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Date:  July 28, 1995
For Release:  Immediately
Contact:  HCFA Press Office (202) 690-6145

HCFA Announces Preliminary USPCC Rates

The Health Care Financing Administration announced today its preliminary estimate of the United States Per Capita Cost (USPCC), one of the factors used to determine Medicare payments to risk-based managed care plans for 1996. In accordance with law and regulation, HCFA estimates that the 1996 USPCC will increase by 10.1 percent over the 1995 USPCC.

The increase is higher than the projected per capita increase in Medicare spending of 8.1 percent because it includes payment adjustments, such as adjustments to the prior year's rate to reflect more current estimates of spending. The increase reflects a variety of factors, such as changes in law, regulations, covered benefits and demographics, all of which affect health spending. The increase also reflects changes in the prices paid for health care services, and increased use of services.

The estimated increase in the USPCC for 1996 consists of: (1) an underlying increase in Medicare program expenditures of 8.1 percent per capita; (2) a 1.3 percent increase to correct for an understatement in the 1995 rate; and (3) a 0.6 percent increase to reflect increased spending under the recently enacted Medicare Select law.

The projected increase of 8.1 percent per capita in Medicare expenditures is slightly higher than the 7.3 percent per capita increase projected for private sector health spending. However, Medicare serves an older and sicker population than private health insurance plans and provides some services, including skilled nursing care, not typically covered by private health plans.

The 1.3 percent increase for 1996 is a retroactive correction to the 1995 USPCC. This adjustment was necessary because spending for skilled nursing facility services and physician services was higher than projected for 1995.

A 0.6 percent increase was included in the 1996 calculation due to Medicare Select. The Medicare Select demonstration was authorized by Congress in 1990 to allow beneficiaries to choose a preferred provider organization (PPO) for obtaining Medicare supplemental benefits. At the time, the demonstration was expected to reduce the rate of growth in Medicare spending. However, preliminary research findings indicate that the demonstration, limited to 15 states, resulted in increased Medicare spending. The expansion of Medicare Select to all states is expected to increase per capita spending by 0.6 percent in 1996.

The increase in the USPCC is not a measure of the actual change in payments to a Medicare managed care plan. Actual payment rates to Medicare managed care plans, to be announced September 7, vary significantly from county to county.

HCFA Administrator Bruce Vladeck said, "The formula set in law by Congress for determining actual payments to Medicare managed care plans needs to be reformed. The President believes this issue must be addressed in any Medicare restructuring legislation passed this year."

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