The entry of HMOs into the Medicare market: implications for TEFRA's mandate

The Tax Equity and Fiscal Responsibility Act of 1982, under rules implemented in April 1985, creates incentives for HMOs and other competitive medical plans to significantly expand their participation in Medicare on an at-risk basis. In an attempt to gauge the likely response of HMOs to the new incentives, we examined data on a census of HMOs operating in 1982 to look for differences between HMOs that entered the Medicare program at risk under the earlier National Medicare Competition demonstration and those that did not. The most consistent difference we found was that HMOs in areas with a high adjusted average per capita cost were more likely to enter the Medicare market. HMOs with prior experience serving Medicare beneficiaries were also more likely to join the demonstration, as were HMOs that were federally qualified. No other HMO characteristics appeared to significantly affect the likelihood of entry.