Biased Selection and Medicare HMOs: Analysis of the 1989-1994 Experience

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Abstract
This article presents the results of an analysis of the preenrollment and postdisenrollment experiences of Medicare-risk HMO enrollees. The results indicate that in the 6 months prior to their enrollment, new HMO enrollees use on average 37 percent fewer services than do beneficiaries in traditional fee-for-service Medicare. Furthermore, HMO disenrollees use 60 percent more services in the six months after disenrollment than do fee-for-service beneficiaries. Finally, new enrollees had relatively lower chronic-condition expenditures and mortality rates, whereas disenrollees had higher values for both. These findings suggest that the overall results, in part, reflect permanent differences between the HMO and fee-for-service Medicare populations. Moving to an annual enrollment with a 90-day cooling-off period appears to be a reasonable approach to addressing these differences in enrollees.