MEDICARE HMOS: STUDY FINDS FAVORABLE SELECTION

      The General Accounting Office has released a report showing
 that "lower-cost beneficiaries are the most likely to enroll and
 stay enrolled in California Medicare HMOs," Faulkner & Gray's
 Medicine and Health reports.  This finding has led to the
 introduction September 16 of a bill by Rep. Pete Stark (D-CA)
 that would "require the program to adopt risk adjusters by
 January 1, 1999, rather than January 1, 2000," as mandated in the
 Balanced Budget Act.  House Ways and Means health subcommittee
 chair Bill Thomas (R-CA), who requested the study, "hasn't taken
 a position on faster implementation," according to a committee
 aide.
      GAO FINDINGS
      The GAO study found that "despite high HMO penetration in
 the state, California Medicare HMOs 'attract and retain the least
 costly beneficiaries in each health status group.'"  Between 1992
 and 1994, "the average cost of new enrollees was nearly one-third
 below the cost of fee-for-service beneficiaries that did not
 enroll."  According to the report, which was based on data from
 1.3 million Medicare beneficiaries in 14 California counties, the
 fact that less costly members tended to enroll in HMOs produced
 "an average 29% difference in costs between those who enrolled
 and those who didn't."  The GAO also reported that less healthy
 beneficiaries were less likely to remain enrolled in HMOs, with
 10.2% of seniors with chronic conditions returning to fee-for-
 service plans within six months compared to only 4.5% of seniors
 with no chronic or serious health problems.  The GAO report is
 available online in Adobe Acrobat version.
      IN RESPONSE
      American Association of Health Plans Vice-President Rick
 Smith said that although the GAO concluded that "HMO favorable
 selection 'is costing the government more money,'" the average
 per capita costs in those counties have been dropping compared to
 the national rate.  Smith said that a fairer "evaluation of
 Medicare HMOs' effects on government costs would come from taking
 those numbers into account, to arrive at the 'net effect'" (9/22
 issue).