Setting health maintenance organization capitation rates for Medicaid in Wisconsin

In late fall 1984, more than 110,000 Wisconsin Aid to Families with Dependent Children (AFDC) Medicaid recipients were enrolled in health maintenance organizations (HMO's). Capitation rates were set by competitive bidding, subject to a rate ceiling. Planners considered whether to adjust the rates to account for demographic changes in the AFDC population between the time that data for the rate ceilings were collected and when the rates went into effect. They also considered whether to pay a single rate or to adjust rates for the age and sex of each HMO's actual enrollees. This article is a report of the analysis that led to a decision to pay a single, countywide rate that was not demographically adjusted.