title: Setting capitation payments in markets for health services.
abstract: Health maintenance organizations (HMO's) are paid a capitated amount for enrolled Medicare beneficiaries that is 95 percent of what these enrollees would be expected to cost in the fee-for-service sector. However, it appears that HMO enrollees are less costly than other Medicare beneficiaries. With a simulation model, we demonstrate that with a 95-percent pricing rule, any significant degree of biased selection leads to increased cost to the payer, even when HMO's are cost effective compared with the fee-for-service sector. Optimal pricing percentages from the point of view of cost minimization are considerably less than 95 percent.
mesh_terms: D002204:Capitation Fee; D014487:Centers for Medicare and Medicaid Services, U.S.; D003365:Costs and Cost Analysis; D005249:Fees and Charges; D006279:Health Maintenance Organizations / Q000191:economics*; D006278:Medicare / Q000191:economics*; D008962:Models, Theoretical; D011907:Rate Setting and Review / Q000379:methods*; D012306:Risk; D013223:Statistics as Topic; D014481:United States