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Bethesda, MD -- A
new Health Policy Brief from Health Affairs and the Robert
Wood Johnson Foundation looks at so-called risk adjustment—an
approach that will be needed in insurance exchanges scheduled
to open in 2014. When the exchanges created under the Affordable
Care Act are up and running and millions of Americans are buying
coverage through them, some new enrollees will be healthy, but
many others may have preexisting or high-cost conditions. To
remove incentives for insurance companies to seek only the healthiest
enrollees, insurance plans will be compensated through risk
adjustment.
This policy brief explains how risk adjustment works and the
issues involved in putting it into practice. Topics covered
in the brief include:
- Why risk adjustment is needed. Since the 1990s, many policy
makers have argued that structured insurance market competition
could be an important way to lower health insurance costs.
Appropriate payment, as determined by risk-adjustment calculations,
is a key ingredient in the overall success of the innovations
in the Affordable Care Act, because health plans will compete
on the basis of quality and efficiency, not by avoiding high-cost
patients.
- What risk adjustment is and how it works. The brief explains
how, in risk adjustment, a third party, such as the federal
government or a state, collects and organizes data from insurance
claims and clinical diagnoses for all enrollees in every participating
health plan or provider organization in a particular market.
Using what’s known as a risk-assessment tool or methodology,
this entity then converts the data into a risk score for each
person, and uses that score to determine whether the person
is healthier or sicker than average and thus how payment to
the plan should be adjusted as a result.
- Backstops to risk adjustment. As a supplement to risk-adjusted
payments to plans, two additional stop-gap measures will be
in place during the first three years of the Affordable Care
Act, in case the adjustments don’t work as expected.
“Transitional reinsurance programs” will assess
fees on insurers based on their relative market share; those
funds will then be channeled to any plans that cover patients
with extraordinarily high medical costs. “Risk corridors”
constitute another mechanism of transferring funds from plans
with below-average risks to those with above-average risks.
Funds will be collected from insurance companies whose target
costs projections are at least 3 percent lower than expected
and channeled to insurers whose actual costs turn out to be
at least 3 percent higher than projected.
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Health Affairs is the leading journal at the intersection
of health, health care, and policy. Published by Project HOPE, the
peer-reviewed journal appears each month in print, with additional
Web First papers published periodically and health
policy briefs published twice monthly at www.healthaffairs.org.
Read daily perspectives on Health
Affairs Blog.
Download weekly Narrative Matters podcasts on iTunes.
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