Risk Adjustment and Health Insurance

The Affordable Care Act calls for a risk adjustment program that aims to eliminate incentives for health insurance plans to avoid people with pre-existing conditions or those who are in poor health.  Risk adjustment ensures that health insurance plans have additional money to provide services to the people who need them most by providing more funds to plans that provide care to people that are likely to have high health costs. Insurance plans then compete on the basis of quality and service, and not on the basis of whether they can attract healthy people.

More competition leads to better coverage so that consumers—whether they are healthy or sick—can pick the plan that best meets their needs.  Health insurers that take good care of people with diagnoses such as cancer or heart disease will attract people with these diseases. Without risk adjustment, these insurers risk putting themselves out of business.  Risk adjustment is needed to allow insurers to prosper if they do a good job of attracting people in need of care. 

Health insurance programs that currently use risk adjustment—including Medicare and many state Medicaid programs—collect certain information about enrollees’ medical conditions so that they can estimate the potential that any given health plan will incur high costs.  This information is necessary for a successful risk adjustment program.  In fact, the American Academy of Actuaries recommends making medical condition indicators, such as diagnosis data, a key component of risk adjustment.

In a recently released proposed rule, CMS laid out several general options for collecting information to support risk adjustment, including an intermediate model in which States would collect information such as claims that are currently used for payment purposes.  Work has not begun on this project.

CMS does not propose that States collect personal data such as name, social security number or address for the risk adjustment program. Protecting an individual’s personal health information continues to be among CMS’s highest priorities. That is why CMS will not require States to collect your medical record or information that identifies your doctor; nor would the Federal government collect this information.

Comments on risk adjustment are welcome and should be submitted via regulations.gov.