The Future of Disability in America (2007) / Chapter Skim
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Appendix C Risk Adjustment of Insurance Premiums in the United States and Implications for People with Disabilities
Appendix C Risk Adjustment of Insurance Premiums in the United States and Implications for People with Disabilities
Pages 394-425
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From page 394... ...
Purchasers and payers include, in particular, public programs, such as Medicare and Medicaid, as well as large and small employer-sponsored group plans and individual insurance plans. The paper also evaluates the strengths and weaknesses of various risk adjustment methods, emphasizing their adequacy in setting payment for health plans that enroll people with disabilities.
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From page 395... ...
The financing mechanism is primarily fee for service; however, both Medicare and state Medicaid programs are attempting to expand managed care for people with disabilities. The Medicare Advantage program, authorized by the Medicare Modernization Act of 2003, continues Medicare's 1985 authority to contract with managed care plans.
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From page 396... ...
For many years state Medicaid programs, through federal waiver authorizations, have contracted with managed care plans to provide health care coverage for Medicaid beneficiaries. In nearly every case, managed care plans have been paid a risk-adjusted capitation.
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From page 397... ...
reported that for a number of state Medicaid programs designed exclusively for people with disabilities (non
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From page 398... ...
When individuals can choose among competing insurance plans, those who expect to use a lot of health care services will tend to be attracted to the more gen
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From page 399... ...
In traditional Medicare, acute-care services are paid for on a fee-for-service basis, unless the beneficiary chooses to enroll in one of a number of Medicare Advantage plans. These plans operate as insurance
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From page 400... ...
Although earlier studies -- which used limited methods and measures to assess the risk presented by beneficiaries -- found little or no risk selection (Eggers and Prihoda, 1982; Hill et al., 2002) , later studies, including those that used more direct and accurate risk assessment methods, found strong evidence of positive selection between Medicare health plans and traditional Medicare fee-for-service plans.
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From page 401... ...
also found evidence of risk selection. The study found that relative risk scores across competing plans in one state Medicaid program ranged from 0.70 to 1.36.
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From page 402... ...
. Many have also expressed the view that formal risk adjustment, such as that used by Medicare and many state Medicaid programs, may not be needed in the employer insurance market.
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From page 403... ...
One major example of such a situation was the demise of PacAdvantage, a small-group insurance pool in California. Consumer-Driven Plans In addition, with the advent of so-called consumer-driven products, such as health savings accounts or health reimbursement accounts, combined with health plans with high deductibles, employers are reducing their financial contribution for health insurance and shifting more of the cost of care to employees, primarily by increasing the deductible thresholds for standard benefit programs When products with high deductibles and health savings accounts are offered to employees along with traditional products with richer benefits, the risk selection opportunity appears to be raised substantially.
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From page 404... ...
Non-Group Insurance Small employers are dropping health insurance as fringe benefits at the same time that non-group-insurance options are, once again, being considered as a way of extending insurance to those who are not eligible for either public or employer-based insurance. Health plans competing in this market are particularly vulnerable to risk selection problems, for example, when people wait until they develop health problems to buy insurance.
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From page 405... ...
reported on strategies that state Medicaid programs employ with competing managed care plans that serve Medicaid beneficiaries. These include the use of risk corridors, risk pools, stop-loss reinsurance, and risk classification (risk adjustment)
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From page 406... ...
LESSONS FROM PURCHASERS WHO HAVE IMPLEMENTED HBRA FOR HEALTH PLAN PAYMENT What can we learn from the experience of those purchasers who have implemented HBRA for payment? The earlier-cited RAIS study included Medicare Advantage, six state Medicaid programs, a small-employer-group pool, and two state employee benefit programs.
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From page 407... ...
reported that they had considered using risk adjustment for their Medicaid programs. CMS has withstood significant plan resistance to changes in riskadjustment methods, but it did make some compromises.
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From page 408... ...
Achieving this would, in principle, make health plan managers less anxious about the risk of enrollees. In fact, such a perfect fit might very well lead managers to desire high-cost enrollees if they could enroll a stable actuarial number because these enrollees would bring much higher revenues per capita; they may also present plans with a greater opportunity to achieve profits by improving efficiency at the health care services level.
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From page 409... ...
has medical costs below the average per capita cost for the population as a whole, the funding allocation politics can be tricky. On a related theme, it is commonly found in competitive health plan markets that the majority of the plans have relatively positive risk compared with the risk for the pool as a whole, leaving only the one or two health plans with high-cost populations to advocate for better risk adjustment.
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From page 410... ...
Commonly Used Risk Factors Produce Different Levels of Payment Accuracy Prior Utilization as a Risk Factor An individual's prior utilization and related costs have historically been the most predictive of future costs. This has been the basis for what insurers call "experience rating." Demographic Measures as Risk Factors Analysts and purchasers have sought alternatives to simple prior utilization models because payments to health plans on the basis of members' past use of services creates a potential disincentive for plans to promote the prudent use of health care services.
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From page 411... ...
Diagnosis models included all inpatient diagnoses and the diagnoses for patients in ambulatory care settings and were implemented by a handful of public and private employers as well as some managed care programs and Medicare managed care from 1994 to 2000. The performance of the prominent risk adjusters was evaluated by SOA in 1995 and by other investigators (Dunn et al., 1995; Ellis et al., 1996; Fowles et al., 1996; Hwang et al., 2001; Ingber, 2000; Kronick et al., 1996, 2000)
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From page 412... ...
They have also consistently found a sufficient level of underprediction for the highest-cost segment of multiple populations, including those with disabilities, to raise continued concern about incentives for health plans to avoid high-risk individuals and to create barriers to access or services in mainstream insurance markets. Temkin-Greener and colleagues (2001)
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From page 413... ...
Mark and colleagues (2003) evaluated the predictive ratios for two diagnosis-based risk adjustment models and for one demographic model for a large employer-sponsored health plan.
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From page 414... ...
This included diagnosis codes from ambulatory care settings and all of the inpatient codes. This selected condition-based model improved the overall payment prediction by about 25 percent, a major gain in overall performance.
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From page 415... ...
However, as noted earlier, the use of past spending to set payments does nothing to encourage the prudent use of health services. Health status measures, such as diagnoses and prescriptions, are now predictors that are as good as prior use (Ash et al., 2000)
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From page 416... ...
1 THE FUTURE OF DISABILITY IN AMERICA Different health plans have different types of data problems. Staff model HMOs, which have historically had limited experience with fee-forservice billing, will have concerns about claims data completeness.
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From page 417... ...
Plans with payments that have been adjusted by purchasers by using diagnosis-based risk adjusters, such as those participating in the Colorado and Maryland Medicaid programs, have, in many cases, made significant improvements in collecting the more complete data needed to set plan-level payments accurately. For some purchasers, diagnosis data availability problems are such a concern that they substitute prediction models that are based on more easily obtained prescription data.
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From page 418... ...
1 THE FUTURE OF DISABILITY IN AMERICA yet clinically quite distinct, diseases with similar costs. A disease such as diabetes, on the other hand, has its own category in most of these methods, and payment is affected by coding for diabetes more specifically.
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From page 419... ...
For individual-level prospective models, the enrollee must be continuously eligible for 6 to 12 months in the assessment period, 6 to 18 months in the claims delay period, and 1 to 12 months in the payment period for a health plan to be paid for the risk of that enrollee. This continuous enrollment requirement can remove up to 40 to 50 percent of any currently enrolled Medicaid population from the clinical condition risk assessment (e.g., all new enrollees)
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From page 420... ...
This requires both a sufficiently large population and adequate data. Whether a user imports or calculates its own data, weights must be updated at regular intervals to account for changes in practice patterns, coding changes, and significant changes in benefit design.
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From page 421... ...
21 APPENDIX C collect and analyze the data. In addition, the payment model may require special calibration for the specific application or population.
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From page 422... ...
Usually, a theoretically pure premium rate-setting process attempts to avoid the inclusion of setting of care or services because of a concern of reinforcing the overuse of health care services or constraining creative innovation. However, for some applications, such as health plan integration of longterm care with acute care, the inclusion of setting of care or prior utilization markers may improve the accuracy of the rates because the care delivery patterns are so different when a beneficiary is in an institution than in the community.
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From page 423... ...
This has been a major problem for mental health services, which do require a licensed physician and are, to some extent, covered by both Medicare and Medicaid and for which, under managed care plans, utilization controls place limits on mental health services that are more restrictive. The variation in mental health costs for the Medicaid-covered portion for dually eligible mental health services is greater than that for other health problems, many of which are driven by Medicare coverage policy.
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From page 424... ...
Expenditures for care of children with chronic illnesses enrolled in the Washington State Medicaid program, fiscal year 1993. Pediatrics.
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From page 425... ...
Financial risk reduction for people with disabilities in Medicaid programs. Manag Care Q 2003;11:1–7.
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