A statistical method for predicting a person’s likely use and costs of health care services is known as risk adjustment. It is used in Medicare Advantage to adjust the capitated payments made by the federal government to cover enrollees’ expected medical costs. This, in turn, helps to ensure that a plan’s contracted providers have enough resources to care for beneficiaries and are not tempted to avoid sicker and more expensive patients.
Risk adjustment is a critical component of the Medicare program. The medicare risk adjustment information incentivizes plans to accept sicker members. These patients can be coded for more conditions, allowing the plans to manage care better and make more money. However, it is important to remember that risk adjustment can have a negative impact on certain populations, such as rural residents or minorities. For this reason, the current risk adjustment model may unintentionally exaggerate disparities.
CMS’ current risk adjustment method will tend to under-compensate for differences in claims risk, even though different health statuses often have different amounts of risk. Furthermore, it ignores some important factors in a person’s health when building risk scores. For example, some health conditions are only included in the risk scoring model as coarse categories of varying severity. Consequently, CMS’ current approach will explain only a small part of the variation in spending among enrollees.
The CMS also considers the risk score model when making changes to the risk adjustment program. The risk score is an overall score of the insurer’s average claims risk. This score is used to transfer money from high-risk insurers to lower-risk insurers.
Effects on Premiums
The effects of risk adjustment are complex. Risk adjustment aims to ensure that health plans are fairly compensated for managing beneficiaries’ health. Providing appropriate care at the right time and place is critical for boosting the value of the health plan to members. To do this, health plans offer a variety of complimentary and low-cost member benefits.
To calculate the risk adjustment, the HHS methodology factors in various factors, including the level of patient cost-sharing in the plan and the geographic variation of costs. In addition, the risk adjustment only applies to those plans with low-risk scores and those with high-risk scores. This method encourages accurate premiums and cushions insurers from extreme losses.
Impact on Plans’ Incentives
Incentives have a powerful influence on patient care and health outcomes. They can be incorporated into the design of a plan, the workplace, the retail environment, and education and communities. To make the most of an incentive program, the plan must meet three criteria:
- It must offer a high-value choice.
- It must allow patients to shop around.
- It must be based on a clear definition of added value.
To have an impact on the healthcare system, plans should design incentives to encourage healthy behavior. They need to be logical to participants but not so complex that they discourage the desired behavior. In addition, incentives should be proportional to the value of the behavior change.
Health plans can encourage more consumers to use healthcare services by providing incentives to patients. For example, hospitals that offered large incentives to patients had higher outpatient revenue than hospitals without incentives. The plan must also provide simple tools to help patients become more educated healthcare consumers.