TABLE 1.

Medicare and Large Employer HMO Payment Methodologies (1985–1997)

	Medicare	Private Employers
Federal endorsement	TEFRA 1982	HMO Act of 1973
Benefit package	Required, at minimum, to provide the same benefits as covered under Medicare Parts A and B. Plans use savings earned from covering the basic benefit to cover additional benefits, such as prescription drug coverage, or to lower cost-sharing requirements.	HMO Act of 1973 required “federally qualified plans” to provide “basic health services.” Basic services requirements relaxed through amendments beginning in 1976.
Plan selection: market level	Plans choose the areas in which to participate (at the county level). Medicare accepts any qualified plan.	Provision of HMO Act of 1973 required employers to offer the choice of at least one qualified HMO plan in their area. Plan negotiates with employer to be included in those plans available to employees.
Plan selection: enrollee level	Beneficiaries may join any qualified plan in area and may opt in to or opt out of TM each month.	Enrollees may choose or switch plans each year.
Plan payment	Capitation based on Medicare formula: Adjusted for geography and beneficiary’s characteristics. 95% of AAPCC.a	Capitation. Plans set premiums or negotiate payments with employer.
Enrollees’ premium	Plans choose premium, subject to regulation. Enrollees pay Part B premium. Plans may charge additional premium as long as actuarial value of combination of the plan premium and cost sharing is no more than the actuarial level of cost sharing in TM.	Employer sets employees’ premium payment for HMO and alternative plans.

Note:

^aAAPCC = average adjusted per-capita cost.