Risk adjustment: the missing piece of market competition

This DataWatch describes the process adopted by The Health Insurance Plan of California (The HIPC) for assessing and adjusting for health risk differences among participating health plans. We also report on the results of the 1996 risk assessment/adjustment calculations. A risk assessment value is calculated for each health plan based on the plan's enrollee mix as compared with the mix of enrollees in The HIPC as a whole. The results indicated that approximately 1 percent of total premium dollars needs to be transferred to bring all health plan scores within the acceptable level (+/- 5 percent) of risk distribution.