Why Do So Few HMOs Offer Medicare Risk Plans in Rural Areas?

Only 17 of the 38 health maintenance organizations (HMOs) that have Medicare risk contracts and offer coverage to commercial clients in rural counties include the rural counties in their Medicare plan service areas. Rural counties in which HMOs offer Medicare coverage have higher average adjusted average per capita costs (AAPCCs), larger populations, and more physicians per capita than rural counties excluded by risk plans. Interviewed plans cite low and erratic AAPCCs, scarcity of potential enrollees, lack of negotiating power with physicians, and adverse selection as drawbacks in rural areas. Proposed changes to the payment methodology would probably lead HMOs to increase their Medicare offerings in urban fringe areas, but not in isolated rural areas.