Volatility in Medicare AAPCC rates: 1990-1997

As Medicare beneficiary enrollment in managed care plans increases, and as Congress considers relying on capitation for achieving savings in the program, the question of finding a fair and equitable formula for determining the monthly payment to managed care plans has become increasingly salient. This DataWatch focuses on one dimension of using previous expenditures to determine annual capitation rates: the effects of historic volatility in total expenditures. Annual changes in adjusted average per capita cost (AAPCC) rates are especially dramatic in rural counties, with those not adjacent to urban areas experiencing the greatest volatility. This pattern of annual change may discourage managed care organizations from entering markets, even when the rate in any given year may appear to be favorable for accepting risk.