The consequences of paying Medicare managed care plans their costs.

This study examines 1993 Medicare expenditures for enrollees in 63 managed care plans that were reimbursed on a cost basis. We find that government spending for enrollees in cost-reimbursed plans in 1993 was substantially greater than it would have been had these enrollees instead received care in traditional fee-for-service Medicare or in a Medicare risk plan. The increase was due entirely to the much higher expenditures for Part B services under cost reimbursement. The findings suggest that Medicare cost reimbursement of health plans should be eliminated or significantly modified.