There are a number of different reimbursement strategies proposed for health maintenance organization (HMO) style health care providers. Each of those strategies is designed to leave the provider at risk to provide incentives for him to increase the efficiency of his organization. Many such systems do not include as underwriting factors the medical status of the patient. Failure to include adjustment for the patient's medical status can: 1) leave the provider at risk due to real variation in the mix of the medical needs of the enrolled population (i.e., in areas with a sicker than average patient population, HMOs can fail by simply providing appropriate levels of care) and 2) provide incentives for selective enrollment and disenrollment based on the beneficiaries' medical status to see if such financial loss can be avoided. The authors analyzed two capitation reimbursement scenarios with adjustments for medical status to see if such adverse effects could be avoided while maintaining incentives for efficiency.