: April 11, 2000 Medicare payments to HMOs</p><p>We’ll be completing part of this exercise in class, and then you’ll do the rest as homework.</p><p>(1) Suppose that 90% of Medicare beneficiaries in the traditional fee-for-service plan in Centre County are low expense, and 10% are high expense. The program pays an average of $400 per month in claims for low-expense beneficiaries. Fee-for- service claims for high-expense beneficiaries average $1500 per person per month. As the AAPCC has traditionally been calculated, how much would Medicare pay HMOs in Centre County?</p><p>NOTE: The relevant calculations would actually pertain to each of 142 AAPCC cells, defined by age, type of enrollment, etc. Also, Medicare HMO payments are now based on county-specific costs blended with national costs, subject to a payment floor. But here we’re ignoring those complications.</p><p>(2) If 95% of the Medicare beneficiaries who sign up with HMOs are low-cost beneficiaries, Medicare is losing money by having managed care plans operate in Centre Country.</p><p>(a) Calculate the per-capita cost to the Medicare program of serving the HMO enrollees in traditional, fee-for-service Medicare.</p><p>(b) How much is the program losing on average on each HMO enrollee?</p><p>(3) How could Medicare change its HMO payment method to fix this problem?</p><p>(4) Imagine that one of the HMOs in Centre County is particularly good at caring for high-expense beneficiaries. Consequently, it attracts a considerable number of more costly enrollees. If 20% of its enrollees are costly cases, what is this HMO’s profit or loss on its Medicare business? (Assume that it can serve all of its Medicare beneficiaries at 95% of the traditional, fee-for-service cost for each person.) Question 1</p><p>Fee-for-service claims </p><p>X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X</p><p>Low 90 x $400 = $36,000 High 10 x $1500 = $15,000 51,000  100 = $510 per person</p><p>Payment formula: 95% of average (adjusted) per capita cost</p><p>.95 x $510 = $484.50 per person (paid by HCFA to HMO) Question 2</p><p>Fee-for-service claims for new HMO enrollees</p><p>X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X</p><p>95 x $400 = $38,000 5 x $1500 = 7,500 $45,500  100 = $455</p><p>HCFA is paying plans: $484.50 HMO enrollees were costing HCFA 455.00 HCFA is losing 29.50 Question 3</p><p>Fee-for-service claims for new HMO enrollees</p><p>X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X</p><p>95 x $400 = $38,000 5 x $1500 = 7,500 $45,500  100 = $455 per person</p><p>Apply HMO efficiency factor to claims for plan’s mix of risks: 95% of average (risk-adjusted) per capita cost</p><p>.95 X $455 = $432.25</p><p>HCFA is paying plans: $432.25 HMO enrollees were costing HCFA 455.00 HCFA is saving 22.75 (5% of $455) Question 4</p><p>Fee-for-service claims in plan that attract 20% high-cost cases</p><p>X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X X</p><p>Low 80 x $400 = $32,000 High 20 x $1500 = $30,000 62,000  100 = $620 per person</p><p>Apply HMO “efficiency factor” to fee-for-service claims</p><p>.95 x $620 = $589 (average cost to HMO)</p><p>Profit/loss = Revenues – Costs</p><p>$484.50 - $589 = - $104.50 (loss per person)</p>