Risk Adjusting Community Rated Health Plan Premiums: A Survey of Risk Assessment Literature and Policy Applications

Abstract

This paper surveys recent health care reform debates and empirical evidence regarding the potential role for risk adjusters in addressing the problem of competitive risk segmentation under capitated financing. We discuss features of health plan markets affecting risk selection, methodological considerations in measuring it, and alternative approaches to financial correction for risk differentials. The appropriate approach to assessing risk differences between health plans depends upon the nature of market risk selection allowed under a given reform scenario. Because per capita costs depend on a health plan's population risk, efficiency, and quality of service, risk adjustment will most strongly promote efficiency in environments with commensurately strong incentives for quality care.