Volatility in Medicare AAPCC rates: 1990-1997

Area of Science:

• Health economics
• Public health policy
• Managed care organizations

Background:

• Medicare beneficiary enrollment in managed care is rising.
• Congress is exploring capitation for Medicare savings.
• Fair payment formulas for managed care plans are crucial.

Purpose of the Study:

• To analyze the impact of historical expenditure volatility on Medicare capitation rates.
• To examine the effects of annual changes in Adjusted Average Per Capita Cost (AAPCC) rates.

Main Methods:

• Analysis of historical Medicare expenditure data.
• Focus on annual changes in AAPCC rates across different geographic areas.

Main Results:

• Annual AAPCC rate changes are most dramatic in rural counties.
• Counties not adjacent to urban areas exhibit the highest volatility.
• This volatility may discourage managed care organization market entry.

Conclusions:

• Historic expenditure volatility presents a challenge for equitable Medicare capitation rate setting.
• The unpredictable nature of AAPCC rates, especially in rural markets, could hinder managed care participation.
• Strategies to mitigate volatility are needed to ensure fair payment and encourage market entry.