Increasing Medicare enrollment in HMOs: the need for capitation rates adjusted for health status

Although the federal government has sought to increase enrollment of Medicare beneficiaries in HMOs, at the end of 1981 less than 2% were HMO members. Of these, only two-tenths of 1% were enrolled under the type of risk-sharing contracts characteristic of HMOs. HMOs might have greater incentives to market to Medicare beneficiaries if a factor that adjusts for health status could be incorporated into the capitation formula. This paper develops such a factor using measures based on prior-year utilization, perceived health status, and functional health status.