HEALTH-STATUS OF MEDICARE ENROLLEES IN HMO AND FEE-FOR-SERVICE IN 1994

We compared the health status of 863 health maintenance organization ( HMO) enrollees with that of 4,576 non-enrollees, controlling for demog raphics and area of residence, using 1994 data from the Medicare Curre nt Beneficiary Survey (MCBS). HMO respondents were less likely to repo rt fair or poor health, functional impairment, or heart disease. Avera ge predicted costs based on various health-status measures were substa ntially lower for HMO respondents than for respondents in fee-for-serv ice (FFS) arrangements. The Medicare payment formula for HMOs does not adequately adjust for the better health and consequent lower expected casts of HMO enrollees. The addition of health-status measures would improve payment accuracy and reduce average HMO payments significantly below current levels.