Do Risk Contracts Save Medicare Money?

Risk HMOs are paid a capitation rate for Medicare members based on the amount Medicare would have spent if the beneficiaries had remained in the fee-for-service sector. The capitation rate includes a risk adjustment for the beneficiary's age, gender and other demographic characteristics. It is widely agreed that the adjustment is flawed, causing problems for Medicare and health maintenance organizations (HMOs). Several ways have been proposed to improve the adjustment.