Risk adjustment modeling for medical plans in the United States

Risk adjustment modeling for medical plans in the United States

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Speaker(s): Jed Linfield (Healthfirst)

Risk adjustment has replaced medical underwriting for individual and small group plans in the United States; every year, a revenue neutral transfer of funds to the government (CMS) is done from insurers with low risk to insurers with high risk. In addition, risk adjustment is used to determine premium amounts for Medicare Advantage plans in the USA.A major difference between Commercial and Medicare risk adjustment is that Commercial risk adjustment is prospective while Medicare risk adjustment is retrospective.

Factors in the modeling of risk adjustment include:

  • Disease
  • Age
  • Gender
  • Area
  • Eligibility (Medicare)/ benefit plan (Commercial)

Risk score maximization is based on increasing the number of diseases coded, since the other factors listed above are demographic and therefore fixed for a given member.For a given disease, there is a distribution of expected claim costs, with an initial assumption being that claims can be modeled using a lognormal distribution.In this presentation, we combine the stated risk adjustment factors with claim distributions to develop experience and financial forecasting models.Opportunities for revenue maximization, based on model results, are discussed.

An initial overview of the presentation is the following:

  • Introduction to pricing under risk adjustment
  • Examples of opportunity to improve risk score
  • Actuarial model of experience
  • Actuarial forecasting model

In addition, the presentation will discuss new legislation and its potential effect on actuarial pricing.

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