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The Tax Equity and Fiscal Responsibility Act of 1982, under rules implemented in April 1985, creates incentives for HMOs and other competitive medical plans to significantly expand their participation in Medicare on an at-risk basis. In an attempt to gauge the likely response of HMOs to the new incentives, we examined data on a census of HMOs operating in 1982 to look for differences between HMOs that entered the Medicare program at risk under the earlier National Medicare Competition demonstration and those that did not. The most consistent difference we found was that HMOs in areas with a high adjusted average per capita cost were more likely to enter the Medicare market. HMOs with prior experience serving Medicare beneficiaries were also more likely to join the demonstration, as were HMOs that were federally qualified. No other HMO characteristics appeared to significantly affect the likelihood of entry.

This study investigates the effects of tax, regulatory, and reimbursement policies and other factors exogenous to the health insurance market on the relative price (to commercial insurers) paid by Blue Cross plans for hospital care, their administrative expense and accounting profits, premiums, and ultimately Blue Cross market share. We specify and estimate a simultaneous equation model to assess interrelationships among these variables. We conclude that premium tax advantages enjoyed by the Blues have virtually no effect on the Blues' premiums or their market shares. A Blue Cross plans' market share has a positive effect on the discount it obtains from hospitals as does coverage of Blue Shield charges by a state-mandated rate-setting plan. An upper bound on the effect on the Blue Cross market share of covering Blue Cross under rate-setting but excluding the commercials from such coverage is seven percentage points. Tests for administrative slack in the operation of Blue Cross plans yield mixed results.