Exploring benefits of risk-based contracting under Medicare.

TEFRA in 1982 authorized Medicare to pay alternative health plans a prospective rate if they had a risk-based contract with HCFA. Because of a lack of experience with risk-based contracting, experiments were authorized by Congress and HHS. These demonstrations have shown that alternative health plans can offer a benefit package that is more attractive than the standard Medicare Part A and Part B benefits. They have also shown that the plans' approach to expanding into the Medicare market is conditioned by the existing competitive environment. Questions still to be explored include the extent and effect of biased selection and the appropriate payment level for each Medicare patient.