Use LEFT and RIGHT arrow keys to navigate between flashcards;
Use UP and DOWN arrow keys to flip the card;
H to show hint;
A reads text to speech;
11 Cards in this Set
- Front
- Back
INTRODUCTION
Risk Adjustment is the process of adjusting payments to reflect the riskiness of the insureds. Uses of Risk Adjustment: |
Provider Reimbursement
Provider Profiling Transferring money between insurance companies ins cpys with safe enrollees must pay money to ins cpys with risky enrollees. Premium setting for Medicare+Choice HMO’s Underwriting / Reunderwriting A risk adjuster (risk assessment formula) is a formula which outputs a number representing the riskiness (expected medical claim cost) of a group. |
|
REASONS WHY RISK ADJUSTMENT IS NEEDED (THE GOALS OF RISK ADJUSTMENT)
|
To protect ins cpys from Guaranteed Issue and Community Rating regulations
To protect ins cpys’ solvency To discourage screening and avoidance of bad risks To encourage competition on the basis of efficiency To encourage competition in the small group and individual markets To facilitate comparison shopping by consumers To protect ins cpys from antiselection See numerical example in chapter notes |
|
THE STEPS IN RISK ADJUSTMENT
|
The two steps in Risk Adjustment are:
1. Risk assessment 1A. Risk Classification (dividing the insureds into classes) 1B. Risk Measurement (quantifying the claim cost level for each class) 2. Payment adjustment (based on the differences in risk, as measured in Step 1) |
|
1. Risk assessment
|
1A. Risk Classification
Demographics Claim / Utilization levels while insured Medical history Diagnosis codes prescription drug use Perceived health status (self-reported) Lifestyle / Behavior 1B. Risk Measurement Relative Risk Factors by Class Avg CC for the class relative risk factor = ——————————— Avg CC for the carrier Can be used for ratesetting, but cannot be used for risk adjustment Relative Risk Factors by Carrier Avg CC for the carrier relative risk factor for a carrier = ———————————— Avg CC for the market A carrier whose risks are average for the market would have a risk factor of 1.0. |
|
2. Payment Adjustment
|
Companies with risk factors < 1 must pay companies with risk factors > 1.
|
|
CHARACTERISTICS OF A GOOD RISK ASSESSMENT METHOD
|
A risk adjuster (risk-assessment method) must [be]:
Accurate in predicting claim costs Simple and Cheap to administer Use data that is routinely available Equitable Have industry support Mandatory to participate in Protect patient’s confidentiality Compensate insurers for risks, not innefficiency or poor contracting. Not subjective or discretionary. Cannot be gamed |
|
POSSIBLE RISK ASSESSMENT METHODS, AND CRITIQUES
|
Assessment Method Advantages Disadvantages
Demographics alone (age, sex, location) Objective Data available Simple Poor predictor of claim costs. Insurer’s claim costs Good predictor of future costs useful for large groups Could be inefficiency Subject to gaming New ins cpys have no data Pharmacy data Good predictor Data available drug use is influenced by physician practice Specified Medical Diagnoses; medical info A useful addition to other systems difficult to collect data loss of confidentiality Perceived health status or lifestyle factors This cell was intentionally left blank subjective can be gamed (by form of the survey) expensive to collect data (only good for small groups) A Combination More accurate than a single method Complicated / Expensive. |
|
MEASURING PREDICTIVE ACCURACY
(Testing the validity of a risk-assessment formula) Standard R-squared: |
Advantages:
a single number standardized to between 0 to 1, so can compare different studies Disadvantages: Overly sensitive to large claims |
|
Mean Absolute Prediction Error
= AVERAGE{ |A – E| } |
Advantages:
a single number not overly sensitive to large claims Disadvantages: not scaled to between 0 and 1. |
|
Cumming’s Prediction Measure
|
Mean Absolute Prediction Error
Cumming’s Measure = 1 – ——————————————————— Mean Absolute Deviation from Average where Mean Absolute Deviation from Average = AVERAGE{ |E – | } Advantages of Cumming’s Measure: All three. Disadvantages: None. |
|
Group Level Measures
|
Predictive Ratio = Egroup / Agroup.
close to 1 means the risk adjuster works well. The group studied can be: randomly chosen individuals a non-random group an employer group. Done. |