The ACA directs the Secretary, in consultation with the states, to establish criteria and methods to be used in determining the actuarial risk of plans within a state. States Bortezomib Velcade electing to operate a risk adjustment program, or the Department of Health and Human Services (HHS) on behalf of states not electing to operate a risk adjustment program, will assess charges to plans that experience lower than average actuarial risk and use them to make payments to plans that have higher than average actuarial risk.
In 2014, the HHS risk adjustment methodology will be used in all states except one (Massachusetts). Without risk adjustment, plans that enroll a higher proportion of high risk enrollees would have to charge a higher average premium (across all of their enrollees) to be financially viable. Enrollees in health insurance plans differ in their expected cost, or risk, because of differences in their health status. Risk adjustment—if it functions as intended—allows a plan enrolling a higher proportion of high risks to charge the same average premium, other things being equal, as a plan enrolling a higher proportion of low risks. Because premiums vary less or not at all based
on enrollee health status, the focus of plan competition shifts from risk selection to quality, efficiency, and value. Risk adjustment (sometimes, especially in Europe, called “risk equalization”) is recognized domestically and internationally as a critical component of competitive health insurance markets. The Medicare Advantage program through which private plans provide health insurance to Medicare beneficiaries utilizes risk adjustment (Pope et al., 2004), as does Medicare Part D, through which prescription drug insurance is provided by private plans to Medicare beneficiaries (Kautter et al., 2012). Many state Medicaid programs engage in risk adjustment (Winkelman & Damler, 2008).
Several countries have introduced risk adjustment as part of their regulated private health insurance markets, including the Netherlands, Switzerland, Germany, Ireland, Australia, and South Africa Brefeldin_A (Armstrong, Paolucci, McLeod, & van de Ven, 2010; Schokkaert et al., 2006). Historically, risk adjustment has not been commonly used in United States private health insurance markets. The HHS-developed risk adjustment methodology is based on the premise that premiums should reflect the differences in plan benefits, quality, and efficiency, not the health status of the enrolled population. The risk adjustment program also serves to level the playing field inside and outside of Marketplaces, reducing the potential for excessive premium growth or instability in markets inside or outside of Marketplaces. The HHS risk adjustment methodology includes the risk adjustment model and the risk transfer formula (Patient Protection and Affordable Care Act, 2013).