Medicare. Its broader purpose is to test beneficiaries' response to a range of health care delivery system options and to evaluate their suitability for Medicare.

The Medicare Managed Care Population

Although risk contracts make up the bulk of the Medicare managed care market and have accounted for most of the program's growth (with 197 risk contracts serving 3.4 million beneficiaries as of March 1, 1996), Figure 1-1 and Table 1-1 show that enrollment is concentrated in a few states and a few large HMOs. About 55 percent of Medicare HMO enrollees live in California and Florida and represent approximately 36 and 19 percent of the beneficiaries in those two states, respectively (Office of Managed Care, Health Care Financing Administration, 1996). Similarly, 10 large HMOs enroll 44 percent of all Medicare beneficiaries. As of August 1995, 31 states had no or insignificant enrollment in Medicare risk contract HMOs (U.S. General Accounting Office, 1996).

States with the highest concentrations of Medicare enrollees have one or both of two characteristics: they contain mature health care markets in which managed care has become a dominant mode of health care delivery for the population under age 65, and they are in areas of the country with high AAPCCs (U.S. General Accounting Office, 1996). As shown in Figure 1-2, to attract Medicare beneficiaries, participating HMOs are increasingly turning to the use of additional incentives: charging elderly enrollees zero premiums as well as offering popular benefits such as routine physicals, eye and ear examinations, and immunizations. About half of the HMOs offer outpatient prescription drug coverage. Over the past 3 years the number of HMOs charging Medicare beneficiaries no premiums for the services provided increased from about 26 to about 49 percent (U.S. General Accounting Office, 1996).

A number of recent studies indicate that changes in employment-based health care coverage for retirees is another factor contributing to the recent rapid rate of growth of Medicare beneficiary enrollment in HMOs (Interstudy, 1995; U.S. General Accounting Office, 1996). The rising cost of health care coverage for retirees is forcing a growing number of firms to drop or

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