The financial implications of HMOs' partial county carve-out option

This study examined the Health Care Financing Administration's policy allowing Medicare HMO risk contracts to carve out certain portions of counties from their service areas without adjusting the HMOs' capitation rate. In 1999, the policy resulted in 2.2 million Medicare enrollees losing access to HMOs and 2.3 million Medicare enrollees left with fewer HMO options. Although the majority of Medicare HMOs did not appear to be adopting the policy, there did seem to be a general tendency to exclude higher cost areas, which resulted in an estimated loss to the Medicare Trust Fund of $769 million in 1999. Of particular concern is the magnitude of profits and losses this policy generated for some individual HMOs.