Medicare Risk Adjustment: Goals, Reform Proposals, And New Frontiers

Risk adjustment modifies payments to health insurers based on enrollee characteristics that are predictive of higher or lower medical spending. Risk-adjustment policy is a key ingredient for the success of regulated individual insurance markets in Medicare and beyond. Researchers have identified shortcomings of Medicare's current risk-adjustment system, illustrated the limits of coarse fixes, and proposed new strategies that improve the data and calculations used to generate beneficiary risk scores. This Perspective reviews the various goals of risk-adjustment policy and explains how proposed enhancements could further some of these goals. However, risk adjustment is a complex, high-stakes policy issue; success may require more fundamental reforms. Further progress may come from major investments toward research on plan payment design and the development and implementation of performance metrics for the risk-adjustment system. Policy makers should consider both policies implemented abroad as well as novel, exploratory models for reform.