How the COVID-19 pandemic can distort risk adjustment of health plan payment

Area of Science:

• Health Economics
• Healthcare Policy
• Epidemiology

Background:

• The COVID-19 pandemic significantly disrupted healthcare utilization and spending patterns globally.
• These disruptions include both persistent changes (e.g., telehealth adoption) and transitory effects (e.g., postponed procedures).

Purpose of the Study:

• To analyze the implications of transitory changes in healthcare utilization and spending on health plan payment risk adjustment.
• To introduce a framework for understanding pandemic-related distortions in risk adjustment methodologies.
• To illustrate potential under- or overpayments for health insurers due to these distortions.

Main Methods:

• Development of a conceptual framework to analyze distortions in risk adjustment steps.
• Calibration of payment weights using risk adjusters.
• Calculation of insurer payments based on enrollee characteristics and calibrated weights.
• Hypothetical illustration of payment distortions.

Main Results:

• Transitory changes in healthcare utilization and spending can distort risk adjustment processes.
• Potential for under- or overpayment of health insurers depending on several factors.
• The magnitude of payment distortions is influenced by the pandemic's impact on utilization, risk distribution, insurer-specific effects, and system design.

Conclusions:

• Transitory healthcare utilization shifts necessitate careful consideration within risk adjustment models.
• Accurate risk adjustment is vital to ensure equitable health plan payments amidst pandemic-related disruptions.
• Future risk adjustment systems may need to account for pandemic-induced volatility in healthcare utilization and spending.