More Active Government Role

Options for a more active government role in helping Medicare enrollees include raising the standards for entry into the Medicare health plan market. As the regulator of Medicare managed care, HCFA currently institutes fairly tight health plan entry requirements and other specific rules to ensure that "bad actors" do not enter the HMO risk market, such as the 5050 rule, which ensures that a plan already has experience providing services.2 Medicare also requires that for a risk-based contract, at least 5,000 of the plan's prepaid capitated members must be enrollees from the private sector. The minimum requirement drops to 1,500 for rural HMOs. Some Medicare reform proposals have sought to reduce these minimum requirements to increase the number of plans that would be available to enter the Medicare market.

As an alternative, under the Federal Employees Health Benefit Plan (FEHBP) the federal government contracts with all health care plans that meet participation requirements, and consumers make their own coverage decisions (Butler and Moffitt, 1995). This more inclusive purchaser approach may cause confusion among some beneficiaries, since they have had little experience with managed care plans and there is evidence that they may need assistance evaluating information. To alleviate some confusion and anxiety, the federal government could consider another option, that of assuming a more active purchasing role. As a large purchaser, the federal government could adopt some of the best practices of current large employers or purchasing alliances, which often negotiate actively with plans and require certain quality and service performance guarantees. In this capacity government could force competition among plans and then choose a subset of plans that offer the best choices for enrollees. This approach would afford Medicare


The 50-50 rule requires that for all HMOs in which Medicare beneficiaries enroll, at least half of the members must consist of non-Medicare and non-Medicaid beneficiaries. This is meant to provide assurance that Medicare HMOs do not constitute a perhaps second class of care for the elderly and disabled populations. A number of analysts believe the HMO accreditation requirements developed by NCQA may make the 50-50 rule less essential.

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