February 20, 2012

Using risk-adjustment strategies to navigate road to health care reform

A paper authored by Jonathan Weiner and colleagues from the Johns Hopkins Bloomberg School of Public Health, appearing in the Feb. 8 issue of Health Affairs, describes why health reform could lead to favorable or adverse risk selection across health plans.

The article reviews provisions within the Affordable Care Act legislation and discusses key risk-adjustment implementation issues for states establishing health insurance exchanges. The paper also presents results from a simulation using data from 5 million insured people to show how risk-adjusted transfer payments will be essential to help minimize selection bias across participating health plans.

“When setting payment rates for the private health plans that will insure consumers in each state’s health insurance exchanges, the differences in the medical needs of each enrollee group must be accounted for,” said Weiner, a professor in the Bloomberg School’s Department of Health Policy and Management. “If we don’t allocate more funds to plans enrolling sicker persons, the health insurance exchanges—and possibly health reform itself—could fail, as some health plans might go under, while others could experience large windfalls.”

States have a very tight timeline in which to form health insurance exchanges that will serve as the clearinghouses where millions of Americans will get access to health insurance, often with a federal subsidy. Much attention has been focused on getting the new exchanges up and running, but the premise of this article is that in the very near future, when the exchanges are functional, the strategies and tools they will use to pay the plans and transfer resources from plans with healthier enrollees to those with sicker ones will rapidly become a top issue.

The analysis in this article applied the Johns Hopkins ACG System, a diagnosis-based risk-adjustment methodology that is widely used in more than 15 nations and is being made available to state exchanges as a public service of the university. (For more information on the methodology, go to www.acg.jhsph.edu.)