Academic journal article Health Care Financing Review

M+C Plan County Exit Decisions 1999-2001: Implications for Payment Policy

Academic journal article Health Care Financing Review

M+C Plan County Exit Decisions 1999-2001: Implications for Payment Policy

Article excerpt


Private managed health care plans have participated in Medicare since 1982, first in the Medicare risk program established by the Tax Equity and Fiscal Responsibility Act of 1982 and subsequently in M+C, established by the 1997 BBA. M+C was renamed Medicare Advantage in the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (MMA). Congress consistently expresses two primary objectives for private plan participation: to promote competition for Medicare enrollees among health plans, resulting in lower expenditures,1 and to provide beneficiaries with a choice of health care delivery options and benefit packages.

The legislative response to several years of M+C plan exodus has been substantial payment increases and regulatory compromises contained in the Balanced Budget Refinement Act of 1999 (BBRA), the Benefits Improvement and Protection Act of 2000 (BIPA), and the MMA. A more thorough understanding of M+C plan decisions, particularly those made before payments increased dramatically in 2001, becomes increasingly important as calls to modify the MMA arise.


Until 1998, CMS paid risk plans 95 percent of the adjusted average per capita cost (AAPCC), a county-level estimate of expenditures CMS would have incurred under fee-for-service (FFS) reimbursement. The 1997 BBA modified the payment mechanism for M+C plans in an attempt to promote payment equity among U.S. counties while containing the growth of health care costs. M+C plans were paid the higher of two rates in 1998 and 1999: a minimum (floor) or a minimum increase of 2 percent over the previous year's payment. In 2000, CMS added a blended rate of local and national average FFS spending (U.S. General Accounting Office, 1999).

The number of plans grew from 32 in 1985 to a peak of 346 in 1998 (U.S. General Accounting Office, 1999) before taking a precipitous turn. Forty-five M+C plans terminated their contracts and 54 plans reduced their service areas for the 1999 contract year. Forty-one plans terminated contracts and another 58 reduced service areas for 2000. Sixty-five plans terminated contracts for 2001 while another 53 reduced service areas. By 2002, 148 M+C plans remained (Medicare Payment Advisory Committee, 2002). (2)

M+C plan contract terminations and service area reductions between 1999 and 2001 received considerable attention in the media and from Congress. Much of the debate over the withdrawals is summarized in two basic arguments. Health plans argued that payment rates and increases under the 1997 BBA were too low, creating payment inequity, or a "fairness gap," between M+C plans and FFS Medicare (Ignagni, 1999). The Federal Government, represented primarily by CMS, the General Accounting Office, and the Department of Health and Human Services, argued that payments to plans were adequate; the spate of exits was attributable more to competition than to smaller payment hikes.

Factors Affecting M+C Plan Decisions

The M+C literature has focused on a consistent set of factors that appear to guide plan decisions: government payment, costs, enrollment, competition, and organizational characteristics.

Descriptive and multivariate analyses show that payment levels and increases are negatively associated with leaving a county (Lake and Brown, 2002; Glavin et al., 2002/2003; Merrill, 2001; U.S. General Accounting Office, 1999; Kornfield and Gold, 1999). Analysis has established a consistent positive association between costs and county exit (Lake and Brown, 2002; Glavin et al., 2002/2003; Stuber et al., 2002; Stuber, Dallek, and Biles, 2001). Costs are affected most by utilization (Call et al., 1999; 2001; Brown et al., 1993) and plans' bargaining power with providers (Grossman, Strunk, and Hurley, 2002; Stuber et al., 2002; Benko, 2000; U.S. General Accounting Office, 1999).

A negative relationship between enrollment and county exit is well documented (Lake and Brown, 2002; Glavin et al. …

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