Risk Adjustment

In its broadest sense, risk adjustment is the practice of accounting for differences in enrollees’ health status and severity of needs to make fair comparisons across populations. Risk adjustment is a mechanism to compensate for differences among patients that may affect their health care outcomes. It is a way to level the playing field by accounting for illness, demographics and other factors that patients bring to a health care encounter. Risk adjustment is a statistical process that takes into account the underlying health status and health spending of the enrollees in an insurance plan when looking at their health care outcomes or health care costs. Risk adjustment seeks to level the playing field by discouraging adverse selection of members through a two-step process: Risk Assessment, which evaluates the health risk status of an individual to create a clinical profile; and Risk Adjustment, which estimates the resource utilization needed to provide medical care to an individual. In the private health insurance market, the risk adjustment program is designed to protect issuers that attract a high-risk population, such as those with chronic conditions. Under this program, money is transferred from issuers with lower-risk enrollees to issuers with higher-risk enrollees. This is a state-based program that applies to nongrandfathered plans in the individual and small group markets, inside and outside of Exchanges.